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Cost of Quality - Tej
Cost of Quality - Tej
INTRODUCTION
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P-A-F METHOD
The traditional P-A-F method suggested by Juran (1951) and Feigenbaum
(1956) classifies quality costs into prevention, appraisal and failure costs.
Prevention costs are associated with actions taken to ensure that a
process provides quality products and services, appraisal costs are
associated with measuring the level of quality attained by the process,
and failure costs are incurred to correct quality in products and services
before (internal) or after (external) delivery to the customer.
1. Prevention Costs are those associated with preventing defects before
they happen. This is a proactive approach to defect prevention rather
than defect correction and removes the idea of quality efforts essentially
being reactive in efforts to "put out fires." Prevention costs involve
investments aimed at getting work done right the first time and
preventing quality problems from ever coming up, as far as it is possible.
It is long-term strategy adopted by the organization for the continuous
improvement in their processes. The elimination of the rework goes
hand in hand with increase in quality, and decreases in schedule and
cost; this is the fastest, cheapest, and highest approach to building
software. They include:-
v Staff Training
v Requirement Analysis
v Fault-Tolerant Design
v Defensive Programming
v Usability Analysis
v Clear Specification
v Accurate internal communication
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v Wasted advertisements
v Direct cost of late shipment
v Opportunity cost of late shipment
v Retesting
v Material review
v Sales and discounts for inferior products
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CROSBY’S MODEL
The cost categories of Crosby’s model (Crosby, 1979) are similar to the P-
A-F scheme. Crosby sees quality as “conformance to requirements”, and
therefore, defines the cost of quality as the sum of price of conformance
and price of non-conformance (Crosby, 1979). The price of conformance
is the cost involved in making certain that things are done right the first
time and the price of non-conformance is the money wasted when work
fails to conform to customer requirements.
Figure 1: Classical view on the left and the modern view on the right
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No matter which quality costing approach is used, the main idea behind
the CoQ analysis is the linking of improvement activities with associated
costs and customer expectations, thus allowing targeted action for
reducing quality costs and increasing quality improvement benefits.
Therefore, a realistic estimate of CoQ, which is the appropriate tradeoff
between the levels of conformance and non-conformance costs, should
be considered an essential element of any quality initiative and a crucial
issue for any manager. A number of organizations are now seeking both
theoretical advice and practical evidence about quality related costs
and the implementation of quality costing systems.
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QUALITY
As stated by Will A. Foster, "Quality is never an accident; it is always the
result of high intention, sincere effort, intelligent direction and skilful
execution; it represents the wise choice of many alternatives."
Quality is something, which is complex and varies from one industry to
another. Quality needs to be model on the basis of customer need,
context of the market, industrial goals, system requirements etc.
Quality has many layers, and no universal definition will apply in every
case. Even the experts could not agree on single definition for the
quality.
Quality gurus have given definitions that cover the meaning of quality.
Some of them have been considered as the starting point to define
quality; for example the definitions given by Philip Crosby and Joseph
M. Juran. The experts disagree both on the definition of quality and
how to achieve it.
“Quality is the conformance to requirements.” Requirements must be
clearly stated so that people involved can clearly understand that. Then
in the development process, measurements are taken continually to
determine conformance to those requirements. The non-conformance
will be treated as absence of quality (or defect).
Or
“Quality of a good is its Fitness for use.” Customer requirements and
expectations involves whether the products or service fit for their uses.
Since the different customer may use the products in different ways, it
means that products must possess multiple elements of fitness for use.
Each of these elements is a quality characteristic and they can be
categories into two types that is quality of design and quality of
conformance.
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QUALITY MANAGEMENT
It is a method for ensuring that all the activities necessary to design,
develop and implement a product or service are effective and efficient
with respect to the system and its performance. Quality management
can be considered to have three main components:
1. Quality control
2. Quality assurance
3. Quality improvement.
Quality management is focused not only on product quality, but also
the means to achieve it. Quality management therefore uses quality
assurance and control of processes as well as products to achieve more
consistent quality. Quality Management is all activities of the overall
management function that determine the quality policy, objectives and
responsibilities and implement them by means such as quality control
and quality improvements within a quality system.
The International Organization for Standardization (ISO) created the
Quality Management System (QMS) standards in 1987. These were the
ISO 9000, ISO 9001, ISO 9002 and ISO 9003which all were 1987 series of
standards comprising which were applicable in different types of
industries, based on the type of activity or process: designing,
production or service delivery. The standards have been regularly
reviewed every few years by the International Organization for
Standardization. The version in 1994 and was called the ISO 9000:1994
series; comprising of the ISO 9001, 9002 and 9003. The last revision was
in the year 2000 and the series was called ISO 9000:2000 series.
However the ISO 9002 and 9003 standards were integrated and one
single certifiable standard was created under ISO 9001:2000. Since
December 2003, ISO 9002 and 9003 standards are not valid, and the
organizations previously holding these standards need to do a
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transition from the old to the new standards. The ISO 9004:2000
document gives guidelines for performance improvement over and
above the basic standard (i.e. ISO 9001:2000). This standard provides a
measurement framework for improved quality management, similar to
and based upon the measurement framework for process assessment.
The Quality Management System standards created by ISO are meant
to certify the processes and the system of an organization and not the
product or service itself. ISO 9000 standards do not certify the quality
of the product or service.
Recently the International Organization for Standardization released a
new standard, ISO 22000, meant for the food industry. This standard
covers the values and principles of ISO 9000 and the HACCP standards.
It gives one single integrated standard for the food industry and is
expected to become more popular in the coming years in such industry.
ISO has a number of standards that support quality management, one
group describes processes (including ISO 12207, ISO 15288) and
another describes process assessment and improvement ISO 15504.
The Software Engineering Institute has its own process assessment and
improvement methods, called CMMi (Capability Maturity Model -
integrated) and IDEAL respectively.
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Auditing processes
Micrometers, voltmeters,
Equipment poor-quality automated test equipment
cost (but not equipment used to
make the product)
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diagnose the problem. Fixing the defect in the next release does not
avoid the cost; it only defers it, while aggravating the customer.
For those defects that are deemed to be significant, the costs can be
staggering. The developer must rework the design or code or develop a
patch, QA must test the fix to be sure it works and it did not cause
unforeseen problems, and finally, it must be installed at the customer
site to fix their particular problems. It is easy to see why the research
shows that the cost of the average defect found by the customer is 50
to 100 times higher than those found in-house.
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Activity Cost of
Quality Effectiveness
v Personal Reviews (PSP reviews) Appraisal
v Walkthroughs Appraisal
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COMPANY REFERRED
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Prevention Cost
Quality System Audit Cost 9,000
Calibration Cost 5,000
Supplier Development Cost 3,000
Total Prevention Cost 17,000
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Customers:
ABB Harig Rane TRW
ABI Showa Tech
Hindustan Hydraulics Simpsons
Ashok Leyland Int. Combuston UT
Bosch Knorr Voltas
BHEL Komatzu Vickers
Bajaj Tempo L & T Veljan
Brakes India LML Wipro
Delphi Automotive Systems Lincon Hellious
Dantal Mahindra & Mahindra
Eicher New Holland
Escorts Oscar
Hegglunds Royal Enfield
Contact at:
Head Off. & Plant
B-70, Industrial Area, Phase-VII,
Sector-73, Mohali-160055(India)
Contact person:
Mr. Ajay Gupta
(Senior Executive Finance & Accounts)
Mobile No. : 987266288
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Products:
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1. Prevention costs
2. Appraisal costs
Prevention Costs
Appraisal Costs
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Proportions of Costs
The estimates of proportion of these four quality costs are given below:
v Preventive costs: $1
v Appraisal costs: $10 (if you are not interested in investing $1
on preventive costs)
v Internal failure costs: $100 (if you are not interested in
investing $1 on preventive costs)
v External failure costs: $1000 (if you are not interested in
investing $1 on preventive costs)
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Cost of Quality
Particulars Amount
Internal Quality Cost
Costs related to scrap 298563
Waste-Discrepancies in quantities (Inventory Correction) 23987
Salary of Quality Department 312543
Man Days Salary 265432
Rework Cost 234198
Unplanned Sorting Inspection 765490
Repeat Inspection and Test
Estimated Cost of Rejected Piece 3476542
Cost of Consumables 548767
TOTAL 10810096
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Cost of
Rework & 0 875 0 0 0
Warranty
Cost of
1931 3211 1064
Consumabl 9 2
9796 9675
0
es
600000
Cost of Poor Quality (09-10)
500000
400000
300000
200000
Rs.
100000
0
Apr.'09 May'09 Jun.'09 Jul.'09 Aug.'09 Sep.'09 Oct.'09 Nov.'09 Dec.'09 Jan.'10 Feb.'10 Mar.'10
Cost of Rejection 419800 481700 404000 465100
Cost of Rework & Warranty 0 875 0 0 0
Cost of Consumables 19319 32112 9796 9675 10640
Total 439119 514688 413796 474775 10640 0 0 0 0 0 0 0
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Gilco Export Ltd. Was founded in 1978 with a vision to emerge a global
supplier of metal based fabricator of a wide range of product. The
company’s commitment to the highest standard of quality and its
ability to innovate over three decades, has seen it flourish to become
the leader in manufacturing with business lines that focuses on:
Gilco Quality
The quality of products at Gilco Exports Ltd. is determined by stringent
processes and systems that ensure highest standards of quality from
early stages of production. The company’s quality department ensures
that these processes support standard. in the procurement of raw
material, error profiling and proofing, best methods for checking
product defects and regular quality audits. A step-by-step methodology
for quality assurance is followed to ensure that quality driven products
are effectively packaged and shipped to customer in a timely manner
resulting in zero defect deliveries consistently over the last several
years.
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