Assignment 2

Quality Planning and Management

Declaration: No Plagiarism

The key issue is insufficient margin to maintain profitability for this product. The company
overall performance is affected.

1. Analyse the cost of quality data, tabulate into the 4 correct categories.
 2. What can be done for this product?
3. What lessons can be learnt for new product to be developed and propose your
recommendations.

As we can see from the Table above, Cost of Quality is over 20% of sales (22.77% to be exact), excluding
Raw Material cost, Labour Cost, Selling & General Administrative and Research& Development cost.
We can see that it is a significant amount and has rooms for improvement, as Juran recommended,
usually the Cost of Quality is around (15 to 30% of sales). However, we can see that for this product
raw material takes up a large percentage of sales, 58%, which may be due to the niche market it is
serving. According to American Society of Quality, the general rule of thumb is that costs of poor
quality in a thriving company will be about 10 to 15 percent of operations.

To possibly increase the margin to maintain profitability of the product, in the view of the Cost of
Quality, we can see that the largest component of this cost is due to Internal Failure, mainly accounting
for around 64% of the Cost of Quality. Hence, to bring down the Cost of Quality, it is imperative that
we target this area. Specifically, as we can see form the table, Repair & Rework takes up a significant
portion of the Internal Failure Cost – 57% of the cost is due to Repair & Rework.

Similar to the issue above, we can see that Material Scrap and Product Warranty, Repair and
Management are the second and third highest cost of quality. This is similar to the above, with the
issues belonging to the Internal & External Failure Cost of Quality, which indicates the high instance
of non-conformance in quality, resulting in many work-in-progress (WIP) scrapped in the process and
significant amount spent on Repairs. At the top-level management should have the commitment and
enforce the minimization of cost of quality and quality improvements, with all functional departments
engaged. This time round, management could also possibly increase the cost of Prevention &
Appraisal, to decrease failure cost, reaching the Optimum minimum cost of Quality. This may translate
to better quality product and lesser scraps and rework, given that appropriate tools for quality are put
in place with the increased emphasis on prevention and appraisal for quality.

Management should take Cost of Quality into serious consideration by having all these quality checks
and precaution in mind while developing the new product, which may improve their profit margin.
Also, having the Total Quality Management Philosophy enforced by the Management, down to every
level, having the TQM mindset in each and every employee to put quality as the top priority.

Reference
What is Cost of Quality (COQ)? | ASQ. (2019). Retrieved from https://asq.org/quality-resources/cost-
of-quality