ITM 8 QUALITY CONTROL MODULE 2

MODULE 2

QUALITY IMPROVEMENT; QUALITY COST; QUALITY AND

PRODUCTIVITY

Quality Improvement

The primary goal of quality improvement is to improve outcomes. Quality

improvement as one component of the performance management system, which has three
defining characteristics: It uses data for decisions to improve policies, programs, and outcomes.

Quality improvement (QI) is a systematic, formal approach to the analysis of practice

performance and efforts to improve performance. A variety of approaches—or QI models—
exist to help you collect and analyze data and test change.

Approaches to Quality Improvement

In health care, quality improvement (QI) is the framework we use to systematically improve the
ways care is delivered to patients. Processes have characteristics that can be measured, analyzed,
improved, and controlled. QI entails continuous efforts to achieve stable and predictable process
results, that is, to reduce process variation and improve the outcomes of these processes both for
patients and the health care organization and system. Achieving sustained QI requires
commitment from the entire organization, particularly from top-level management.

Diming’s Philosophy in Quality Improvement Methodologies

1. “Create constancy of purpose towards improvement.” Think long-term

planning, not short-term reaction.
2. “Adopt the new philosophy.” Management as well as the workforce should
actually adopt this philosophy.
3. “Cease dependence on inspection.” If variation is reduced, there is no need
for inspection since defects (errors) will be reduced or eliminated.
4. “Move towards a single supplier for any one item.” Multiple suppliers mean

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variation.
5. “Improve constantly and forever.” Focus on continuous quality
improvement.
6. “Institute training on the job.” Lack of training leads to variation among
workers.
7. “Institute leadership.” This draws the distinction between leadership, which
focuses on vision and models, and supervision, which focuses on meeting
specific deliverables.
8. “Drive out fear.” Management through fear is counterproductive and
prevents workers from acting in the organization’s best interests.
9. “Break down barriers between departments.” Eliminate silos. All
departments are interdependent and become each other’s customers in
producing outputs.
10. “Eliminate slogans.” It is not people who make most mistakes—it is the
process in which they are working.
11. “Eliminate management by objectives.” Production targets encourage
shortcuts and the delivery of poor-quality goods.
12. “Remove barriers to pride of workmanship.” This leads to increased worker
satisfaction.
13. “Institute education and self-improvement.”

14. “The transformation is everyone’s job.”

Guides through effective continual service improvement.

The PDCA Cycle

This cycle is a management approach developed by Edwards Deming and results in
improved quality, increased productivity, and results in a more competitive position. This cycle
is also known as the Deming cycle. This cycle is used in many industries and areas in business
for controlling and measuring results and then acting based on the results to produce a better
output in later steps or trials.
The basis of the PDCA cycle is a four-part quality lifecycle. And these actually constitute
the Acronym of the PDCA cycle: Plan, Do, Check and Act. This cycle may be used to improve,

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for example, an online ordering service or the Service Level Management process within an
organization.

The 4 Activities of the PDCA Cycle

Plan
The first step of the PDCA cycle is planning the improvements. In this step, measures for
success are agreed. Gap analysis is undertaken and a plan is produced to close the gap through a
series of step improvements.
The plan is referred to as Project plan because, at this step, gaps are analyzed and
improvement points are determined and actions that will be followed are defined. 

Do
The second activity of the PDCA cycle will be Do which refers to the implementation of
improvements. A project is initiated and conducted to implement any steps needed to close the
gaps identified in the Plan phase. The project may include a number of step changes to improve a
service or process.
Do is referred to as Project because, at this step, the plan generated in the first step is
executed to improve and reach the targets. 

Check
The third activity of the PDCA cycle is Check. Check is more accurately described
as Monitoring, Measuring and Reviewing. The results of the implemented improvements are
compared with the measures for success identified and signed off in the Plan phase.
The check is referred to as Audit because, at this step, outputs after implemented actions
are measured and the results are compared to baseline or previous measurements.

Act
The fourth and the last activity of the PDCA cycle is Act. Improvements are
implemented in this step. The improvements that have been identified are fully implemented. .
Act is referred to as New Actions because, at this step, if the implemented actions could
not succeed in reaching the targets, new actions are taken.
The Model for Improvement

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COST OF QUALITY

Cost of quality (COQ) is defined as a methodology that allows an organization to

determine the extent to which its resources are used for activities that prevent poor quality, that
appraise the quality of the organization’s products or services, and that result from internal and
external failures. Having such information allows an organization to determine the potential
savings to be gained by implementing process improvements.

WHAT IS COST OF POOR QUALITY (COPQ)?

Cost of poor quality (COPQ) is defined as the costs associated with providing poor quality
products or services. There are three categories:

1. Appraisal costs are costs incurred to determine the degree of conformance to quality
requirements.
2. Internal failure costs are costs associated with defects found before the customer receives
the product or service.
3. External failure costs are costs associated with defects found after the customer receives
the product or service.

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Quality-related activities that incur costs may be divided into prevention costs, appraisal costs,
and internal and external failure costs.

1 Appraisal costs

Appraisal costs are associated with measuring and monitoring activities related to quality.
These costs are associated with the suppliers’ and customers’ evaluation of purchased materials,
processes, products, and services to ensure that they conform to specifications. They could
include:

 Verification: Checking of incoming material, process setup, and products against agreed
specifications
 Quality audits: Confirmation that the quality system is functioning correctly
 Supplier rating: Assessment and approval of suppliers of products and services

2. Internal failure costs

Internal failure costs are incurred to remedy defects discovered before the product or service
is delivered to the customer. These costs occur when the results of work fail to reach design
quality standards and are detected before they are transferred to the customer. They could
include:

 Waste: Performance of unnecessary work or holding of stock as a result of errors, poor

organization, or communication
 Scrap: Defective product or material that cannot be repaired, used, or sold

 Rework or rectification: Correction of defective material or errors

 Failure analysis: Activity required to establish the causes of internal product or service
failure

3. External failure costs

External failure costs are incurred to remedy defects discovered by customers. These costs
occur when products or services that fail to reach design quality standards are not detected until
after transfer to the customer. They could include:

 Repairs and servicing: Of both returned products and those in the field
 Warranty claims: Failed products that are replaced or services that are re-performed
under a guarantee

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 Complaints: All work and costs associated with handling and servicing customers’
complaints
 Returns: Handling and investigation of rejected or recalled products, including transport
costs

4. PREVENTION COSTS

Prevention costs are incurred to prevent or avoid quality problems. These costs are
associated with the design, implementation, and maintenance of the quality management system.
They are planned and incurred before actual operation, and they could include:

 Product or service requirements: Establishment of specifications for incoming materials,

processes, finished products, and services
 Quality planning: Creation of plans for quality, reliability, operations, production, and
inspection
 Quality assurance: Creation and maintenance of the quality system
 Training: Development, preparation, and maintenance of programs

COST OF QUALITY AND ORGANIZATIONAL OBJECTIVES

The costs of doing a quality job, conducting quality improvements, and achieving goals must be
carefully managed so that the long-term effect of quality on the organization is a desirable one.

These costs must be a true measure of the quality effort, and they are best determined
from an analysis of the costs of quality. Such an analysis provides a method of assessing the
effectiveness of the management of quality and a means of determining problem areas,
opportunities, savings, and action priorities.

Cost of quality is also an important communication tool. Philip Crosby demonstrated

what a powerful tool it could be to raise awareness of the importance of quality. He referred to
the measure as the "price of nonconformance" and argued that organizations choose to pay for
poor quality.

Many organizations will have true quality-related costs as high as 15-20% of sales
revenue, some going as high as 40% of total operations. A general rule of thumb is that costs of
poor quality in a thriving company will be about 10-15% of operations. Effective quality
improvement programs can reduce this substantially, thus making a direct contribution to profits.

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The quality cost system, once established, should become dynamic and have a positive impact on
the achievement of the organization’s mission, goals, and objectives.

Cost of Quality Example

QUALITY AND PRODUCTIVITY

Quality surely is not just a product or merchandise, but also a service sector or
service. Productivity (Productivity) is a ratio or comparison between the INPUT and OUTPUT
in the activity results in a product or service.
After companies determine customer needs, they must concentrate on meeting those needs by
yielding high quality products at an efficient rate. Companies can improve quality and
productivity by securing the commitments of all three levels of management and employees as
follows:
 Top‐level management: Implement sound management practices, use research and
development effectively, adopt modern manufacturing techniques, and improve time
management.
 Middle management: Plan and coordinate quality and productivity efforts.

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 Low‐level management: Work with employees to improve productivity through

acceptance of change, commitment to quality, and continually improving all facets of
their work.

Productivity is the relationship between a given amount of output and the amount of input
needed to produce it. Profitability results when money is left over from sales after costs are paid.
The expenditures made to ensure that the product or service meets quality specifications affect
the final or overall cost of the products and/or services involved. Efficiency of costs will be an
important consideration in all stages of the market system from manufacturing to consumption.
Quality affects productivity. Both affect profitability. The drive for any one of the three must not
interfere with the drive for the others. Efforts at improvement need to be coordinated and
integrated. The real cost of quality is the cost of avoiding nonconformance and failure. Another
cost is the cost of not having quality—of losing customers and wasting resources.

As long as companies continually interact with their customers and various partners, and
develop learning relationships between all levels of management and employees, the levels of
productivity and quality should remain high.

The relationship of quality and Productivity

Basically, the main purpose of a business is to make a profit or not. To increase the
company's profit or advantage, the simplest and most first ideas or proposals appear was to
improve productivity. It is not always appropriate.

The following example picture of why improving productivity is not the appropriate option
on certain conditions.
Example:

The company "X" is an electronics manufacturing company. That produces DVD Player,
every day the company produces as much as 1000 units with an average level of defective
(disable) is 5%. To increase Profit, the company management decide to increase productivity by
up to 10%. Which means that every day the company must produce the 1100 units.

The decision increases the Productivity by adding a number of Production Outputs makes.  It the
company's employees’ pressure (stress) and fear. But because it is a policy and instructions from
the management, the employees are still trying to fulfill them.

However, the level of damage cause by the product can increase from the previous average of
5% per day. To an average of 12% per day. This means that every day there are 132 units
(corrupt). Even and good products that are ready to be ship to the customer is just 968 units only.
The numbers are only slightly higher 18 units or more of the previous condition (950 units).

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Analysis
Increase productivity will not be accompanied by process control and improvement. The degree
of damage will be higher so that the result is often not expect by a management company.

On the other hand, it will always be able to produce an increase in productivity. For example, the
"Y" Company produces 1000 units of DVD players per day with an average level of defective
(damage) is 5%. This means that each day. There were 50 units of handicap and 950 units both
ready to be sent to the Customer. The management of the company is always striving to improve
quality.

Review
According to the management company "Y", the rate of defective (damage) that reaches 5% it is
a cost that needs to be avoid. When process control can be improve, a number will increase so
that it can generate profits for his company.

For greater clarity, the following calculations are base on the example above:

The Company "X"

Before a request to raise 10% After a request to raise the

Productivity productivity of 10%
The Rate Of Defective (Disabled) 5% 12%
The number of produced 1000 1100
The number of Defective
50 132
(disabled)
A good amount of (GOOD) 950 968

The Company "Y"

Before Improving The Quality After Improving The Quality

The Rate Of Defective (Disable) 5% 2%
The number of produce 1000 1000
The number of Defective (disable) 50 20
A good amount of (GOOD) 950 980

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Let's see the difference on the results of the company "X" and "Y". The company "Y" was
instruct to add 10% Productivity instead of generating the amount of output. Both were lower
than the company "Y" which improves its quality.

Conclusion

The example above is only an overview of how quality improvements can affect productivity in
production.

Management of the company should be able to find a way to balance the increase in quality and
productivity. Too stress the increase productivity will sacrifice quality which ultimately will also
lower production output.

While the quality of productivity will be improve, it will also give rise to high operating costs.
Therefore, it has improve quality and productivity without compromising one of them.

The company will enjoy advantages such as cost of goods Production is lower, reducing the cost
of repeat jobs (rework costs), improving customer satisfaction (Customer Satisfaction) and surely
achieving Profit (Profit).

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