Cost Of Quality

IEEM 663 - Process Re-engineering

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Mohammed Alghamdi 2201863
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Saeed Alqarni 2201861
 Cost of Quality Report for Saudi Plastic Factory Company

Introduction

Saudi Plastic Factory Company (SPF) is a home furnishing and furniture wholesale

company located in Riyadh, Saudi Arabia. The company has approximately 650 employees

with an annual sales average of $96.18 million (Saudi Plastic Factory Company). SPF was

launched and incorporated in 1962 and dealt with plastic products manufacturing, furniture,

and home furnishing merchant wholesaling. The company is dedicated to providing the most

satisfying plastic solutions and quality services to its customers and improving the lives of

people in the Gulf Cooperation Council. Therefore, customer satisfaction, integrity, being

environmentally friendly, and professionalism are the company's core values. The company's

primary role is to manufacture plastic household articles for packaging for detergents,

lubricants, chemicals, food catering, personal and hygiene products. However, the company

has put several measures to enhance quality and minimize losses with an up-to-date

management system and a well-equipped quality assurance lab to enhance quality services.

Although the cost of quality does not represent company performance measures, it is essential

in the firm's management as it is an instrument of evaluating quality and the potential of

increasing a company's profit. Therefore, this report presents the cost of quality on SPF using

the PAF model, which represents prevention, appraisal, and failure costs to determine the

company's measures to enhance quality.

Prevention Costs

Organizations use the cost of quality methods to determine how various organization

resources are used to prevent poor quality in products produced and impacts of internal and

external factors. However, Saudi Plastic Factory utilizes prevention costs to avoid and

prevent quality issues. The company's preventive costs are associated with product designs,

maintenance, and implementation of quality management systems (Reda & Kanan 2169).

Quality assurance plays a role in maintaining quality systems within Saudi Plastic Factory

and, more importantly, training employees and other stakeholders on the cost of the quality

production process within Saudi Plastic Factory. Training on preparation, development, and

maintenance programs reduces the costs of failures and poor quality. It is advantageous to the

company to avoid costs on poor quality. The company plans these costs before the operations

and involves quality planning and assurance, product and service requirements, and training.

According to Mordor Intelligence Report, in 2020, the Saudi Arabian plastic packaging

market was $8.89 billion and was projected to be $11.93 by 2016 with a CAGR of 5.6%

(Modor Intelligence). The report indicates that companies such as SPF create additional

functionalities of EVOH films used in packaging in items like food, which successfully

retains food properties and prevents contamination dyeing shipments. These preventive

strategies have enabled SPF to produce quality products and increase customer demands on

its products.

The preventive costs incurred reduced costs on poor quality and put SPF at a

competitive advantage from companies like Sealed Air corporation, ASPC, and Napco

Group. The preventive costs optimize the production process of the companies as well as

eliminate hazards. Studies indicate that Saudi Plastic Factory reduces the appraisal and failure

costs by increasing the quality of designing and planning. They ensure that the planning and

designing reduce the failures and increase the performance, leading to high-quality
production and customer satisfaction (Cheah & Amirul Shah 65). Reda and Kanan explain

that most plastic companies in Saudi Arabia enhance a proper review of new products

through quality management, ensuring that the new products produced by the company meet

the quality standards to prevent losses and poor quality (Saudi Plastic Factory Company).

SPF establishes specifications for all the incoming processes, materials, finished products,

and services meeting the product and service requirements. The company also creates plans

for reliability, options, quality, production, and inspection, enhancing quality planning (Reda

& Kanan 2170). Therefore, providing quality products would be less costly for the company.

Appraisal costs

Appraisal costs at Saudi Plastic Factory assess, measure and monitor all quality-

related activities associated with customers' and suppliers' evaluation of the materials

purchased, processed, and the products and services that conform to specifications. SPF uses

appraisal costs to enhance quality by enhancing the updated management system and

equipping the quality assurance for proper monitoring. The company involves R&D in the

development of solutions and adapting to the customers' technical demands (Saudi Plastic

Factory Co.). Therefore, SPF enhances appraisal costs through a verification process where

they check all the incoming processes, materials, products, and services with the required

specifications avoiding losses resulting in poor quality. Reda and Kanan explain that

appraisal costs result from measuring, evaluating, and auditing products and materials,

determining the conformance and conditions to specifications (Reda & Kanan 2169).

Besides, Saudi Plastic Factory uses these costs of indication and testing all the

incoming materials and processes to enhance the quality, reducing the losses. Therefore,

appraisal costs are essential in enhancing the quality of production. R&D plays a good role in

product development to help customers get highly manufacturable products. They use CAD

software to ensure the best product design for professional development which they develop
solutions for their customers through the use of all the viable resources (Saudi Plastic Factory

Co.). Therefore, appraisal costs enhance the cost of quality through measuring, assessment,

and monitoring of the performance of the company.

Failure costs

Most firms strive to enhance good qualities in the production by adding the internal

and external factors of the company through the cost of quality. Failure costs are also part of

the total cost of quality divided into internal and external failure costs. Saudi Plastic Factory

has utilized these costs to prevent failures of operations within the company. For instance, the

company incurs internal failure costs while remedying the effects on the products before

delivering them to the customer. The employees and quality management team regularly

examine the products produced to identify the defects and correct them before delivering to

customers, which improves the brand image and maintains its customers. Singh et al. explain

that some of the internal failure costs for packaging companies like Saudi Plastic Factory

include waste when the firm holds stick due to errors, poor communications, poor

organization, and unnecessary work (Singh et al. 846). SPF incurs costs on scrap where they

produce defective products which cannot be recorded, used, or sold. They also inquire on

failure analysis to establish the causes of internal failures on products production, which

helps in the direction of defective material through ratification and rework.

Reda and Kanan explain that external failure occurs due to adjusting, returned

products, liability, warranty charges, and allowances after the products have been delved to

the consumer (Reda & Kanan 2176). The 2020 annual reports indicate that Saudi Plastic

Factory has increased these costs after retailers and consumers identified defects o its

products. Therefore, the company incurs expenses on servicing repairs of the products in the

field and those returned.

 Failure
(35%) Failure
Cost of Analysis 40% Save
Appraisal
Quality
(25%)

Error
Prevention 20%
(40%) Elimination Reduced errors

15% Minimized errors

Resources

Building in
Quality 22% Increased prevention
Process
Analysis
Base
workload Improved
Basic
Method Process
Improvement

No. of Years

Figure 1: PAF chart (source; Research findings, 2022)

After analysis of prevention, appraisal, and failure costs, the findings indicate that

prevention costs were the highest by approximately 40% of that quality costs, followed by

failure costs which was 35%, and lastly, the appraisal costs, which was 25%. However, after

utilizing the failure analysis with consistent identification of defects and correction, the SPF

reported a 15% decrease in internal and external failure, an 18% decrease in prevention costs,

and a 10% decrease in the appraisal costs, hence saving 43% of the costs on quality. See

figure 1 above.
Conclusion

In conclusion, the report on the cost of quality for Saudi Plastic Factory indicates that

the company has utilized preventive, appraisal, and future costs to ensure that the profit

provided to consumers prefer have the ability for better performance. These costs have

enabled the company to expand and grow in Saudi Arabia due to the increased number of

customers. The revenue generated by the company is high with increased profit-making, it is

a better company in dealing with plastic products. The company integrates the cost of quality

with the management performance evaluation to enhance the quality and profitability of the

company eliminating the costs of poor quality that may result in product defects and loss of

customers as it could damage the consumer relationships, the brand image, financial costs,

and operations costs.

 Works Cited

Cheah, Soo‐Jin, and Amirul Shah. "Tracking hidden quality costs in a manufacturing

company: an action research." International Journal of Quality & Reliability

Management (2011

Modor Intelligence. SAUDI ARABIA PLASTIC PACKAGING MARKET - GROWTH,

TRENDS, COVID-19 IMPACT, AND FORECASTS (2022 - 2027). 2022.

https://www.mordorintelligence.com/industry-reports/saudi-arabia-plastic-packaging-

market-market.

Reda, Hussein, and M. Kanan. "Quality Cost in Saudi Arabia Plastic and Glass Industry." Ind

Eng Manage 7.242 (2018): 2169-0316.

Saudi Plastic Factory Co. SPF established since 1962 and with many varieties of plastic

molding technologies at Riyadh & Jeddah;. 2017. http://www.spf-sa.com/.

Saudi Plastic Factory Company . SAUDI PLASTIC FACTORY COMPANY. 2022.

https://www.dnb.com/business-directory/company-

profiles.saudi_plastic_factory_company.fd452890db717e2fabcf730dd6af3a33.html.

Saudi Plastic Fcatory Company. Company Overview. 2022. https://www.dnb.com/business-

directory/company-

profiles.saudi_plastic_factory_company.fd452890db717e2fabcf730dd6af3a33.html.

Singh, Suman, Kirtiraj K. Gaikwad, and Youn Suk Lee. "Phase change materials for

advanced cooling packaging." Environmental Chemistry Letters 16.3 (2018): 845-

859.