Change, Technology and Quality

As aptly put by a Renaissance philosopher, "There are only 3 permanent things in this
world- death, taxes, and change." Chang is here to stay.
● Change is the genesis of quality management
● Change is precipitated and amplified by technological advancements in electronics,
biogenetic engineering, physics, and other fields of modern science. Because of the
incessant changes in the business environment, people and customers have re-created
their needs necessitating adjustments in the way businesses are done.
● Change is triggered by technology germinated by inventions and discoveries, which in
turn, are crafted by needs.
There is change because a need is not yet satisfied. And to satisfy that need, quality becomes a
necessity.
In this world of disruptive changes and awesome technological advances, customer satisfaction
is more than ever the prime business objective of profit. In meeting sophisticated customer
demands, utmost efficiencies and productivity must be applied and improved. Errors, wastes,
and delays must be eliminated and avoided and customer relations must be intensified to
eradicate customer complaints. In this way, customers are delighted.

Serve the customer…The King!

Customers are classified as External or Internal.

External Customers - outside users of the organization’s products
Internal Customers - those whose products or services are delivered within the organizational
activities.

Along the process, departments serve either as suppliers to, or customers or, other
departments. For example, the timekeeping department is the supplier of time tickets to the
payroll department, which in turn is the supplier of payroll register to the accounting department.
Consequently, the accounting department is the supplier of payroll vouchers to the cash
department, which is the supplier of cash and payroll sheets to customers.

Customers, both internal and external, should be satisfied as to their needs and wants. A delay
or inaccuracy in delivering an internal business service would create a snowball effect in
causing an ultimate delay in delivering a service to an external customer. Delay is one of the
most vicious enemies of quality environment.

In Search of Excellence
A Bias for Action: Modern organizations prioritize taking action and making decisions swiftly
rather than getting stuck in analysis paralysis. This fosters a culture of innovation and
adaptability.
Close to Customer: This principle emphasizes the importance of understanding and meeting
customer needs directly. Modern organizations leverage technology and data to gather insights
and maintain close relationships with their customers.
Autonomy and Entrepreneurship: Encouraging autonomy allows employees to take ownership
of their work and promotes an entrepreneurial mindset within the organization. This can lead to
creative problem-solving and initiative-taking.
Productivity Through People: Modern organizations recognize that their employees are their
most valuable asset. By investing in their development, providing support, and fostering a
positive work environment, productivity can be maximized.
Hands-on Value Driven: This principle highlights the importance of focusing on delivering value
to customers and stakeholders. Modern organizations prioritize tangible results and outcomes
that directly contribute to the organization's mission and goals.
Stick to the Knitting: Essentially, this means staying focused on what the organization does best
and not getting distracted by unrelated ventures or activities. Modern organizations emphasize
specialization and leveraging core competencies.
Simple Form, Lean Staff: Keeping organizational structures and processes simple and
streamlined helps modern organizations stay agile and efficient. This reduces bureaucracy and
enables quicker decision-making.
Simultaneous Loose-Tight Properties: This principle involves striking a balance between
allowing flexibility and autonomy within certain boundaries or guidelines. Modern organizations
aim to provide freedom for creativity and innovation while ensuring alignment with overarching
goals and values.

5 S’s
The 5S principle is a foundational concept in Japanese management, particularly in
manufacturing and operations environments. It is a systematic approach to organizing, cleaning,
and maintaining a workplace to improve efficiency, safety, and productivity. The 5S system is
used widely in industries such as manufacturing, logistics, and healthcare, and serves as a
basic building block for methodologies like Lean and Kaizen. Here's an overview of the five
components of 5S:
1. Sorting out (in japanese term, Seisu) This step involves sorting through all items in
a workspace or area to determine what is necessary and what can be removed. The goal is to
eliminate clutter and free up space by discarding, recycling, or relocating items that are not
needed for the work process.
2. Systematic arrangement (Seiton) - Once unnecessary items are removed, this step
focuses on organizing the remaining items logically and efficiently. Everything should have a
designated place, and tools and materials should be easily accessible. Labels, signs, and color-
coding are often used to help with organization.
3. Spic and Span or sweep (Seiso) This step involves cleaning the workplace and
equipment to maintain a tidy and safe environment. Regular cleaning routines help to identify
problems early (like leaks or wear) and create a sense of pride among employees in their
workspace. Cleaning not only physically but also intrinsically, in terms of organizational culture
and values.
4. Standardizing (Seiketsu) Standardization ensures consistency in how the workplace
is organized and maintained. This step involves establishing guidelines, procedures, and
schedules for ongoing 5S activities, ensuring that everyone understands and follows the same
standards.
 5. Self-discipline (Shitsuko) The final step is about sustaining the 5S process over
time. This involves fostering discipline among employees, promoting continuous improvement,
and integrating 5S principles into the organization's culture. Regular audits, training, and
employee engagement are crucial for sustaining the 5S approach.
By implementing the 5S principles, companies can improve workflow, reduce waste, enhance
safety, and create a more organized and efficient workplace, leading to increased productivity
and quality.

QUALITY COSTS
Quality costs refer to the total costs incurred to guarantee that the products or services
meet customer expectations and comply with quality standards. (*opens Quality Costs folder*)
These costs can be categorized into conformance costs and non-conformance costs.

Conformance connotes precision. And precision means an error-free environment. Thus,

conformance costs are the costs associated with ensuring that a product or service meets a
certain quality standard. There are two main types of conformance costs: prevention costs and
appraisal costs.

Prevention costs are incurred to prevent defects from occurring. This includes activities such
as design engineering, supplier accreditation and management, employee training, and
equipment maintenance programs. By investing in prevention activities, companies can reduce
the likelihood of defects from happening.
Appraisal costs are incurred to detect defects before they reach customers. This includes
activities such as product testing, statistical quality control techniques, and systems audits.
While these activities are essential to assure that products or services meet quality standards,
they can, however, be costly and time-consuming.

Non-conformance costs, on the other hand, refer to the expenses incurred due to products or
services not meeting quality standards. There are two main categories of non-conformance
costs: internal failure costs and external failure costs.

Internal failure costs are incurred when defects are found before delivery to the customer. This
includes costs such as repairs, rework, and retooling changes. These costs can arise from
mistakes in the manufacturing process or issues with quality control.

External failure costs are incurred when defects are identified by customers after delivery.
This includes costs such as product warranty claims, recalls, and replacements. External failure
costs also encompass the costs related to product liability, which involves correcting errors or
defects that have led to legal issues or customer complaints.

In conclusion, prevention and appraisal costs are considered costs of good quality, while
internal and external failure costs are considered costs of poor quality. Spending more on
prevention and appraisal costs usually leads to a reduction in internal and external failure costs.
Proper management of quality costs is necessary in order to achieve high-quality products or
services and improve overall profitability.

QUALITY COST REPORT

As discussed earlier, conformance and non-conformance costs need to be fully identified to get
the best quality that the company could offer. Here is an example of a Quality Cost Report that
specifies the quality costs from the point of research and development to post-customer service
phase.

In the table, G. Juan Corporation presented their 2-year quality cost report. For year 1,
conformance costs under prevention costs include design engineering amounting to 550,000 for
year 1 and 900,000 for year 2. To get their percentages, assuming that the total net sales of the
corporation reached 40,000,000, therefore we simply divide the amount of each cost: 550,000
over the net sales 40,000,000 to get 1.38% as well as the 2nd year - 2.25%.

The same process applies to other costs; suppliers’ accreditation, employee training, and
equipment maintenance. Sub-total for year 1 amounted to 1,430,000 with 3.58% and 2,900,000
for year 2 with 7.25%.

For the appraisal costs it includes Inspection and Testing, Depreciation of testing equipment as
well as supervision of testing and inspection with a total of 550,000 for year 1 and 960,000 for
year 2. We will simply add the two categories under conformance costs and we will get a total
for year 1 of 1,980,000 with 4.95% and 3,860,000 with 9.65%. We can notice that the total
accumulated cost and percentage in year 2 is much higher than year 1, then we can safely
assume that they put greater effort in the prevention and appraisal stage in the 2nd year.

Next, for the non-conformance costs under internal failure costs we have rework costs, tooling
changes, and downtime for a total of 1,920,000 in the first year and 670,000 in the second year.
For the external failure costs, we have warranty costs, field servicing, and lost contribution
margin with a total of 2,700,000 for year 1 and 1,050,000 for year 2. Now we add the subtotals
under each category to get the total non-conformance costs. For year 1 we have 4,620,000 with
11.55% and 1,720,000 for 4.30%. The total costs and percentage in both years has greatly
declined with a total net decrease of 7.25%.

And finally, for the total quality costs, we will add both the conformance and non-conformance
costs to get the total of 6,600,000 for year 1 with 16.50% and 5,580,000 for year 2 with 13.95%.

The increase of conformance costs in year 1 to year 2 caused a significant decrease in non-
conformance costs from 11.55% to 4.30%. This reduction has an inverse effect wherein due to
quality improvements, more inspection, and thorough maintenance and development, the total
quality cost declined from 16.50% to 13.95%. However, the optimum quality cost is reached
when total conformance cost equals the total non-conformance costs.
The purpose of increasing and decreasing both costs is to reduce the cost of errors, customer
complaints, and dissatisfaction. We know that prevention is better than cure, therefore, we
should focus on reducing the failure costs by improving our efforts and intensifying prevention
costs. Errors are less costly when prevented rather than detected and remedied.

LIFE CYCLE ANALYSIS

Quality costs are then traced managed and over the life cycle of an activity or process.
(*opens the folder: life cycle analysis*) The life cycle costing has five stages that estimates and
determines the total cost of a product over its life cycle namely pre-infancy, infancy (or start-up
stage), growth stage, expansion stage, and maturity or decline stage.
The product life-cycle costing is related to quality-based business cycle premised on the
proposition that quality starts from "effective listing to customers" from research and
development, to design engineering, production, marketing, channels of distribution and
customer services as seen in this folder. (*shows second folder: strategic business cycle*)