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Cost of Quality Simulation Report

Name

Course

Date
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Cost of Quality Simulation Report

Challenge #1

Control charts help organizations examine the stability of processes based on variable
data. The purpose of Challenge #1 was to simulate daily production and creating control
charts, i.e., x-bar and R. X-bar chart illustrates the average change of processes as time passes
whereas the R chart illustrates the range of the processes over time (Tesfay & Tesfay, 2021).
Both the x-bar and R chart are important to use together to demonstrate change in mean and
variation of processes using data samples collected over time. Figure 1 below shows the
control charts for the completed simulation.

Figure 1: Control (x-bar and R) charts for simulation outcome

As shown from Figure 1, both the x-bar and R chart have control limits, which
describe the limits of what a process can produce. Processes are stable, i.e., they are in
control, when they fall within the control limits. For example, the processes shown in the x-
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bar control chart are all within the control limits, indicating that they are stable, whereas one
process is just outside the upper control limit in the R-chart.

Challenge #2

The purpose of this challenge was to use the control limits calculated in Challenge #1
to determine whether or not the process is in control; if not, either recalibrating the equipment
or making a labor substitution to bring the process back in control. The goal was to identify
the best way to minimize the number and cost of internal and external defects while keeping
the process in control.

Firstly, the simulation was run without making any intervention, i.e., no labor
substitutions and no equipment recalibrations. Figure 2 below illustrates the simulation’s
outcome. As shown, the total cost amounted to exactly $13,753.10 and there were over 3,000
total defects. Furthermore, the process was out of control 17 times, which is a bad indicator.

Figure 2: Simulation outcome (without adjustments)

Making adjustments is costly, but it improves the quality of the process. As shown in
Figure 2, the lack of any adjustments resulted in the process deviating out of control 17 times
while the cost was significantly very high, i.e., approximately $14,000. Consequently, several
adjustments were made to try and reduce the overall costs. Figure 3 underneath demonstrates
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the simulation outcome that yielded the lowest cost of internal and external defects while
keeping the process in control. Adjusting the labor substitution was necessary whenever there
was assignable variation on the R chart while equipment recalibration was adjusted whenever
there was assignable variation on the X-Bar chart. Consequently, the adjustments reduced the
total cost to approximately $2,937, which is significantly lesser than the costs without any
adjustments. Furthermore, making adjustments ensured that the process remained stable, i.e.,
it was out of control only 1 time and had 535 defect, of which 2 were discovered internally.
Therefore, even though it is costly, it is vital to make adjustments to keep processes in control
while improving quality.

Figure 3: Simulation outcome (with adjustments)

Challenge #3

Specification limits are those that are based on the requirements and expectations of
the end-client. When the processes fall within the range of the upper and lower specification
limits, then it satisfies the client’s requirements and expectations (Ravichandran, 2019). At
the same time, when the range falls outside the upper and lower specification limits, then it
does not satisfy the client’s intended requirements.
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Figure 4: Excel process capability (Cp or Cpk) calculations

 Company A: the process mean is centered between the specification limits, which
means that the calculation should be process capability (Cp). The value is greater than
1, i.e., 2.0833. Therefore, the process is capable of meeting expectations.
 Company B: the process mean is centered between the specification limits, which
means that the calculation should be process capability (Cp). The value is less than 1,
i.e., 0.0499. As a result, the process is not capable of meeting expectations.
 Company C: the process mean is not centered between the specification limits, which
means that the calculation should be process capability index (Cpk). The value is less
than 1, i.e., 0.4859. As a result, the process is not capable of meeting expectations.
 Company D: the process mean is not centered between the specification limits, which
means that the calculation should be process capability index (Cpk). The value is
greater than 1, i.e., 1.1540. As a result, the process is capable of meeting expectations.

Challenge #4

The purpose of this challenge was to experiment with various investments in

prevention, including labor training, new equipment, and switching suppliers. Figure 5
underneath demonstrates how the lack of any investment results in more costs for the
organization, especially caused by defects found by consumers. Making investments is an
expensive venture, but it is the better option considering the costs that accompany not making
any investments.
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Figure 5: Simulation outcome without any investments

Figure 6: Simulation outcome after making investments

As illustrated in Figure 6, making investments improves the quality of the process.

For example, larger and more frequent inspections increase appraisal costs, but provide more
opportunities to detect defects internally. Unlike the scenario where no investments resulted
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in huge expenses caused by defaults, increasing frequency with which samples are taken and
inspected significantly reduced costs, including eliminating any costs from defects found.
Furthermore, investing in equipment and suppliers reduced the overall cost, resulting in the
best total cost of quality, i.e., $10.4k. therefore, making the right investment, i.e., knowing
what to select and what to trade off improves the quality of the process and minimizes the
cost of quality.
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References

Groebner, D. F., Shannon, P. W., & Fry, P. C. (2018). Business statistics: A decision-making
approach. Pearson.

Kotz, S., & Johnson, N. L. (2017). Process capability indices. Chapman and Hall/CRC.

Ravichandran, J. (2019). A review of specification limits and control limits from the
perspective of Six Sigma quality processes. International Journal of Six Sigma and
Competitive Advantage, 11(1), 58-72.

Tesfay, Y. Y., & Tesfay, Y. Y. (2021). Process Control Charts. Developing Structured
Procedural and Methodological Engineering Designs: Applied Industrial
Engineering Tools, 155-185.