TQM And Cost Issues

A Practical Approach
 Performance Measures
• Managing an organisation without
performance measures is like captain of a
ship navigating without instrumentation.
The ship most likely end up in circles , as
would an organisation. Measures play a
vital part in the success or failure of an
organisation.
 Objectives
• Performance Measures are used to
achieve one or more of the following
objectives :
• Establish baseline measures and reveal
trends
• Determine which process need to be
improved
• Indicate process gains or losses.
• Compare goals with actual performance
• Provide information for individual and team
evaluations
• Provide information to make informed
decision.
• Determine the overall performance of the
organisation.
• There are five basic techniques for
Performance Measures . These are
• Time series graph
• Control charts
• Capability index
• Taguchi’s loss function
• Cost of poor quality
 Quality Costs
• The value of quality must be based on its
ability to contribute to profits. The goal of
most organisations is to make money.
Hence income and expense are of
important consideration.
• The efficiency of a business is measured
in terms of money , in most of the cases.
•
• The cost of poor quality can add to the
other costs used in decision making.,such
as maintenance,production,design,
ionspection,sales,and other activities.
• It can be measured ,budgeted,and
analysed to help attaining the objectives of
better quality and customer satisfaction at
lesser cost.
• Quality costs cross department lines by involving
all activities of the organisation –marketing,
purchasing, design, manufacturing, and service,
to name a few.
• Quality costs are those costs associated with the
non achievement of product or service quality as
defined by the requirements established by the
organisation and its contracts with customers
and society.
 Management Techniques
• Quality costs are used by management in
its pursuit of quality improvement
,customer satisfaction, market share, and
profit enhancement. This the basic data for
TQM.
• When quality costs are too high , it is sign
of management ineffectiveness, which can
effect company’s competitive position.
• A quality cost programme quantifies the
magnitude of the quality problem in the
language that management understands –
i.e Money.
• Quality costs identify opportunities for
quality improvement and establish funding
priorities by Pareto Analysis. Find vital few
from trivial many.
• There are four primary quality cost
categories :
• Prevention
• Appraisal
• Internal failure
• External failure
 Preventive cost Category
• The prevention costs of poor quality have
been defined to include cost of all activities
specifically designed for this purpose.
• Marketing/Customer/User. Costs are
incurred in the accumulation and
continued evaluation of customer and user
quality needs and perceptions affecting
uswer satisfaction with organisation’s
product or service.
• Product/Service/Design development.
Costs are incurred to translate customer
need into reliable quality standards.
• Purchasing : Costs are incurred to assure
cdonformance to requirements of supplier
parts ,materials,or processes and to
minimise supplier non conformanceon the
quality of delivered products or services.
• Operations: Costs are incurred in assuring
the capability and readiness of operations
to meet quality standards .
• Quality Administration : Costs are incurred
to assure appropriate administrative
services.
 Appraisal Cost Category
• The first responsibility of a quality
management system is assurance of the
acceptability of product or service as
delivered to customer.
• This category has the responsibility for
evaluating a product or service at
sequential stages from design to delivery.
• Purchasing appraisal cost: These costs
can generally be considered as the costs
incurred for the inspection and /or test
purchased supplies or service to
determine acceptability for use .
• Operations appraisal cost : These costs
can generally be considered as costs
incurred for inspections,audit,etc.
• External appraisal cost: Suppose there is
a need for a field trial for a customer which
costs money will fall in this category.
• Review of test or inspection data : Costs
are incurred for regular reviewing before
shipment etc.
•
 Internal failure cost Category
• Whenever quality appraisals are performed
there is chance that failure may occur to meet
requirements . e.g. Whenever a lot of over sized
metal parts are rejected the possibility for
rework must be evaluated first.
• Then the cost of rework vs. cost of scrapping
may be evaluated for a decision.
•
• Product or service design failure costs
( internal ) : These are basically design
inadequacies. Design corrective action
costs money .
Purchasing failure costs : costs are
incurred due to purchased items rejects.
 External Failure cost category
• This category includes all costs incurred
due to actual or suspected nonconforming
product or service after delivery to the
customer.
• Complaint investigation of customer :
Costs due to investigating,
resolving,issues with the customers.
• Returned goods costs :Cost of repairing or
replacing
• Warranty claims: This includes the total
cost of claims.
• Liability costs : Liability claims
• Penalties : Costs incurred because of less
than full product or service performance.
 Analysis
• Trend analysis
• Pareto analysis