Calculating and Reporting

Benefits of QMS

Iowa State University

of Science and Technology

Agriculture and Biosystems Engineering

Agriculture and Industrial
Technology
7/15/05
Objectives

 Identify potential benchmark measures

of cost/benefit of quality management
system adoption by agriculture.
 Set scope of the project
 Select summarizing fiscal indicator of
costs and benefits measures
Dual Roles for ISO 9000/9004

 QMS for fulfilling customer, regulatory,

etc., requirements (ISO 9000)
 “Management should consider
development of innovative financial
methods to support and encourage
improvement of the organizational
performance” (ISO 9004 – Guidelines
for performance improvements)
Allocation of Costs: Process Approach

 Early methods of tracking quality costs

was too limited “focus on cost of non-
conformance i.e. external and internal
failure costs”.
(Juran)

 Process-cost broadens economics of

quality by classifying cost of non-
conformance and cost of conformance
I.e. “costs incurred when a process is
running without failure”(Schottmiller)
Process Approach: Added Benefits

 Utilize cost of non-conformance (often

called Cost of Poor Quality) and cost of
conformance = greater cost saving
opportunities may be available in
reducing cost of conformance (Schottmiller)
Process Costing

 Allows the tracking and reduction of costs

normally associated with efficiency in
addition to effectiveness (quality)” (Schottmiller)

 Process simplification in addition to

reduction of errors become objectives
(Schottmiller)

 Relate the economics of quality to the

amount of activity performed (ISO/TR 10014: Economics of
Quality)
Process Costs i.e. Costs of Inefficient
Processes Examples
 Variation of product characteristics from
optimum
 Unplanned downtime and/or loss of
processing/storage capacity
 Inventory shrinkage
 Variation of process characteristics from ‘best
practices’ (cycle times from to start to finish of
activities)
 Other non-value added activities
 NOTE: Improvement is also an objective
Don’t Ignore Quality Failures

Cost of Poor Quality

Cost of non- Cost of conformity: Cost of lost

conformity: process approach opportunities for
Internal failure costs sales revenue
External failure costs

(Juran)
Internal Failure Costs Examples
 Labor and material overhead spent on
defective product – spoilage, defectives,
scrap etc.
 Correcting defectives in physical or service
products i.e. reworking product
 Sorting bad/good product
 Reinspection, retest of product
 Changing processes to correct deficiencies
(CAR’s)
 Downgrading product
(Juran)
External Failure Cost Examples

 Costs involved in replacing/making repair for

warranty product
 Investigation and adjustment costs to justified
complaints of quality defective product
 Returned material
 Concession costs due to substandard product
accepted by customer
 Correcting errors on external supporting
processes
 Revenue losses in support operations
(Gyrna)
Allocation of Costs

 The company must decide what to

measure depending upon
circumstances, objectives, etc.
However,
 The overall idea is to “allocate costs and
not to absorb such costs into overhead”
(ISO/TR 10014)
Deriving Benefits

 Reduction of failures due to QMS

 Improvement of process efficiencies due to
QMS
– Pre and post measures of implementation
 However, improvements should be done as
identified
– Using quality tools such as flowcharting, value add
analysis, cycle time reduction, process
simplification, root cause investigation, etc.
 Quality Improvement Examples
P ro gra m 1s t Piec e Run/ B inde r
J OB SET UP Binde r P r ogra m Tooling Mis sing Tooling Fix tur ing P ar t Se tup Ga gin g
A djus tm e nts Qua lity C he c k Adjus tme nts

Change sheets
S etup t ools for next Hardrive
Tool layout for collect ed (Jay/Dave);
Tooling j ob (based on tool P ut tools on cart updat ed f rom
next jobs program retreived
layout) f loor prog.
f rom f loor

Y Tool in N Tool on Tool in Adjust p rogram to Y

P ro gram N N Tool in Y OK t o Tool Y Mi ssi ng Y Gagi ng
G et bi nder f or Check f or program O perat or does tool Machine uploads to ol chain? Physically check tool Vi sual inspecti on of N m atch new tool; fill P ut tool in chain& get S etup part in Get gaging for part Run f irst pie ce on P ut binder at slot by
avai lable Load pro gram Check tool cart cart? chain? crib? use? available fixture, available
Ope ra tor next job on m achine layout data from program chain t ool program change fixture, jaws, et c. machine from t ooling m achine Engr. of fice
? (machine (visual) i n cri b? etc? ?
data) sheet & hi st ory form

Y Y Y N Y N N Y
N N

Fi nd
Ope r ator / Look for m issi ng missing Look f or gaging
S upe rv isor fi xture, ja ws, etc. part(s)?
Y Y
Y
N

Ope r ator / Fi nd N Find N S ubst - N F ind Y

Look for t ool in ot he r N
Get program f rom program ? tool? i tute tool? missing
Supe r vis or/ Rewrite prog ram m achines
ha rdrive gage(s)?
T ooling

N Wait ?
S che dular /
S upe rv isor

Pur c has ing Expedit e mi ssing

tool, fi xture, or gage

Update binder
Engine er ing from histo r
sheet ; f ile
binder

F irst piece
Ce r tifie d 1s t Pie ce
check
C hec k er

 Flow charting w/ value, non-value add

analysis
– Green – customer value added activity
– Yellow – ‘necessary evil’
– Red – non customer value added
Cycle Time Reduction
Department:____________________ Part Name:________________________ Date of Timestudy:_______________________
Supervisor:_____________________ Part #:____________________________ Measurer:______________________________
Operator:_______________________Operation:_________________________ Operator Tools:_________________________

 Stop watch time

Step Element Description 1 2 3 4 5 6 7 8 9 10 TOTAL # Avg S/E Mins

study common
 Also work sampling
 Better way to get
data w/o estimating?

Normal Minutes:
Foreign Elements: Performance Rating Data 10% PF&D:
A EP VP Poor Fair Avg Gd VG Exc Sup Standard Minutes:
SKILL: -20 -15 -10 -5 0 5 10 15 20 Hrs/Piece:
B EFFORT: -20 -15 -10 -5 0 5 10 15 20
Pcs./hour:
C Operator Average at Time of Study:
Machine Cycle:
D Comments:
Value Add Analysis
 Definitions
– Value added activity:
• only if the customer recognizes its value,
• it’s done right the first time,
• It changes the product toward something the customer
expects
– ‘Necessary Evil’ (operational value added activity):
• not customer value added but required through law,
regulation, or contract
• required to support value added activities
• technological barrier exists from eliminating activity
– Non value added activity:
• not valued by customer,
• doesn’t change product towards customer value
• not required by law, contract
Pareto Analysis (80/20 rule)
Baseline Data
9/2/03-9/9/03
100
1500

80

1000

Percent
60
Count

40
500
20

0 0

Defect
Count 403 329 168 162 121 120 72 55 39 38 26 23 23 26
Percent 25 20 10 10 8 7 4 3 2 2 2 1 1 2
Cum % 25 46 56 66 74 81 86 89 92 94 96 97 98 100
Root Cause Analysis
Why-Because Chart - 9/25/03

 Why-because KRPM Tooling-Red Team

diagram: ask ‘why’

Don't know what Tooling not returned No tooling inventory Load procedure
is in tool chain to crib after job updates not consistant

No trigger to Fixture loading Not paying

at least 5 times to
No spare tooling replenish tooling problem attention

Tooling breaks,
Operator error Going too fast
No tooling available Tool wear machine crashes

reach root cause Takes time to

change inserts
(binder descp.)
Take up to tool
room to measure
Running tool past
tool life
Fixture quality;
design

Lost time to tooling No standardized Most correct Want to hit higher

@ workcenter tooling Not enough tools measurements efficiency

Engr. not aware of Can't measure all

Programs change std. tools $$$ char. @ mach. 1 pre-setter
(program descp.)
Anyone can Same tool but diff. Tools disappearing Tools used on
change programs descriptions from chain other jobs

Try to change No compatible tool

program to match Same tool but diff. Too much lists btwn. Prod.
print lengths specialized tooling And Engr.

Lack of control over

Lengths changed tools descriptions

Tool setup diff. from

WPC's changed tool room

Manufacturer

Effect Cause specs. vary

Out of tolerance

Easy fix
Improvements Summary

 Point is to have active system of

improvement per ISO guidelines and
would bring more value to project and
study as a whole
 Question is: will it confound the
measuring of the ISO impact study?
Potential Benchmark Measures

“The organization can use a variety of

financial decision methods (e.g. net
present value, payback time, internal
rate of return) to decide whether to
proceed or not with a cost benefit
analysis”
(ISO/TR 10014:1998(E): Guidelines for
Managing the Economics of Quality)
Overall Fiscal Impact

 Roll up measures into a financial

indicator such as:
– Benefits/cost ratio:
present worth of total benefits
B/C=
present worth of total costs

If ratio is greater than 1, project deemed

worthwhile and vise versa
Overall Fiscal Impact con’t.

OR:
– Net present worth:

NPW=present worth of total benefits –

total worth of total costs

– Simple number; positive worth indicates

program is viable
– Both ignore time value of money; relative
to project not company as a whole
Data Collection and Analysis
 Statistical analysis of QMS impact, design study
based on answering some questions:
1. Important to answer implementing QMS vs. not
implementing?
 Larger scope, need control group, different
indicators
2. Does QMS implementation pay for itself? **
3. How do AIB vs. ISO systems compare?
4. What is QMS impact over time?
 Repeated measures
Regardless of above,
1. How to control location variation i.e. how were
present locations picked for QMS implementation?
Timeline
Timeline Questions

 What is finish date?

 How long does data collection last?
 What are the resources at hand?
Conclusion

 Answer questions of scope, design,

particular measures, summarizing fiscal
indicator(s), timeline
 Review relevant FC documents as
necessary