REDUCE COST OF POOR QUALITY AT AUSTIN ENGINEERING

COMPANY LTD .

Project report submitted to the

Gujarat technological university
For award of the degree
Of

Master of Business Administration

by

BHARADVA SONAL G
BHAVSAR JAY S

Under the guidance of

Prof. Pratik Gandhi

CC GARDI SCHOOL OF MANAGEMENT

GARDI VIDYAPITH RAJKOT
DECEMBER, 2011
1

CONTENTS

Content

Page no
1

Title Page
Abstract

Chapter-1
Introduction

Review of Literature
Objectives

13
15

Research Methodology

16

Chapter-2
Chapter-3

ACKNOWLEDGEMENT

We are glad to take this practical training at Austin engineering co ltd. We would like to thank
Mr. N.C vadam for giving for permission to take training at this very well reputed bank. Also we
would like to thank for giving us permission as well as guidance throughout the training period.
Further, we would like to thank Mr. Amit Joshi for giving me training and directing me during
training period to increase my skill and talent. We would like to thank to entire staff for their
support and co-operation.
We would like to thank my guide prof. Pratik Gandhi and Dr. Sunil Misra for his moral support
& guidance during the project.
We would like to express our deepest gratitude towards our parents, family members and friends
for their constant inspiration and motivation which helped us to complete this project report.

Date:
Place:

Signature of the Student

DECLARATION
3

I certify that
a. The work contained in the project report is original and has been done by myself under the
general supervision of my supervisor.
b. The work has not been submitted to any other institute for any degree or diploma.
c. I have followed the guidelines provided by the institute in writing the report.
d. I have conformed to the norms and guidelines given in the ethical code of conduct of the
institute.
e. whenever I have used materials (data, theoretical analysis, and text) from other sources, I have
given due credit to them by citing to them in the text of the report and giving their details in
the references.
f. Whenever I have quoted written from other sources, I have put them under quotation marks
and given due credit to the sources by citing them & giving required details in the references.

Signature of the student

ABSTRACT

Systematic reductions in the Cost of Poor quality can be attained by implementing a Quality
Management System that provides an integrated and closed loop corrective action process. In a
manufacturing organization, when deviations, nonconformance, out of specifications, quality
incidents or customer complaints occur, corrective and preventive actions need to be initiated to
remedy the problems.
Once a quality problem has been identified, the first step is to initiate an investigation and to
properly identify the root cause of the problem. After the root cause has been identified,
Corrective Action items are created and routed for approval. When These changes may include
amendments to a documented procedure, upgrading the skill set of an employee through a
training and certification process, or recalibrating the manufacturing equipment.

The main objective is to solve the problem is to how to reduce the cost of poor quality. For this
research primary data has been collected with the help of questionnaire by taking review of
consumers in the market. For the purpose of research, non-random sampling (convenience
sampling) technique has been used.

KEYWORDS: poor quality, customers and quality costing

CHAPTER - 1

INTRODUCTION
Improving quality is considered by many to be the best way to enhance customer satisfaction, to
reduce manufacturing costs and to increase productivity. Any serious attempt to improve quality
must take into account the costs associated with achieving quality, since nowadays it does not
suffice to meet customer requirements, it must be done at the lowest possible cost as well. This
can only happen by reducing the costs needed to achieve quality, and the reduction of these costs
is only possible if they are identified and measured. The identification itself is not
straightforward because there is no general agreement on a single broad definition of quality
costs.
However, according to Dale and Plunkett (1995), it is now widely accepted that quality costs are
the costs incurred in the design, implementation, operation and maintenance of a quality
management system, the cost of resources committed to continuous improvement, the costs of
system, product and service failures, and all other necessary costs and non-value added activities
required to achieve a quality product or service.
Measuring and reporting these costs should be considered a critical issue for any manager who
aims to achieve competitiveness in todays markets. There are several methods that can be used
to collect, categorize and measure quality costs.

QUALITY
DEFINITION OF QUALITY
6

How is quality defined? It is interesting to observe how its definition varies according to the
particular emphasis of quality activities. Juran (1964) defines quality as fitness for use. Crosby
(1979) describes quality in terms of conformance to requirements.
Deming (1986) says that quality is concerned with the present and future needs of the customer.
For Feigenbaum (1983) quality is to do with the combined product characteristics of engineering
and manufacture that determine the degree to which the product will meet the expectations of the
customer. Taguchi (1986) defines quality as the loss a product causes society once it has been
shipped, apart from any losses caused by its intrinsic functions.
According to ISO 8402 (International Organization for Standardization, 1986), quality is the
totality of features and characteristics of a product or service that have a bearing on its ability to
satisfy
Stated or implied needs.
Recently, the most widely used definition is that of ISO 9001 (2000). It says that a quality is a
characteristic that a product or Service must have.

ACTIVITIES OF QUALITY
In the manufacturing industry, activities concerned with quality can be divided into six stages:
1. Product planning: planning for the function, price, life cycle, etc. of the product concerned.
2. Product design: designing the product to have the functions Decided in product planning.
3. Process design: designing the manufacturing process to have the functions decided in the
product design.
4. Production: the process of actually making the product so that it is of the designed quality.
5. Sales: activities to sell the manufactured product
7

.
6. After-sales service: customer service activities such as maintenance and product services.

KEY POINTS IN QUALITY IMPROVEMENT PLANNING:

Quality improvement efforts should be continuously carried out Based on the followed key
points:
1. The variation of product quality characteristics from their target values should be
reduced. Taguchi views quality improvement as an ongoing effort to reduce variation
from the target value. The primary aim of quality improvement is to achieve a population
distribution as close to the target as possible. To accomplish this, the SN ratio is adopted.
2. The product and the process should be designed so that they are minimally sensitive to
noise factors. Taguchi uses experimental designs as a tool to make products robust to
noise factors, and to reduce the effects of variation on product and process quality
characteristics. He especially uses constructed tables known as tables of orthogonal
arrays in which he allocates the noise factors to the outer array, and the design factors
to the inner array in the parameter design. Classical applications of experimental design
focused primarily on optimizing average product performance characteristics rather than
considering effects on variation.
3. In designing the product and the process, the optimal levels of design factors should be
determined to minimize the cost under the condition that the given quality tolerance from
the targets are met for each quality characteristic concerned. To achieve this objective,
tolerance design is often used.
4. Earlier, we defined quality engineering as an interdisciplinary science which is concerned
with producing satisfactory products for customers while reducing the total cost. If we
use the major concepts of Taguchis quality engineering, we may define quality

engineering as an effective system of engineering management to minimize the total loss

of products to society through off-line and on-line quality control activities.

Company profile

Austin Engineering Company Limited (AEC) is an ISO/TS 16949:2002 certified manufacturer of widest
range of ball & roller bearings and its components in India without any foreign collaboration, located near
9

Junagadh in Gujarat State. Founded by five technocrats as a partnership firm in 1973, today the Company has
developed into a Public Limited Company, with full array of high quality and precision bearings for different
applications.
Rapid development and flexible manufacturing system along with effective global delivery network enables
us to deliver quality products with shorter lead time and competitive prices.

Perfection is a process - every time you reach the top, aim higher.
At AEC, we believe in two things: the power of innovation and the sheer force of focus. Ever since our
inception in 1973, we have continuously upgraded our skills, our production capacities, our
infrastructure and our services. From an outfit of 10 workers, that manufactured cylindrical roller
bearings and deep groove ball bearings with an outside diameter of up to 50 mm, we are today a global
force in the bearings industry. Today, we manufacture almost the entire range of anti-friction bearings
up to an outside diameter of 1000 mm.
We provide perfect solutions to the demand for top quality, precision engineered bearings with

top-of-the-line engineering with highest standards

thorough knowledge of applications and fitments

wide range of products in almost any quantity

truly effective global delivery network

Our Strengths
Rapid development and flexible manufacturing system enable us to meet most of our customers' needs.
Batch size is not at all a constraint to us for developing as well as manufacturing, if the same is
production-wise feasible for both, new and developed bearings.
10

We export our bearings to developed countries like the USA, UK, and European Union countries. At
the core of AEC technical advancement is the involvement of the top management, which itself
endeavors and supports new developments. We are driven by the belief that Indian technology has
come of age and is now well on its way to taking its place under the sun of global excellence.

PRODUCT RANGE

Single Source for Bearings

We manufacture over 4000 size/types of bearings used in several industrial segments and are constantly
adding more items to our current wide range to cater to all your rolling element bearing needs. Our
engineering is backed by a strong R&D, quality assurance, testing and gauging team and our customers
have seen the value of this investment in every single bearing we manufacture.
Search our catalogs for the bearings you need and if you do not find the bearing, contact us to have it
developed if it meets our quantity and cost criteria. We truly want to be your single most source.
Our product range includes:

Ball Bearings

Cylindrical Roller Bearings

Needle Roller Bearings

11

Tapered Roller Bearings

Spherical Roller Bearings

Flexible Roller Bearings

Super Precision Bearings

Special Purpose Bearings

QUALITY ASSURANCE
Quality is a result of our commitment to our work. At AEC we focus on ensuring best-in-class quality
through

Commitment and investment in continuous R&D

Facilities for measuring, monitoring and improving process performance

Well entrenched HR program to provide adequate training

Our bearings are designed, developed and engineered using professional CAD and 3D Modeling tools
by our skilled engineers and are backed by our highly experienced technocrat founders. Our products
are made from high quality bearing steel from industry approved vendors with optimum dimensional
stability. The geometry and profile are in accordance with the international standard for the highest
quality. Our stringent quality assurance system has earned the company the following quality
certifications from TUV Rheinland, Germany:

ISO/TS 16949:2002

ISO 9001:2000

CHAPTER-2
12

LITERATURE REVIEW

Working systematically with variance reduction as the Japanese had done for a prolonged period
(Bergman and Klefsj, 2003). Together with Bill Smith, Mikel Harry and Richard Schroeder, he
created an improvement program that was given the name Six Sigma. According to Basu (2004),
Bill Smith came up with the idea of inserting hard-nosed statistics into the blurred philosophy
of quality. The program was inspired by Japanese work, but also strongly influenced by Jurans
thoughts. Due to Six Sigma, Motorola managed to reduce their costs and variation in many
processes and were an inaugural winner of Americas Malcolm Baldrige National Quality Award
in 1988. They reported a profit from the program of USD 700 million for 1991 alone (Bergman
and Klefsj, 2003). Another example is the Volvo Car Corporation in Sweden who claim that
their Six Sigma programme has contributed with more than 55 million Euro to the bottom line
between 2000 and 2002 (Magnusson et al., 2003).
According to Deming (1986) quality is uniformity with respect to a correct target. Quality in the
construction industry is evaluated according to design & specifications given in the contract
therefore quality would be the ability to meet the requirements as per contract. There can also be
some implied requirements like no disturbance to the general public, wild life and environment
etc.Cost of quality is a measure of costs associated with achievement or non-achievement of
required outcome of a project, as agreed in contract between a contractor and its employer (Nat
R Brisco and Frank M Gryna). Juran (1951) has suggested that the cost of quality can be
understood in terms of the economics of the end-product, quality or in terms of the economics of
the conformance to standards. Quality and profitability are directly proportional; high quality
level in procedures, processes, input materials, human resource and management etc results in
lowering of overall cost (no rework, no wastage), it thereby increases profitability. Quality
should be built in, as they say do it right the first time(Carl Spetzler et al-2006).

13

Cost of Quality (COQ) analysis enables organizations to identify, measure and control the
consequences of poor quality. The major goal of a COQ approach is to improve the bottom-line
by eliminating poor quality (Mohandas and Sankara-2008). Understanding the cost of quality
concept is extremely important in establishing a quality management strategy. Quality costs are
not simple arithmetic sum of factory operations. The support processes like maintenance and
human resources are also major contributors. The major quality costs are contributed by
incapable support processes. Such costs are hidden in the standards and can be avoided but the
problem is that no clear responsibility has been fixed for action to reduce them. COQ, after its
recognition can be reduced through structural approaches (Retnari Dian et al -2010).

Costs of quality are defined as the sum of costs over the lifecycle of a product. Customers prefer
high quality products or services at a reasonable price. Firms should invest on prevention and
appraisal costs to ensure that customers would have value of their money by receiving good
quality products or services. It is a tradeoff between the prevention & appraisal costs and the
failure costs to achieve a quality output. Thus, quality conformance is inversely proportional to
failure costs (Mbinira Munthali).

OBJECTIVES OF RESEARCH
PRIMARY OBJECTIVE
14

To recommend the way of reducing the cost of poor quality in Austin Engineering Ltd.
SECONDARY OBJECTIVE
To get the idea about the engineering sector.
To get the knowledge about the cost of Raw Materials of Competitors.
To analyze the factors which affects the cost of production.

HYPOTHESES:
H1: There is significant difference in reduction of cost of poor quality.
H0: There is no significant difference in reduction of cost of poor quality.

CHAPTER-3
RESEARCH METHODOLOGY
For the purpose of this research the annual data of company are being used.
15

DATA SOURCE: The present study is mainly based on secondary data.

SAMPLING PLAN:
(1) SAMPLE UNIT: data collected from Austin enge. Co ltd.

(2) SAMPLE SIZE: five years data.

Abstract
A review of the literature regarding the cost of poor quality shows that there
is a number of ways to discuss the topic. Some people report it as a
percentage of sales, while others report it as a percentage of costs. Some
state that it costs a company 10% of annual sales, while others state that it
costs 40%. Do all of these reports contradict each other? Is there a common
way to discuss the cost of poor quality? Through an interview with Dr. Joseph
M. Juran, the answers to these questions proved irrelevant. Juran suggested
that the most important facet of the cost of poor quality is its value to any
company. Regardless of how people report it, the cost of poor quality must be
understood in terms of its significance to the business world. By breaking the
concept down into its origins, development and impact, corporate executives
16

cannot only avoid the burdensome nuances of its technical details, but they
can also clearly understand why its important and how it can help them earn
greater profits.

5 ways to improve quality

1.

Make

commitment.

W. Edwards Deming, the father of the quality movement, famously laid out 14
points for managementchief among them, the notion of "constancy of
purpose."Deming argued that a company's commitment to quality had to come
from the top, and it had to be reinforced over and over again. Unless a business
views quality as its single, non-negotiable goal, workers will inevitably feel the need
to make tradeoffs and quality will slip."Constancy of purpose means that quality
decisions are not situational," writes the operational expert Rebecca A. Morgan.
17

"End of month quality is the same as beginning of month. It means that the long
term benefit of the organization is not sacrificed to hit quarterly targets."
So are you ready to commit? If you are, you should tell your staffand then think
about how you will handle the first conflict between your stated objective and a
pressing
deadline
or
an
attractive
short
cut.
Dig
Deeper:
The
Power
of
Purpose
2.

Track

mistakes.

If you are going to commit to quality, first you must define exactly what quality is.
For manufacturers, this process involves statistical quality control, the process of
setting a product's specifications and then sampling a small number of units from
the production line to see how closely they measure up to those specs. Standards
are set and, if too much deviation occurs (or if quality appears to be trending in the
wrong direction), the manufacturing process is altered. Tracking quality is
admittedly more difficult in a service business, and efforts by groups such as the
International Organization for Standardization (known as ISO) to create meaningful
benchmarks
beyond
manufacturing
have
had
mixed
results.
One way to gauge customer satisfaction (and, by extension, the quality of your
service) is by tracking what is called a net promoter score. Devised by a Bain
consultant named Fred Reichheld, a net promoter score keeps tabs on the number
of customers who would recommend a business to their friends. A customer who
answers 9 or 10 is seen as a promoter; a customer who answers 7 or 8 is seen as
passive; and a customer who gives a company a score of 6 or lower is seen as a
detractor. By subtracting the number of detractors from the number of promoters, a
company
arrives
at
its
net
promoter
score.
Dig
3.

Deeper:

How
Invest

to

Address
in

Quality

Issues
training.

An old saw of the quality movement is that any business with a quality control
department is doomed to poor performance, for it has demonstrated to every other
employee that quality is not his or her chief concern. Instead, quality experts
recommend that businesses train workers at all levels to look for
waystoimprovequalityandtoameliorateproblems.
Training takes on several dimensions. For starters, you should set up a newemployee initiation program that trains workers to focus on quality issues from their
first day on the job. Different CEOs have different perspectives on how best to do
this. Ralph Stayer, the quality-obsessed CEO of Johnsonville Sausage in Sheboygan
Falls, Wisconisn, believes your existing employees should be put in charge of
training new employees, because only they can provide a firsthand perspective on
how your company's operations work. Ari Weinzweig, founder and CEO of the
18

Zingerman's Family of Companies in Ann Arbor, Michigan, takes a different

approach: He personally leads all new-employee orientation training sessions (which
last several days) because he believes an employer never has a better chance of
instilling values and a sense of purpose than right after he or she has hired a new
employee.
Whether you hand train duties to your employees, take them on personally, or some
combination of the two approaches, it's important that you provide workers with a
history of the company through the lens of quality. Let them know what problems
you have had in the past, how you corrected these problems, and where your
company stands with respect to its quality goals today. You should also go over your
definition of quality in detail, and show them how you measure quality (see the
previous section.) Finally, train workers to see the connection between their actions
and, more broadly, their work ethic, and the company's overall performance. By
tying individual behavior to an overall system of work, and then showing where that
system can, on occasion break down, you will be giving workers the information
they
need
to
be
good
stewards
of
your
business.

4.

Organize

quality

circles.

Your staff members may roll their eyes at the introduction of such a dated
technique, but organizing employees into quality circles can be an effective way to
identify and address problems. Simply put, quality circles are groups of employees
who are encouraged to assess processes and recommend improvements, all with
the goal of promoting quality, efficiency, and productivity. The concept was
developed by Deming in post-war Japan, and made its way to the United States in
the late 1970s. At one point, half of all large corporations had adopted quality
circles,
but
then
interest
in
them
faded.
That's a shame. Quality circles, by any other name, are teams of workers who are
given the authority and responsibility for making a business better. To succeed,
experts say that participation in a quality circle should be voluntary; circles should
draw members from all corners of a company; and the circle should set its own
agenda
(rather
than
pursuing
a
company
owner's
agenda.)
Once you have invited workers to join a quality circle, provide them with adequate
resources to pursue their analysis, and schedule a time in the future at which they
may present their findings. It is important that you act on their recommendations,
even if the group's conclusion is not necessarily one you would have drawn yourself.
Remember, the purpose of the exercise is less to solve a particular problem than it
is to engage workers in the process of finding and addressing concerns. Moreover,
you should be tracking customer complaints or product defects on a regular basis,
so if the circle's recommendations do not produce the desired result, you'll know it,
19

and

be

5.

Have

able

the

to

right

act.

attitude.

Too many people turn the quest to improve quality into something oppressive. No
less an authority than Deming rejected the idea that the quality management had
to be dreary and involve a lot of negativity. "The prevailing system of management
has crushed fun out of the workplace," Deming moaned in an interview in the
1990s.
This attitude is not necessarily easy to adopt and runs afoul of some of the basic
management practices we take for granted. For example, Deming was not a fan of
performance reviews, as the writer John Case has explained. "[I]f your evaluations
are fair, you will determine that half your workers (by definition) are below average,
and you will tell them so," Case writes. "Result: half the work force is instantly
discouraged and demoralized, and any sense of common purpose is undermined."
Rather than pointing out inadequacy wherever it might be found, Deming believe
that the job of managers was to frame the pursuit of quality as an interesting,
noble, and worthwhile goal. If you are to truly improve quality at your business,
whether you manufacture products, distribute goods, or perform a service for your
clients, your first step (and also the hardest) is to resist the temptation to dwell on
your company's flaws and instead rally your team around the cause of rooting them
out.

How to improve poor ouality

1. 1
Learn to listen to your customers first. Really listen to them - ask what
you can do to help them. This is the most important step in preventing
problems and the only way you can solve complaints if they come up.

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20

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2. 2
Look at all complaints about your service as an opportunity to
improve. Aim to resolve any complaint quickly and efficiently.
3. 3
Establish an environment where great service is recognized and
rewarded and poor service is challenged and rectified.
4. 4
Have weekly fun staff meeting where good service elements are
discussed.
5. 5
Ensure that your staff feels they are an important part of your
success.
6. 6
Lead by example. Show respect for every person at every level in your
company.
7. 7
Do things regularly to improve the workplace. This does not have to be
an expensive exercise. For instance, if you have a small group, order pizzas
one day for lunch for no particular reason, put a candy jar on the reception
desk for anyone to access, put a new coffee pot in the staff room or buy some
gourmet coffee. Little things get noticed and mean a lot. Happy staff = happy
customers.
8. 8
Give your staff a reason to come to work with a big smile on their
face and a great attitude. Paying them competitive wages so they can live
comfortably in the area is a good start. The customer service industry is
21

rampant with poor pay. The jobs are pretty difficult at times. Be sure you
show your employees you care by giving them a decent wage.

Literature review
Author: Suviolahti, Hannu
Title: The influence of volatile raw material prices on inventory valuation
and product costing
Year: 2009 Kieli: eng
Department: Department of Business Technology
AcademicLogistics
subject:
Index terms: logistiikka; logistics; hinnat; prices; hinnoittelu; pricing; raaka-aineet;
raw materials; kurssivaihtelut; volatility; inventointi; inventory;
arviointi; evaluation
Pages: 117
Full text:

hse_ethesis_12041.pdf

size:800 KB (819071)

Key terms: inventory valuation, product costing, raw material price, FIFO, LIFO,
weighted average cost, market price

abstract

22

Efficient product costing and inventory valuation are much emphasized in todays
manufacturing environment because of their importance in management decisions.
However, especially volatile raw material prices bring challenges to reliability of
product costing and inventory valuation. This relatively little regarded, but
important viewpoint is investigated in this research.
The research problem is stated as follows: how should raw material flow around raw
material inventory be valuated? In literature review eight factors that should be
considered when choosing inventory valuation and product costing methods were
determined. Based on these factors three variables that affect the efficiency of raw
material inventory valuation and product costing were defined, and they were tax
shield benefits, product costing accurateness and how well information reflects the
performance of a company. For the empirical part a framework was formed based
on these three variables.
In the empirical part a simulation model was built and based on the model raw
material inventory valuation methods were evaluated. A scenario analysis was done
in order to analyze generality and robustness of raw material inventory valuation
methods. Using the simulation model and the scenario analysis different raw
material inventory valuation methods are evaluated in a real company environment,
and results that cannot be derived analytically are disclosed.
By using a correct raw material inventory valuation method business can be much
improved. In the case company on which the simulation model is based, product
costing error can be decreased by 14 % of product costs and inventory value
fluctuation by 7 % of inventory value by just choosing adequate inventory valuation
method. The main determinant of the magnitude in improvements is raw material
price behavior. In the case of high inflation the benefits of using correct inventory
valuation method can be very great. Also volatility of raw material prices affects
results significantly.
The main contribution of this research is the investigation of the effects of uncertain
raw material prices in the context of product costing and inventory valuation. The
main result that contradicts current research is that FIFO (first-in first-out) should
not be used for raw material accounting. In general, LIFO (last-in last-out) and
market prices are efficient raw material inventory valuation methods. Yet, the choice
between these two depends on objectives of management accounting. However, it
was observed that material flow behavior has no significant effect on the ranking of
different raw material inventory valuation methods, and thus the main results can
be generalized to different companies.

23

Abstract:
Bearing is one of important general parts in almost all kinds of machines. A poor
quality bearing will reduce whole machine's performance. Bearing's quality, such as
vibration and noise, is mostly decided by raceway's surface morphology. Improving
surface morphology, we can get high quality bearings. Unfortunately, because
bearing is a kind of finished product, it is difficult to disassemble and reworking
friction surface to improve the finished bearings' quality. How to refine bearings,
smoothing raceway's surface, reinforcing surface's rigidity, and prolonging bearing's
life, is one of the most significant research. The paper proposes a novel method,
which is using nanopowder chemical grinding agent to process the surface of
bearing's friction pair. Utilizing nanocomposite materials' physical and chemical
characteristics, mechanical grind and chemical abrasion are employed to improve
the surface morphology of scroll raceway and body. During processing,
nanopowders not only have mechanical grinding effect but also have
electrochemical function. The paper detailedly accounts the grinding mechanism,
the characteristics of each grinding materials, and the new method's processing
technology. Finally, quantities of experiments show that the chemical grinding
method can effectively improve bearing's surface morphology, reduce running
vibration and noise, and increase bearings' quality.

Keywords: NANOMETER MATERIAL; BEARING; NANOMETER COMPOSITE PLATING

FILM; SURFACE QUALITY
24

This section concisely describes the essential features of the ISO 9000 family.
The ISO 9000 family of standards represents an international consensus on good quality
management practices. It consists of standards and guidelines relating to quality management
systems and related supporting standards.
ISO 9001:2008 is the standard that provides a set of standardized requirements for a quality
management system, regardless of what the user organization does, its size, or whether it is in
the private, or public sector. It is the only standard in the family against which organizations can
be certified although certification is not a compulsory requirement of the standard.
The other standards in the family cover specific aspects such as fundamentals and vocabulary,
performance improvements, documentation, training, and financial and economic aspects.

Why an organization should implement ISO 9001:2008

Without satisfied customers, an organization is in peril! To keep customers satisfied, the
organization needs to meet their requirements. The ISO 9001:2008 standard provides a tried and
tested framework for taking a systematic approach to managing the organization's processes
so that they consistently turn out product that satisfies customers' expectations.

How the ISO 9001:2008 model works

The requirements for a quality system have been standardized - but many organizations like to
think of themselves as unique. So how does ISO 9001:2008 allow for the diversity of say, on the
one hand, a "Mr. and Mrs." enterprise, and on the other, to a multinational manufacturing
company with service components, or a public utility, or a government administration?
The answer is that ISO 9001:2008 lays down what requirements your quality system must meet,
but does not dictate how they should be met in any particular organization. This leaves great
scope and flexibility for implementation in different business sectors and business cultures, as
well as in different national cultures.

Checking that it works

1. The standard requires the organization itself to audit its ISO
9001:2008-based quality system to verify that it is managing its processes
effectively - or, to put it another way, to check that it is fully in control of its
activities.
2. In addition, the organization may invite its clients to audit the quality
system in order to give them confidence that the organization is capable of
delivering products or services that will meet their requirements.
25

3. Lastly, the organization may engage the services of an independent

quality system certification body to obtain an ISO 9001:2008 certificate
of conformity. This last option has proved extremely popular in the marketplace because of the perceived credibility of an independent assessment.

The organization may thus avoid multiple audits by its clients, or reduce the frequency or
duration of client audits. The certificate can also serve as a business reference between the
organization and potential clients, especially when supplier and client are new to each other, or
far removed geographically, as in an export context.
POINTS TO IMROVE POOR QUALITY

Poor quality is a result of poor material, method, machine, manpower, and measurement. You
have to check all of this. I suggest you do the following:
1. Conduct incoming inspection of your raw materials. If there are non-conformance, issue a
complain letter to your supplier and request for Corrective and Preventive Action. If your
supplier is willing, request them to go for ISO certification so they can deliver Quality products
to thier customers.
2. Check your machine capability versus your customer requirement. The Cpk is a good metrics
to measure your capability. If your Cpk is less than 1.33 then you have to improve your machines
or consider purchasing other machines that can meet the required capability.
3. Check your methods. You should established a method that will be uniformly followed
throughout your organization. Next is you document and control your established method so all
your people have the same understanding on how to do your methods.
4. Check your manpower competence. Conduct training if necessary to ensure that they know
what they are doing. Establish a documented system that will let you evaluate their competencies
and retrain them if needed. It is also improtant to consider your peoples motivation. As Maslow
has said " Happy people produce good results."
5. Make sure that you have a measurement system that is appropriate to the customer
requirement. A defective measuring equipment in effect will product non-conforming product.
Make sure that your measuring equipment is calibrated and is traceable to international
standards. You can perform GR&R study to check if your measurement system is acceptable or
not.

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Iso sta.

Cost of poor quality is nothing but loss to company. ISO 9001 is like a guaranty certificate that
the process is carried down to deliver the product to the customer is 100% fool proof and there
will be minimal or no nonconfirming product.
By formulating the production process in a manner so there will be no bad quality products, we
can reduce cost of quality which may be critical to quality as well. We can use Six Sigma
strategy to find out the cause (root causes analysis). If the process is in the form approved by
ISO, then it will be easy to find out at what part of process we are failing.

The Cost of Poor Quality and its Impact on Todays Businesses

At this point in the interview, Dr. Juran had completed his story of the origins of quality
management and its importance in the industrial economy during the middle of the twentieth
century. Taking advantage of a break in our meeting, I paused to reflect on what this cost of
poor quality meant for the business world and if it was even worth studying at all. Immediately,
I remembered the analogy Dr. Juran made in the first edition of his Quality Control Handbook.
He referred to the cost of poor quality as the gold in the mine,1 highlighting the potential
financial benefits quality improvement programs can achieve for a business. Is it true that the
costs of poor quality represent untapped financial rewards? By uncovering where errors are
made and deficiencies occur, can a company truly earn significant returns on investments by
restructuring its processes?
http://www.juran.com

All Rights Reserved, Juran Institute, Inc. 6

Two quotes help answer these questions. In 1987, Hewlett-Packard chief executive
officer John A. Young exclaimed that, In todays competitive environment, ignoring the quality
issue is tantamount to corporate suicide.2 Here, Young dramatizes the impact quality has on a
company. Overlooking the costs that a business incurs due to faulty products can have a
devastating effect. In 2002, Ford group vice president Jim Padilla further emphasized Youngs
statement by explaining how, The cost of poor quality is the single biggest waste we have. It
costs us in warranty. It costs us in public image, which in turn affects our residual values.3
These two quotes affirm that there is verbal support for Dr. Jurans argument in todays
businesses.

Literature

An overview of the literature regarding the cost of poor quality shows that there is
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quantitative evidence, as well. The Xerox Corporation, winner of the Malcolm Baldrige
Quality Award in 1989, demonstrates the financial rewards that can be achieved with the
implementation of a cost of quality analysis and quality improvement projects. In 1992,
Lawrence P. Carr discussed Xeroxs significant improvement, highlighting how the U.S.
Customer Operations division reduced the cost of poor quality by $53 million in only one year.4
By decreasing costs of this scale, Xerox greatly improved its bottom line and mined the gold
described by Dr. Juran. Similarly, in 1991, Tenneco employed cost of poor quality studies,
which helped cut failure costs by $1.8 billion in a six-year period, thus increasing operating
income by $900 million.5
In addition to cutting costs, quality improvement can also boost revenue by increasing
market share. For example, one study showed that businesses that improved quality increased
their market share five or six times faster than those whose products declined in quality, and
three times faster than those whose relative quality was similar to their competitors.6 Therefore,
companies can generate greater profits through cost reduction and sales improvement. Such
financial success would not be possible without first conducting a cost of poor quality analysis,
which reveals the deficient areas in a companys processes and signals potential room for
improvement.

Do Companys Buy Into the Importance of Cost of Poor Quality?

In theory, a cost of poor quality analysis is extremely valuable. However, due to an
inadequate understanding of the topic and lack of sufficient measurement systems, many
companies do not correctly calculate the cost of poor quality. Other companies simply avoid the
cost of poor quality altogether, overlooking its potential significance.
Company calculate poor quality

The fact that many companies miscalculate the cost of poor quality represents one of its
fundamental characteristics. It cannot be strictly defined, and, therefore, cannot be perfectly
measured. Claude R. Superville addresses this issue, stating how, Quality costs are dynamic
and constantly changing over time. A firms total quality costs are determined by the quality
measurement used, its current developmental level and technology level. In one year, a
company may focus on eliminating one contributor to its cost of poor quality. The next year,
that same company might develop a way to measure another cost of poor quality, thus initiating a
new quality improvement project. In this way, the cost of poor quality is constantly transforming
as the company transforms.
Although this dynamism may make it difficult to analyze the cost of poor quality, it does
not hinder its overall importance to a company. In fact, the exact opposite is true. Since the cost
of poor quality is constantly changing, companies will always find new areas to improve.
Jeremy Main uses Hewlett-Packard as an excellent example of this point. In 1979, the company
determined that its cost of poor quality was 25% of sales. Throughout the next decade, HewlettPackard implemented a number of quality improvement strategies, earning the reputation as a
leader in the field of quality.
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Cost of Poor Quality: The Basic Model

The question then remains, what does the hidden factory include? The basic model of the
cost of poor quality is divided into three
categories: failure costs, appraisal costs and prevention costs.
Failure costs can be split into internal and external failure costs. Internal failure costs
refer to the costs incurred within a factory prior to delivery. They represent the deficiencies that
occur when a product fails to meet a certain specification or requirement, resulting in scrap or
rework. External failure costs refer to the costs incurred when a product fails in the possession
of the customer. Warranty charges, complaints, and returned material are all examples of
external failure.
The second category refers to the appraisal costs, which represent the costs incurred to
determine whether a product meets its specified requirements. Inspection and the testing of
equipment fall under this category.
Finally, prevention costs are incurred to minimize the failure and appraisal costs.
A company may utilize quality audits, process planning and the training of employees to prevent
the production of deficient and nonconforming products. These prevention costs help save the
company money in the long run.

Conclusion
This point brings the discussion back to the onion analogy. Many service companies
avoid conducting cost of poor quality analyses because they find that the cost of conducting the
evaluation and dealing with its intangible elements outweighs the benefits. However, if these
companies took a more careful, penetrating look at their business processes they would continue
to reveal new areas of improvement. By peeling off layers of the onion, the potential benefits of
conducting the analysis will greatly increase.
This simple misunderstanding is common throughout the business world. Corporate
executives fail to grasp the true nature of the cost of poor quality. By limiting their evaluations
to obvious costs like scrap and rework, companies completely overlook the most damaging
hidden costs. Other executives falter when they restrict the cost of poor quality to a rigid model,
possibly one used by their competitors. This strategy would be effective only if every company
were the same. However, the cost of poor quality not only varies from company to company, but
the methods of measuring the cost of poor quality also vary.
Because of this dynamism, businesses must remember the point emphasized by Dr. Juran.
The cost of poor quality can be reported in an endless number of ways. It can take a variety of
different forms, some that many firms often ignore. It can represent 10% of a companys annual
sales, or it can represent 40%, depending on how far they peel the onion. Despite these
differences, one fact remains constant in all companies. The absolute cost of poor quality is
29

detrimental to a companys bottom line.

Even the highest levels of management cannot ignore this fact. Unfortunately, some
never get the chance to realize the potential benefits of a cost of poor quality analysis because
they simply do not understand its nature. However, once quality costs are presented in the
language of money, these misunderstandings evaporate and executives immediately realize the
true significance of the cost of poor quality.

What Is Six Sigma?

Six Sigma what does it mean?
Six Sigma at many organizations simply means a measure of quality that strives for near
perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating
defects (driving toward six standard deviations between the mean and the nearest specification
limit) in any process from manufacturing to transactional and from product to service.

Six Sigma is essentially a comprehensive yet flexible system for achieving, supporting, and maximizing
business profits. It is a methodology driven by understanding customer needs, and the disciplined use
of data, facts, and statistical analysis to improve and reinvent organizational processes.
So what does this really mean? How is it deployed? How can it be best employed for maximum
advantage within your organization?
The Six Sigma Training and Quality Toolkit is designed to help address all these issues and more. It
contains a whole series of resources to help explain, simplify, and set you on the right path to
implementation of Six Sigma.

THE SIX SIGMA QUALITY MANAGEMENT KIT

Each item is of the highest quality, tailor made to cover a different aspect and issue. It includes
presentations, questionnaires, fact sheets, guidelines.... a whole range of materials specifically put
together to both introduce, and take you through, Six Sigma. Unless otherwise stated, each element is
provided in MS-Word format for flexibility, control and ease of use.

TQM
At its core, Total Quality Management (TQM) is a management approach to longterm success
through customer satisfaction.
In a TQM effort, all members of an organization participate in improving processes, products,
services and the culture in which they work.

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The methods for implementing this approach come from the teachings of such quality leaders as
Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa and Joseph M.
Juran.
A core concept in implementing TQM is Demings 14 points, a set of management practices to
help companies increase their quality and productivity:
1. Create constancy of purpose for improving products and services.
2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End the practice of awarding business on price alone; instead, minimize total cost by
working with a single supplier.
5. Improve constantly and forever every process for planning, production and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating
or merit system.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work accomplishing the transformation.
The term Total Quality Management has lost favor in the United States in recent years:
Quality management is commonly substituted. Total Quality Management, however, is still
used extensively in Europe.

Use Kaizen to Improve Business

Kaizen comes from the Japanese words for "improve" and "to become good." It is often
translated in the business context as continuous or continual improvement. Kaizen is a process
improvement strategy that emphasizes small process improvements carried out one after another
to create compounding gains from the improveme
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Read more: How to Use Kaizen to Improve Business | eHow.com

http://www.ehow.com/how_2072967_use-kaizen-improvebusiness.html#ixzz1tDmMlC1P

How to Determine COPQ

How to Determine COPQ
To calculate COPQ, firms need to determine the labor and material costs involved
with external failures, internal failures, appraisal costs, and investment in
preventive action. OEMs should take these four expense categories into account.
External Failures. Include all costs associated with addressing defects for
products that have left the manufacturer's control, such as those found by
customers or users of the device. Costs associated with servicing devices in the
field, addressing complaints, filing and addressing corrections for medical device
reports, and field corrective actions are included.
Internal Failures. Include all costs associated with addressing defects identified
internally during development and production. These include inadequate testing,
incorrect test documentation, improper validation activities, unclear requirements,
and design and implementation defects. Defects discovered during incoming
inspection, in-process testing, and final acceptance testing are also in this category.
Appraisal. Costs associated with inspection to identify defects that occur during
product development and production, as well as errors in a manufacturer's quality
system, make up this category. As a manufacturer experiences more defects, the
costs for appraisal typically increase. Included in this category are expenditures
incurred for the review of quality records and internal audits, the review of system
specifications, and the review and inspection of manufacturing processes.
Preventive Actions. OEMs should account for costs associated with any
processimprovement program to understand customer requirements. Include
surveys, prototypes, and voice-of-the-customer analyses. Other types of preventive
actions are internal quality training programs and techniques to reduce design
defects such as review checklists, defensive design training, and the use of
automated design and test tools. Process redesign, increased process validation
capabilities, use of higher-reliability components, and use of suppliers with moremature quality systems are contained in this category.
Calculating COPQ
When calculating COPQ, manufacturers should compute the corrective actions for
failures, and then address costs derived from quality assurance and quality control
32

activities. An Excel spreadsheet using detailed formulas is available from the

authors.

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