1-Day Awareness Course On Co$T of Quality: Presented by Neville-Clarke International

1-Day Awareness
Course on
CO$T OF QUALITY
Presented by
Neville-Clarke International
NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE | CLARKE
Slide No : 1 COQ-Awr Issue 1-07/02
CONTENTS
Section 1 : Introduction
Section 2 : Basic financial concepts
Section 3 : Assessing quality cost
Section 4 : Process cost model
Section 5 : Implementing COQ programme
Section 6 : Success stories

NEVILLE | CLARKE
SECTION 1
INTRODUCTION
NEVILLE-CLARKE INTERNATIONAL, 2001 NEVILLE | CLARKE

Slide No 1:3 SSHtlEq Issue 1 -03/01
Q U A L I T Y
Objectives
To highlight basic concepts of cost of

quality.
To provide delegates with sufficient
understanding to develop and implement a
quality cost system in their organization.

NEVILLE | CLARKE
What is COQ?
Cost of Quality (COQ) is the cost of
making sure that customers get top
quality products and services, and
the consequences when they do not.

NEVILLE | CLARKE
Prevention Costs
The costs of activities specifically designed to
prevent poor quality in products or services
Costs involved to ensure doing things right first time
Cost of any active taken to investigate, prevent or
reduce failures
DEFECT

NEVILLE | CLARKE
Appraisal Costs
The costs associated with measuring,
evaluating, or auditing products or services
to assure conformance to quality standards
and performance requirements

NEVILLE | CLARKE
Failure Costs
The costs resulting from products or services not
conforming to requirements or customer/user
needs - that is, the costs resulting from poor
quality
Failure costs are divided into internal and
external failure cost categories

NEVILLE | CLARKE
Failure Costs
Internal Failure Costs
occur prior to delivery or shipment of the
product, or the furnishing of a service, to the
customer
External Failure Costs
occur after delivery or shipment of the product,
or during or after furnishing of a service, to the
customer
NEVILLE | CLARKE
COQ Components PAF Model
Internal Failure External Failure

Planning & writing Incoming inspection Rework Complaints
procedures & In-process inspection Scrap Warranty claims
instructions Out-going inspection Obsolescence Bad debt
Vendor assurance Production trial Downtime Returned products
Process capability Analysis & reporting of Replacement Loss of sales
study inspection results Failure analysis Product liability
Quality training Field performance Re-inspection & Extended warranty
Quality improvement testing testing Product recall
programme Materials consumed ECO Overdue account
Collection, analysis during inspection & Accident receivable
and reporting of quality testing Improper invoicing
data

NEVILLE | CLARKE
Cost of Various Components

NEVILLE | CLARKE
Comparative Cost of Quality
Least Costly
Most Costly Less Costly
The companys quality

management system
is designed, planned,
The manufacturer or and organized for
The customer finds service organization defect prevention and
defects in the delivered finds and corrects the continual quality
parts or service defects internally improvement

NEVILLE | CLARKE
Facts about External Failure
An average company never hears from 96% of their
unhappy customer
An average customer who has had a problem will tell

nine or ten others about it
More than half of the customers who make a

complaint will do business again with that company if
their complaint is resolved; this figure jumps to 95%
if it is resolved quickly.
NEVILLE | CLARKE
Strategy in Reducing COQ
Reducing
Failure costs is Failure costs
my first priority
Appraisal costs
Prevention costs

NEVILLE | CLARKE
Cost of Poor Quality (COPQ)
COQ is also known as :
Poor quality cost
Cost of poor quality
Economics of quality
Costs related to quality
COST OF POOR QUALITY - remains the

major focus of most companies. It is thus the
most familiar and widely used term.
NEVILLE | CLARKE
Cost of Poor Quality (COPQ)
The extra cost incurred because
the product or service was not
done right the first time
- Philips Crosby

NEVILLE | CLARKE
1950s
Dr. J.M. Juran published first Quality Control Handbook,
Chapter 1 : The Economics of Quality
MILESTONES
1960s
US Department of Defense issued MIL-Q-9858A, making
Costs related to Quality a requirements for many US
government contractors and subcontractors
1990s
published ISO 9001 series and QS-9000
2000s
published ISO/TS 16949 2nd edition
wide spread of Six Sigma concepts
NEVILLE | CLARKE
COPQ in ISO 9004
clause 5.6.2
management review input should include.. financial effects of
quality related activities
clause 6.8
management should consider the development of innovative financial
methods to support the improvement of the organizations performance
financial reporting of activities related to the performance of the QMS
and product conformity should be used in management reviews.
reference to ISO/TR 10014:1998, Guidelines for managing the

economics of quality.

NEVILLE | CLARKE
COPQ in QS-9000 (3rd. Edition)
Definition
The costs associated with production of non-conforming material.
clause 4.1.5
document trends in the cost of poor quality..
clause 4.2.5.2
Quality and productivity improvement, notes Cost of Poor Quality

as an example of a situation which might lead to improvement
projects.

NEVILLE | CLARKE
COPQ in ISO/TS 16949
Clause 5.6.1.1
part of the management review SHALL be the
regular reporting and evaluation of COST OF
POOR QUALITY

NEVILLE | CLARKE
Why COPQ Programme?
Competition Drive a
Price Lowered Price
Profit
B
COPQ A: Cut Base Cost

C
B: Reduce Profit
C: Reduce COPQ
Base
Cost A

NEVILLE | CLARKE
COPQ of an Average Company
The Cost of Poor Quality Iceberg
Traditional Quality Cost
Scraps
Rework
Waste
4 - 8% of Sales Warranty
Inspection
Additional Cost of Poor Quality
More Setups
Expediting Cost
20 - 25 % of Sales
Lost of Customer Loyalty
Long Cycle Time
Engineering Change
Huge Opportunity For Increasing Late Delivery
Profit Margin Excess Inventory
NEVILLE | CLARKE
What Can COPQ Programme
Do?
Quantify quality problems financially.
Identify quality improvement projects.
Prioritise quality improvement projects
Monetise quality improvement effort.

NEVILLE | CLARKE
Benefits of COQ Programme
Staff more conscious about costs.
Lower cost attainable.
Growth through increase efficiencies &
without additional wastages.
More satisfied customers.
Better business performance.

NEVILLE | CLARKE
Taguchis Philosophy
We cannot reduce cost without affecting quality
We can improve quality without increasing cost
We can reduce cost by improving quality
We can reduce cost by reducing variation

NEVILLE | CLARKE
Traditional Approach
All product All product

are equally All product are equally
bad are equally bad
good
Bad Good Good Bad
LSL Nominal USL
ALL PRODUCT WITHIN THE SPECIFICATIONS ARE EQUALLY GOOD

NEVILLE | CLARKE
Taguchi Quality Loss Function
Parabolic
Poor Poor function
Fair Fair
Loss ($) Good Good

Best
LSL Nominal USL
LOSS OCCURS WHEN A PRODUCT FALLS WITHIN THE SPECIFICATIONS

NEVILLE | CLARKE
Process Variation and COPQ
40
COPQ (% of Sales)
30
20
10
2 3 4 5 6
(308538dpm) (66807dpm) (6210dpm) (233dpm) (3.4dpm)
Sigma Level (Variation)

NEVILLE | CLARKE
Reducing COPQ
High Hanging Fruits No solution
Systematic
Bulk of Fruits
approach
Low Hanging Fruits Basic QC tools
Common Sense
Ground Fruits & Intuition
NEVILLE | CLARKE
SECTION 2
BASIC FINANCIAL CONCEPTS

Q U A L I T Y
Traditional Cost and Price Structure
Profit
Selling costs
General & administrative costs
Revenues Fixed and miscellaneous expenses Cost

of goods
Overhead sold
Area of Indirect labor cost
concentration Cost
Indirect materials of goods
of cost of poor
produced
quality program
Direct labor
Prime cost
Direct materials
NEVILLE | CLARKE
Prime Costs
Direct Materials
raw materials, semi-finished product and
finished product
Direct Labor
Labor applied to convert direct materials or
other input into the finished product

NEVILLE | CLARKE
Overhead Costs
Indirect Materials
supplies consumed in operations but not
directly a part of the end-product; e.g.
protective boxes, packaging supplies,
perishable tools, and clerical supplies

NEVILLE | CLARKE
Overhead Costs (Cont)
Indirect Labor
wages and salaries earned by employees who do
not work directly on the end-product or service;
e.g. supervisors, material handler, storekeeper,
and janitors
Fixed and miscellaneous expenses
Depreciation, taxes, rent, warranties, and
insurance on the assets used in operations
NEVILLE | CLARKE
Cost of Goods Produced
The basic or standard cost of product

manufacturing or service operations, is the
total of prime costs and overhead costs

NEVILLE | CLARKE
Cost of Goods Sold
Cost of goods produced plus two additional costs:
1. Selling costs
Those costs incurred in an effort to achieve sales; e.g.
marketing, advertising, billing and transportation costs.
2. General and Administrative costs

All other business-incurred costs; e.g. financial, personnel,
legal, public relations and information systems

NEVILLE | CLARKE
Basic Business Equation
PROFIT = REVENUES - COST OF GOODS

SOLD

NEVILLE | CLARKE
Opportunity
A significant portion of the costs defined in the
quality cost system appear in the COST OF
GOODS PRODUCED.
Any reduction in the cost of goods produced has
a positive effect on PROFIT.
Many hidden costs in day to day processes are
usually not captured in the conventional
accounting system!
NEVILLE | CLARKE
Opportunity
Quality cost number provides basis to identify
opportunities for improvement and measure them.
Concentrate on the quality cost elements that

affect you company most significantly.

NEVILLE | CLARKE
SECTION 3
ASSESSING QUALITY COSTS

Q U A L I T Y
Basic COQ Costing Models
Quality Costing
Approach
Quality Loss Approach
Process Cost Approach

NEVILLE | CLARKE
MODEL 1
Quality Costing Approach
Conventional approach
Categorize quality costs as

prevention costs
appraisal costs
internal failure costs
external failure costs

NEVILLE | CLARKE
MODEL 2
Quality Loss Approach
Capture both tangible and intangible costs or
losses due to poor quality
Tangible losses
e.g. scrap, rework, and warranty costs
Intangible losses
e.g. lost sales due to customer dissatisfaction
use Taguchi Quality Loss Function to
approximate the intangible quality losses
NEVILLE | CLARKE
MODEL 3
Process Cost Approach
Look at costs for a process rather than for a product or a
profit center
Cost of conformance
The costs incurred to fulfill all the stated and implied needs of
customers in the absence of failure
Cost of nonconformance
The costs incurred due to failure of the existing process

NEVILLE | CLARKE
SECTION 4
PROCESS COST MODEL

Q U A L I T Y
Objective
To understand the method of applying quality costing

to any process or service (reference BS6143 Part 1
[1990] ). It emphasizes the importance of process
measurement and process ownership.

NEVILLE | CLARKE
What is Process?
Any activity that transforms inputs into outputs
utilizing resources and being subject to particular
controls.
Controls
Inputs Outputs
Resources

NEVILLE | CLARKE
What is Process?
Everyone in the company operates within a
process
Every process should have a process owner
Process owner person who has the authority
and responsibility for the effectiveness operation
of that process.

NEVILLE | CLARKE
Building a Process Cost Model
1. Identify a key process to be measured
eg. order taking.
2. Define scope of process.
3. Identify process owner.
4. Determine the followings:
outputs and customers
inputs and suppliers
controls and resources
NEVILLE | CLARKE
Building a Process Cost Model
5. Flowchart the process.
6. Identify quality cost items in the process that
contribute to poor quality costs.
7. Evaluate poor quality cost items.
8. Collect and compute poor quality costs.
9. Construct a process cost report.

NEVILLE | CLARKE
Example of COPQ Items by Process
Process COPQ Items
Production Scrap, Rework, Repair & return
Engineering Equipment damage/repair/downtime/modification, ECO
Design Product redesign, Design change, CAD downtime
Marketing Order cancellations, Customer complaints, Warranty, Product recall
Human Resource Employee turnover, MC, Excessive/Lack of labour, Lost time accident
Finance Bad debts, Re-invoicing costs, Payroll errors, Overdue A/R
Information Technology Order entry error, Software error, Computer breakdown
Logistics Late delivery, Wrong delivery, Replacement, Handling storage
Purchasing Late supplies, Obsolescene, Excessive Inventory, Change PO

NEVILLE | CLARKE
Evaluate COPQ Items
Purpose :
Confirm identified COPQ items can be
calculated or at least estimated from
available data.
Study if the identified COPQ items can be
eliminated or not.

NEVILLE | CLARKE
Collect Quality Cost Data
Have a clear purpose & Do it alone
strategy for COQ system Expect existing
Report only costs accounting system to
endorsed by finance provide data needed
department Expect too much during
Get data from standard the initial implementation
data when possible Agonise over low cost
Concentrate on costs Work on what is already
that can change with known
improvement
NEVILLE | CLARKE
Sources of Quality Cost Data
Established Accounts
Basic Accounting Records
Estimates
Non-conformance &
Conformance Records
Temporary Records
NEVILLE | CLARKE
Matching Accounts with COPQ Items
Items in Accounts COPQ Items Processes Involved
Obsolescence written off Obsolescence Production/Logistics
Rent Storage space Logistics
Raw material
Packing material Defects
Production
WIP Spoilage
Production overheads
Warranty claims Warranty claims Marketing
Overtime Late delivery of parts Production
Downtime
Repair & maintenance
Ill-maintained machines Production
Machine depreciation
Idle machines
NEVILLE | CLARKE
Costing of COPQ Items
Whole Account
Existing financial data on rework cost, inspection cost etc.
Unit Pricing
Effective when defect or problem is recurring.
Whole Person
Used when people are employed strictly for specific task.
Labour/Resource Claiming
Calculate actual expenditure on a specific activity eg.
amount of time spent on reworking specific defect

NEVILLE | CLARKE
Costing of COPQ Items
Process Items for Costing Cost
Operators $7 per hour
Production Drivers $11 per hour
Production cost $0.90 per kg
Quality Control Laboratory cost $60 per batch
Marketing Salesmen $20 per hour
Store Repacking cost $0.90 per kg

NEVILLE | CLARKE
Reporting Cost of Quality
Compare Cost of Quality with other operating cost.
Report formats and frequency to suit business
objectives.
Internal Failure Cost
Examples : Labour base :
Direct Labour Cost
Total Failure Cost

Cost base :
Manufactur ing Cost
Total Cost of Failure

Sales base :
Sales Revenue
Test & Inspection Cost

Unit base :
Units of Production
NEVILLE | CLARKE
Roles in Collecting Quality Cost
Financial Controller
Assign quality cost to agreed activities
Compile data on quality costs from individual departments
Produce organisational & departmental COQ report
Process Owners
Work with financial controller to identify types of quality costs
need to be monitored
Collect data on quality cost
Analyse quality costs and take appropriate corrective actions
Pursue a continuous policy of quality improvement and cost
reduction
NEVILLE | CLARKE
Guidelines
Use existing cost management systems
Use appropriate performance indicators for collecting
quality costs to suit the business
First estimate of COQ does not need to be detailed.
Not unusual for COQ to rise initially as people are
more aware
Attribute costs according to where they occur
Monitor overall quality cost periodically
Gathered COQ more accurately and monitor more
frequently in areas targeted for improvement
NEVILLE | CLARKE
SECTION 5
IMPLEMENTING
COQ PROGRAMME

Q U A L I T Y
Right Mindset
Every problem are opportunities for
greater customer satisfaction
profit improvement
Focus on
cost reduction
quality improvement

NEVILLE | CLARKE
Key Success Factors
Management commitment - long
term perspective
Quality related cost procedure
Quality improvement teams
Training
Quality cost awareness campaign
Total involvement of everyone
NEVILLE | CLARKE
Approach
utilize pilot study
focus on one manageable area
preliminary data are available

NEVILLE | CLARKE
General Road Map
Phase 1 : Preparation & Training
Phase 2 : Identify Cost of Poor Quality Items
Phase 3 : Collect Cost of Poor Quality Data
Phase 4 : Analyse Cost of Poor Quality Data
Phase 5 : Improve Quality & Reduce Costs
Phase 6 : Continuous Improvement of COQ
Performance

NEVILLE | CLARKE
Phase 1 : Preparation & Training
Formation of COQ committee
Appointment of a COQ sponsor
COQ training
Definition of programme scope
Commitment of necessary resources

NEVILLE | CLARKE
Phase 2 : Identify CONC Items
Phase 3 : Collect Cost of Poor

Quality Data

NEVILLE | CLARKE
Business Process Sub-con
(design & fab)
Customer Price negotiation & Receive Project planning & Issue

Start Quotation Design & fab
enquiries spec confirmation PO Issue job order job order
Raw materials
1
sourcing
Materials
purchase HR planning
1 Receive Pre-production Issue Receive FA

Testing
PO run job order PO submission
Production
planning IPQC Eqpt PM
Issue Process Project h/o to

Mass-pro OQA Store
job order Capability study manufacturing
Sub-con
IQA
(mass-pro)
Receive Issue
End Delivery Issue DO
payment invoice

NEVILLE | CLARKE
Business Process (Cont)
Receive
1 IQA Store
raw material

NEVILLE | CLARKE
Identification of COPQ Items
S/N Process Process Owner COPQ items Description

NEVILLE | CLARKE
Identification of COPQ Items - Examples
No. Process Process Owner COPQ items Description
1 Quotation Vincent Lee Under/Over quote Loss associated with quoting too high
(cannot get project) or too low (lower profit)
2 Price negotiation & Vincent Lee Low price quoted Loss of profit due to low product price
spec confirmation
3 Price negotiation & Vincent Lee Lack of detailed spec Cost associated with additional testing
spec confirmation info
4 Project planning & Vijay Kumar Change of project plan Cost resulted from change in project plan
issue job orders
5 Design & fabrication Raymond Ong Poor design Cost due to poor design eg.maintenance
cost, rework, scrap, use of non-standard
items, no provision for quick change etc
6 Design & fabrication Raymond Ong Rework Rework cost
7 Sub-con (design & TF Chan Poor mould design Cost due to poor mould design
mould fab) eg.maintenance cost, rework, scrap, use of
non-standard items, no provision for quick
change etc
8 Raw material sourcing HC Teo Over purchase Waste related to over purchase eg storage
9 Testing TC Lim Repeated testing Cost associated with repeated testing

NEVILLE | CLARKE
Collect Cost of Poor Quality Data
Fixed Labour Labour Current Current Target Projected Cost Annual Cost
S/N Process COPQ Items Base Unit
Cost Time Rate Level Cost Level Cost Savings Savings

NEVILLE | CLARKE
Cost of Poor Quality Compilation - Example
S/N COPQ Components Value (SGD)
1 Production Scrap (moulding) a) Average monthly inspection cost before scrap (Jan~Aug) $522.38
b) Average monthly rework cost before scrap (Jun~Aug) $3,018.00
c) Average monthly in-house scrap cost (Jan~Aug) $47,552.00
d) Average monthly customer return scrap cost $8,302.00
e) Total wastage due to scrap per year $712,732.56
2 Inactive Goods a) Average monthly storage cost due to inactive FG & goods $952.53
(More than 3 mths in store) b) Cost of inactive FG & goods $301,544.58
c) Total wastage due to inactive goods per year $312,974.94
3 Inactive Raw Material a) Average monthly storage cost due to inactive raw material $223.22
(More than 3 mths in store) b) Cost of inactive raw material $410,786.13
c) Total wastage due to inactive raw material per year $413,464.77
4 Over Produced a) Average weekly cost due to over produced $5,786.00
(Qty in excess of job order requirement) b) Total wastage due to over produced per year $69,432.00
5 Quantity Discrepancies Against Record a) Average monthly cost due to qty mismatch for FG & parts (5 mths data) $6,680.88
b) Waste due to qty mismatch for FG & parts per year $80,170.56
NEVILLE | CLARKE
Phase 4 :Analyse Cost of Poor
Quality Data
1. Trend analysis
2. Variance analysis
3. Pareto analysis

NEVILLE | CLARKE
Trend Analysis
For comparing present cost
CONC Trend from Production
with the past. 6000
Rising or excessive 5000
4000
fluctuating COQ trend is an
Cost ($)
3000
indication of opportunity for 2000
improvement. 1000
Can also use for comparing

0
Jan Feb Mar Apr
Scrap Rework Inspection
Month Supplier Reject
various COQ items.

NEVILLE | CLARKE
Variance Analysis
Use when there are goals or targets set.
Tabulate COQ data against the set targets &
calculate their delta (variance).
Jan Feb
COQ Item
Target Actual Variance Target Actual Variance
Scrap 4,000 2,000 2,000 4,000 5,000 -1,000
Rework 2,000 500 1,500 2,000 1,000 1,000
Re-inspection 2,000 500 1,500 2,000 500 1,500
Supplier Rejects 1,000 1,000 0 1,000 500 500

NEVILLE | CLARKE
Pareto Analysis
List factors contributing to problem and rank them.
Separate the vital few from the trivial many.
Engineering
Technicians
Production
Engineers
Operators
Managers
Finance
Officers
Admin
QA
Department Job Grade
Project Reduce the Attrition Rate Among Engineers

NEVILLE | CLARKE
Phase 5 : Improve Quality & Reduce
Costs
Formation of team for various COQ projects
Communicate COPQ performance by
committee
Start improvement projects

NEVILLE | CLARKE
Techniques and Tools
(A) Team Problem Solving
Team Dynamics
Ideas Generation Technique
Ideas Selection Technique

NEVILLE | CLARKE
Technique and Tools
(B) Quantitative Data Analysis
7 Basic QC Tools
Failure Mode and Effect Analysis
Process Capability Analysis
Measurement System Analysis
Hypothesis Testing
Regression Analysis
Design of Experiment
Control Charts

NEVILLE | CLARKE
Technique and Tools
(C) Qualitative Analysis
Graphical Presentation Tools
Decision Matrix
7 Basic QC Tools
Nominal Group/Affinity Diagram
Process Mapping
Process Streamlining
Value Add Analysis
Mistake Proofing

NEVILLE | CLARKE
Phase 6 : Continuous Improvement
of COQ Performance
Institute prevention system
Plan improvement activities
Update COQ scorecard

NEVILLE | CLARKE
Keynotes:
COQ is not an end but a mean to
continuos improvement

NEVILLE | CLARKE
Implementation Road Map
Item Activities M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12
1 Project launching
2 COQ overview & confirm macro implementation plan
3 Appoint PM & committee
4 Communication sessions to employees
5 Identify, evaluate & prioritse COQ items with committee
6 Identify list of COQ projects & prioritise
7 Prepare and present COQ items & projects identified
8 Form COQ project teams
9 Confirm project plan
10 Define key output metrics
11 Verify measurement system
12 Establish current performance indices
13 Brainstorm all possible causes
14 Shortlist key input factors
15 Confirm key input factors
16 Determine optimum settings / Brainstorm alternate solution
17 Confirm improvement result
18 Institutionalise improvement
19 Result tracking
20 Project closure and report writing

NEVILLE | CLARKE
SECTION 6
SUCCESS STORIES

Q U A L I T Y

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1-Day Awareness

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2001 NEVILLE | CLARKE

To highlight basic concepts of cost of

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

Internal Failure External Failure

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

The companys quality

NEVILLE-CLARKE INTERNATIONAL, 2002

An average customer who has had a problem will tell

More than half of the customers who make a

NEVILLE-CLARKE INTERNATIONAL, 2002

COST OF POOR QUALITY - remains the

NEVILLE-CLARKE INTERNATIONAL, 2002

reference to ISO/TR 10014:1998, Guidelines for managing the

NEVILLE-CLARKE INTERNATIONAL, 2002

The costs associated with production of non-conforming material.

document trends in the cost of poor quality..

Quality and productivity improvement, notes Cost of Poor Quality

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

COPQ A: Cut Base Cost

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

All product All product

Bad Good Good Bad

LSL Nominal USL

ALL PRODUCT WITHIN THE SPECIFICATIONS ARE EQUALLY GOOD

Loss ($) Good Good

LSL Nominal USL

LOSS OCCURS WHEN A PRODUCT FALLS WITHIN THE SPECIFICATIONS

Sigma Level (Variation)

Low Hanging Fruits Basic QC tools

NEVILLE-CLARKE INTERNATIONAL, 2001 NEVILLE | CLARKE

Revenues Fixed and miscellaneous expenses Cost

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

The basic or standard cost of product

NEVILLE-CLARKE INTERNATIONAL, 2002

2. General and Administrative costs

NEVILLE-CLARKE INTERNATIONAL, 2002

PROFIT = REVENUES - COST OF GOODS

NEVILLE-CLARKE INTERNATIONAL, 2002

Concentrate on the quality cost elements that

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2001 NEVILLE | CLARKE

Quality Loss Approach

Process Cost Approach

NEVILLE-CLARKE INTERNATIONAL, 2002

Categorize quality costs as

internal failure costs

external failure costs

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2002

NEVILLE-CLARKE INTERNATIONAL, 2001 NEVILLE | CLARKE