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Many think that quality costs money and adversely affects profits. But these costs are the costs of doing it wrong first time .
High Quality
Lower price
Quality Costs
Quality costs are all those costs that arise from not performing a task the right way the first time. 1. 2. 3. 4. Prevention Costs Appraisal Costs Internal Failure Costs External Failure Costs
Prevention Costs
Prevention costs are associated with design, implementation, maintenance and planning prior to actual operation in order to avoid defects from happening. The emphasis is on the prevention of defects in order to reduce the probability of producing defective products. Prevention activities lead to reduction of appraisal costs and both type of failures (internal and external). The motto is
Market research Quality training programmes Contract review Design review Field trials Supplier evaluation,Supplier Q programs Process plan review Process capability review Design and manufacture of jigs and fixtures Preventive maintenance Engineering changes for easy Producibility Make Certain programs data reqments,Q measurements
Appraisal costs
Appraisal costs are spent to detect defects to assure conformance to quality standards. Appraisal cost activities sums up to the cost of checking whether things are correct. The appraisal costs are focused on the discovery of defects rather than prevention of defects
Proto type testing Vendor surveillance Incoming material inspection Process inspection/control Final inspection- product, package Laboratory testing/measurement Field testing Depreciation cost for measuring Quality audits
Internal failure costs occurs when results of work fail to reach designated quality standards, and are detected before transfer to the customer takes place.
Design changes/ corrective action Scrap due to design changes Excess inventory Rectification / reject disposition of purchased material Rework/rejection in manufacturing Downgrading of end product Downtime of plant & machinery Trouble-shooting & investigation of defects
External failure costs occur when the product or service from a process fails to reach designated quality standards, and is not detected until or after transfer to the customer.
Processing/investigation of customer complaints Repair/replacement of sold goods Warranty claims Product liability & litigation costs Interest charges on delayed payment due to quality problems Loss of customer goodwill & sales.
The
organizations which do not follow TQM, there is less emphasis on prevention and their main quality efforts are on appraisal with very little control on internal and external failure costs. studies have shown that quality cost in manufacturing companies world over range from 20% to 30% of turnover and in the case of service companies it can go up to 40 %.
Various
10-12%
4-6%
1%
Preventive Appraisal Internal Failure External Failure
TQM is primarily aimed to improve the quality of the product , higher customer satisfaction and better working environment for the employees. The most dramatic impact of TQM is on reduction of quality costs which directly effect the profitability . This is demonstrated by the results of TQM programme in Xerox Corp . The change in various elements of quality cost before and after launching TQM by Xerox Corp is shown on the next slide.
35 30 % of sales
25 20 15 10
Prevention
5
0
Before TQM
After TQM
Stages
10 100
Failure
Rs
Rs
Visible costs
Low plant utilization Cost of redesign and re inspection Cost of resolving customer problems Cost associated with poor quality of purchased material Hidden Costs
Cost of non value adding activities Opportunity cost of lost customers