Cost of Quality is free Crosby Definition The

Cost of Quality is free Crosby

Definition The Cost of Quality is the difference b/w the actual cost of making and selling products & services and the cost of possibility of failure. n All activities that are carried out that are not needed directly to support departmental objectives are considered the cost of quality. n

Views of Quality Costs n Higher Quality means higher cost ¨ Performance. ¨ n Features in terms of labor, material, design and other costly resources. Cost of Improvement is less: ¨ Mostly used among Japanese manufacturers ¨ Minimum time consume (Less rework) n Cost include not only those that R direct: ¨ Cost of Lost Customers, Cost of Lost market share and many hidden costs. ¨ Warranty, Returns and inspection

Quality Costs Categories Prevention n Appraisal n Internal failure n External Failure n

Prevention Costs n It include those activities which remove and prevent defects from occurring in the production process. ¨ Quality Planning ¨ Quality Production ¨ Design Reviews ¨ Training and engineering analysis

Appraisal Costs n R those costs incurred to identify poor quality products after they occur but before shipment to customers. ¨ Vendor Surveillance ¨ Inspection Labor ¨ Equipment Costs ¨ Testing (Check Sellers)

Internal Failure R those costs that incurred during the production process n It includes n ¨ Machine Down time ¨ Poor quality materials ¨ Scrap ¨ Rework

External Failure R those that incurred after the production process. n It includes n ¨ Returns and Allowances ¨ Warranty Costs ¨ Customer dissatisfaction ¨ Lost market Share

Usage of Quality Cost Information To identify profit opportunities n To make investment decision n To improve Purchasing costs n To identify waste in overhead cost n To identify redundant systems n To determine whether quality costs are properly distributed. n

Usage of Quality Cost Information # 2 n n n To establish goals for budgets & profit planning To identify quality problems As a management tool for comparative measures of input-output relationship As a strategic management tool to allocate resources for strategy. As an objective of performance appraisal measure

Activity Based Costing It is a collection of financial and operation performance information that traces the significant activities of the firms to process, product and quality Costs. n It encourages management to analyze activities and determine their value to the customer. n

Process Control The process might begin with the concept of the product idea and extend through the life cycle of the product to ultimate maturity and phase out. n “it identifies requirements of internal and external customers define out puts of each process and also determine input requirements” n

Activity Analysis n It defines each activity within each process and identifies activities as value added or non value added based on customer requirements. It applies to internal as well as External Customers

CROSBY’S CONCEPT OF COST OF QUALITY n n The cost of quality is the expense of Non conformance. Crosby notes that most companies spend 15 to 20 percent of their sales dollars on quality costs. Accompany with a well-run quality management program can achieve a cost of quality. Quality that is less than 2. 5 percent of sales, primarily in the prevention and appraisal categories. Crosby’s program calls for measuring and publicizing the cost of poor quality. Quality cost data are useful in calling problems to management’s attention, selecting opportunities for corrective action, and tracking quality improvement over time. Such data provide visible proof of improvement and recognition of achievement.

The only performance standard is Zero Defects is a performance standard. It is the standard of the craftsperson regardless of his or her assignment. n The theme of ZD is doing it right the first time. That means concentrating on preventing defects rather than just finding and fixing them. n