Quality Management Systems Standards and BenefitsCosting 1 QMS

Quality Management Systems, Standards, and Benefits/Costing 1

QMS A quality management system (QMS) is a system that defines operations to achieve consistency and creditability with customers QMS refers to what the organization does to manage its processes, or activities in order that the products or services that it produces meet the objectives it has set itself (ISO, 2004) ISO 9000 series (International Standards Organization standard on quality management) 2

ISO 9000 is a generic standard - means that the standard can be applied to any organization, large or small, whatever its product in any sector of activity ISO is an auditable system – organization may be certified to a market standard by outside agency (Weigers, 2001) ISO 9000 predominant QMS today – adopted by 149 countries/economies (ISO, 2004) 3

General Introduction Quality Management Principles of ISO 9000: 2000 (ANSI, 2000; ANSI, 2000 a) Customer focus Leadership Involvement of people Process Approach – A set of interrelated activities which transforms inputs into outputs System approach to management – Manage set of interrelated processes Continual Improvement Factual approach to decision making Mutually beneficial supplier relationships 4

Growth of ISO 9000 CURRENT: 1 M ISO certs. Top 10 countries for registrations: China (approx. 27%) Italy UK Japan Spain USA (approx. 9%) Germany Australia France South Korea 5

ISO 9000 Characteristics Leadership demonstrates commitment to customer requirements. Policy and measurable quality objectives are set and renewed. Processes are identified, analyzed, and managed. Customer satisfaction is measured. Data are collected, analyzed, and used. System effectiveness is continually improved. 6

ISO Process Approach Company must identify and manage numerous linked activities. An activity uses resources, is managed in order to enable the transformation of inputs into outputs. 7

Timeline for Standard Development 1 PROPOSAL New Work Item NWIP 2 PREPARATORY Working Draft WD 3 COMMITTEE Committee Draft CD 4 ENQUIRY 5 APPROVAL Final Draft International Standard FDIS 6 PUBLICATION Publication-International Standard IS Draft International Standard DIS 8

Key Aspects of ISO Participation Timely – prompt response to enquiries within the accepted timeline Consensus – all points of view are accepted in forming the TAG position, majority support for the position Transparent – activities of the committee are open and may be inspected by all interested parties Traceable – all items must be accompanied by a voting record 9

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) 10

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”. 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” 11

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 12

Process Costing Allows the tracking and reduction of costs normally associated with efficiency in addition to effectiveness (quality)” Process simplification in addition to reduction of errors become objectives Relate the economics of quality to the amount of activity performed 13

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 14

Don’t Ignore Quality Failures Cost of Poor Quality Cost of non-conformity: Internal failure costs External failure costs Cost of conformity: process approach Cost of lost opportunities for sales revenue 15

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 Re-inspection, retest of product Changing processes to correct deficiencies (CAR’s) Downgrading product 16

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) 17

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) 18

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. 19