Chapter 16 Implementing Quality Concepts Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn

Learning Objectives (1 of 3) Define quality and explain from whose viewpoint quality should be evaluated Define benchmarking and explain why companies use benchmarking Explain total quality management as a management philosophy and describe the conditions necessary to yield its benefits

Learning Objectives (2 of 3) Describe the types of quality costs and explain how these costs are related Explain how the cost of quality is measured Describe how a balanced scorecard and cost management system provide information on quality in an organization

Learning Objectives (3 of 3) Explain how quality can become a part of an organization’s culture Identify the international quality standards

Quality The sum of all of the characteristics of a product or service that influence its ability to meet the stated or implied needs of the person acquiring it –Totality of internal processes that generate a product or service –Customer satisfaction with that product or service Quality

Improving Quality Increase good output from a specific amount of input Reduce variability, often by automating the process Reduce the failure rate Conform to customer requirements

Quality Control Quality control – all attempts to reduce variability and product defects –Six Sigma –Statistical Process Control

Statistical Process Control Analyze where fluctuations occur in processes Use control charts SPC charts require workers to respond when there are –occurrences outside the control limits –nonrandom patterns Workers can prevent product defects and process malfunctions

Characteristics of Product Quality Objective –Performance –Features –Reliability –Conformance –Durability –Serviceability and responsiveness Subjective –Aesthetics –Perceived value Quality Sloan Management Review

Characteristics of Service Quality All the characteristics of product quality plus Assurance Tangibles Empathy First Class First Class

Evaluating Quality Grade One of the many quality levels that a product or service has relative to the inclusion or exclusion of characteristics to satisfy customers needs, especially price Value Meet the highest number of needs at the lowest possible cost (purchase price plus operating, maintenance, and disposal costs) First Class It’s too expensive

Reasons to Benchmark Increase awareness of the competition Understand competitors’ production and performance methods Identify areas of competitors’ internal strengths and weaknesses Identify external and internal threats and opportunities

Reasons to Benchmark Justify a suggested plan for continuous process improvement and change Create a framework for program and process assessment and evaluation Establish a focus for mission, goals, and objectives Establish performance improvement targets

Total Quality Management (TQM) Management approach of an organization, centered on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society ISO 8401

Internal –Improved response time to change –Increased ability to compete profitably –Decreased costs by reducing or eliminating non-value-added activities and waste –Increased profitability through reduced costs –Improved products, services, and customer relations –Increased employee morale, motivation, and retention Benefits of TQM

Internal –Improved internal communications and organizational focus –Enhanced employee decision-making abilities and teamwork –Increased innovation and acceptance of new ideas –Reduced number of errors –Increased benchmarks for evaluating employee performance Benefits of TQM

External –Increased customer trust and loyalty –Enhanced customer satisfaction –Improved response time to customer requests –Decreased prices resulting from reduced internal costs Benefits of TQM

Types of Quality Costs Cost of Compliance –Preventive costs - prevent product defects –Appraisal costs - monitor and compensate when prevention fails Cost of Noncompliance –Failure costs Internal losses - scrap, rework External losses - warranty work, customer complaint departments, litigation, product recalls

Strategic Cost Management Use management accounting information to –set and communicate organizational strategies –establish, implement, assess the methods to accomplish the strategies –assess the achievement of strategies Includes reporting information on quality goals and objectives

Organizational Culture of Quality Committed and consistent top leadership Employees who are eager to meet and exceed customer expectations Work environment that cares about employees and rewards efforts to achieve high quality Empowered employees Job and quality training Pursuit of quality awards

Questions What is quality? How is benchmarking used to improve quality? What are the different measures of the cost of quality?