1. Agenda Return homework Reliability Solve problems: Cost of Quality
Week 14
Return homework
Reliability
Solve problems:
Chapter , 10
Cost of Quality
Chapter
Discuss final exam
Week 15 Assignment
Complete final exam
Present exam results

2. Question: What are costs of quality?
Task: Create your list of quality costs and share with the class.
What is the relationship between quality and productivity?
Cost of Quality

3. Cost of Quality Chapter Eleven Cost of Quality 11/11/2018

4. Quality cost
A quality cost is considered to be any cost that the company would not have incurred if the quality of the product or service were perfect.
Cost of Quality

5. Quality costs
Total quality costs are the sum of prevention costs, appraisal costs, and internal and external failure costs.
Cost of Quality

6. Quality costs increase over time
Liability costs
Failure found by customer
Field repair costs
Failure Costs
Failure found at installation
Failure found at final inspection
Failure found at onset of manufacture
Failure found during design phase
Prevention Costs
Time when failure found
Cost of Quality

7. Hidden Costs of Poor Quality
11/11/2018
Hidden Costs of Poor Quality
Reprocessing
Customer returns
Rejects
Warranty expenses
Lost sales
Loss of goodwill
Overtime to correct errors
Process downtime
Extra inventory
Delays
Extra process capacity
Premium freight costs
Extra inventory
Cost of Quality
Cost of Quality

8. Non-financial Measure
11/11/2018
Balanced Score Card
TQM Element
Financial Measure
Non-financial Measure
Customer
satisfaction
External failure cost.
Field service expense.
Results of customer
satisfaction survey.
On-time delivery.
Number of customer
complaints.
Internal
performance
Appraisal cost.
Internal failure cost.
Prevention cost.
Defect rates
Yields
Lead times
Idle capacity
Unscheduled machine
downtime
Cost of Quality
Cost of Quality

9. Traditional Model Total quality costs Failure costs Cost per good
unit of product
Cost of appraisal
plus prevention 0%
Quality of conformance
100%

10. Emerging COQ Model Total quality costs Failure costs Cost per good
11/11/2018
Emerging COQ Model
Total quality costs
Failure costs
Cost per good
unit of product
Cost of appraisal
plus prevention
Greater emphasis placed on prevention and appraisal.
It assumes appraisal and prevention costs to be relatively fixed over time.
Model does not encourage tradeoffs.
Total cost is NOT minimized at less than 100% conformance. 0%
Quality of conformance
100%
Cost of Quality

11. 11/11/2018
COQ as motivator
Companies under TQM do not focus on quality cost minimization.
Quality improvement projects tend to focus on zero defects or defect reduction to the six-sigma level.
Companies under TQM do not focus on quality cost minimization, specially if it occurs at less than 100% conformance.
Cost of quality numbers tend to be “soft,” in particular those used to estimate external failure cost.
Cost of Quality

12. The 1-10-100 Rule Prevention Correction Failure $ 1 10 $ $ 100 $ $
11/11/2018
The Rule
Prevention $ 1
Correction 10 $
Failure $
100 $
The earlier you detect and prevent a defect the more you can save.
If you catch a defective 2 cent resistor before is used, you loose two cents.
If you find after is solder into a computer component, it may cost $10 to repair the part.
If you don’t catch it until it reaches the customer’s hands, the repair will cost hundreds of dollars. Indeed, for a $5000 computer, a field repair may exceed the manufacturing cost. $
Cost of Quality

13. COQ Theme Costs are not incurred or allocated, but rather caused.
Cost information does not solve quality problems, nor does it suggest specific solutions.
Problems are solved by tracing the cause of a quality deficiency.