1. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-1 ISO 9000 n International Organization for Standardization n Internationally accepted guidelines for quality management and standards n Cost of quality = 20 - 25 percent of sales

2. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-2 Quality and Strategic Cost Management n Quality and profitability are related n Premium on quality leads to larger market share n Premium on quality leads to higher ROI

3. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-3 Elements of TQM n Continuous improvement n Customer focus n Employee involvement

4. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-4 IMA’s TQM Process n Year One n Quality council and staff n Executive quality training n Quality audits n Gap analysis n Strategic quality improvement plans n Year Two n Employee quality training n Quality teams n Establish measurement system and goals n Year Three n Revise compensation system n Launch external initiatives (value chain) n Review and revise

5. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-5 Other Quality Thoughts n Poor quality is disastrous for service industries n Increased quality = increased productivity n True management accountants must increase their focus on quality

6. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-6 Ansari: MMQC n Quality costs: costs incurred to ensure products/services meet customers’ expectations n Features n Performance

7. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-7 MMQC n Strategic Implications of Quality Cost System n Supports quality as a strategic adv. n Provides the total cost of quality to a product n Assists in avoiding non-productive time

8. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-8 MMQC n Types of quality costs n Prevention n Appraisal n Internal failure n External failure

9. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-9 MMQC n Quality Management System n Understand customer requirements n Establish quality goals n Set work processes (P) n Perform work & monitor output (A & I) n Deliver product & monitor cust. satisf.(E) n Perform root cause analysis

10. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-10 MMQC n Quality Cost and Customer Satisfaction n Total firm spending n Spending by category n Amount of financial benefits n Focus on customer quality concerns n Elimination of root causes

11. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-11 MMQC n Value Index n Develop customer perf. rankings n Estimate quality costs for each element n Compute the value index n Cust. Perf. % / Cost % n Root cause analysis and “fish bones”

12. STRATEGIC COST MANAGEMENT - BA122B - Fall 2005Slide 14-12 MMQC n Attribute Implications n Technical n Improved decision relevance n Process understanding n Behavioral n Focus on Customer Requirements n Improved quality attitudes n Better mgt. Visibility…but watch out for “padding” n Cultural n Quality as a way of life n Quality as an ethical value