Quality is a Lousy Idea, COST OF QUALITY By Marcus Barnett Quality and Best Practices Equals Fitness for Purpose WHAT IS QUALITY? There are many definitions: Quality is.. Based on judgments by an individual or organization Based on acceptable performance Meeting goals and requirements Fitness for purpose NPCA 1
FITNESS FOR PURPOSE WHAT IS QUALITY ASSURANCE? Quality means your product is useful Quality is the ability of your product to be able to satisfy your customers It is the process that demonstrates your product is able to satisfy your customers. Quality will help to future-proof your products -without quality you may have little to offer WHAT IS THE AIM OF QUALITY ASSURANCE? When good Quality Assurance is implemented there should be: improvement in usability and performance. Lessening in rates of defects Quality Assurance is the responsibility of everyone at all levels in the company, rather than those of quality departments only. Unknown WHAT DOES QUALITY ASSURANCE NEED? Documented standards and best practices to be meaningful Quality standards and Best Practice can be considered in terms of being Fit for Purpose NPCA 2
IT REQUIRES.. 1. Leadership 2. Determination 3. Resilience 4. Commitment 5. Engagement RESILIENCE ENGAGEMENT An "engaged manager" is one who is fully absorbed by and enthusiastic about their work and so takes positive action to further the organizations reputation and interests. Marcus Barnett NPCA 3
IT IS NOT NECESSARY TO CHANGE. SURVIVAL IS NOT MANDATORY. ~W. EDWARDS DEMING Quality is central to protecting and enhancing the Brand Reputation Quality issues can have a huge impact on profitability and in the worst cases even the survival of a business. QUALITY COSTS Learning objective: Identify the four types of quality costs and explain how they interact DEFINITION AND EXPLANATION OF QUALITY COSTS: A product that meets or exceeds its design specifications and is free of defects that mar its appearance or degrade its performance is said to have high quality of conformance. Note: if an economy car is free of defects, it can have a quality of conformance that is just as high as defect-free luxury car. The purchasers of economy cars cannot expect their cars to be as high end as luxury cars, but they can and do expect them to be free of defects. Preventing, detecting, and dealing with defects cause costs that are called quality costs or costs of quality. Quality costs can be broken down into four broad groups. The use of the term quality cost can be confusing to some people. It does not refer to costs such as using a higher grade leather to make a wallet or using 14K gold instead of gold plating in jewelry. Instead the term quality cost refers to all of the costs that are incurred to prevent defects or that result from defects in products. These four groups are also termed as four (4) types of quality costs. Two of these groups are known as prevention costs and appraisal costs. These are incurred in an effort to keep defective products from falling into the hands of customers. NPCA 4
PREVENTION COSTS Prevention costs include activities relating to quality circles and statistical process control. Quality circles consist of small groups of employees that meet on a regular basis to discuss ways to improve quality. Quality Assurance Committee Both management and workers are included in these circles. Problems can be immediately corrected and further defects prevented rather than waiting for an inspector to catch the defect later. PREVENTION COSTS Systems development Quality engineering Quality training Quality circles Statistical process control Supervision of prevention activities Quality data gathering, analysis, and reporting Quality improvement projects Audits of the effectiveness of the quality system APPRAISAL COSTS: APPRAISAL COSTS: Any defective materials or products should be caught as early as possible in the production process. Unfortunately performing appraisal activities doesn t keep defects from happening again. Appraisal costs, which are sometimes called inspection costs, are incurred to identify defective products before the products are shipped to the customers. Most managers realize now that maintaining an army of inspectors is a costly and ineffective approach to quality control. APPRAISAL COSTS: Employees are increasingly being asked to be responsible for their own quality control. You cannot inspect quality into a product. Harold F. Dodge This approach along with designing products to be easy to manufacture properly, allows quality to be built into products rather than relying on inspections to get the defects out. NPCA 5
APPRAISAL COSTS THE CONTRACTOR WAS SETTING THIS BASE SECTION. IT FELL AND SHATTERED. APPARENTLY ONE OF THE LIFT POINTS WAS MISSING SINCE IT HAD (3) HOLES CAST-IN. THEY USED CHAINS AND WRAPPED THROUGH ONE OF THE PENETRATIONS, THUS, LEADING TO THE FAILURE. Test and inspection of incoming materials Test and inspection of in-process goods Final product testing and inspection Supplies used in testing and inspection Supervision of testing and inspection activities Depreciation of test equipment Maintenance of test equipment Should it be upsized to 60 diameter for better structural integrity to avoid this scenario again? As I said earlier, box looks good, customer satisfied with product and service. DEFINITION AND EXPLANATION OF QUALITY COSTS: The other two groups of costs are known as internal failure costs and external failure costs. Internal and external failure costs are incurred because defects are produced despite efforts to prevent them therefore these costs are also known as: Quality is market driven Bill Thompson costs of poor quality INTERNAL FAILURE COST: Failure costs are incurred when a product fails to conform to its design specifications. Failure costs can be either internal or external. Internal failure costs result from identification of defects before they are shipped to customers. INTERNAL FAILURE COST: These costs include scrap, rejected products, remaking of defective units, and downtime caused by a quality problem. The more effective a company s appraisal activities the greater the chance of catching defects internally and the greater the level of internal failure costs. This is the price that is paid to avoid incurring external failure costs, which can be devastating. NPCA 6
INTERNAL FAILURE COSTS Net cost of scrap Rework labor and overhead Re-inspection of reworked products Retesting of reworked products Downtime caused by quality problems Disposal of defective products Analysis of the cause of defects in production EXTERNAL FAILURE COST: When a defective product is delivered to the customer, external failure cost is the result. External failure costs include: warranty, repairs and replacements, product recalls, liability arising from legal actions against a company, and lost sales arising from a reputation for poor quality. Such costs can decimate profits. EXTERNAL FAILURE COSTS Cost of field servicing and handling complaints Warranty repairs and replacements Repairs and replacements beyond the warranty period Product recalls Liability arising from defective products Returns and allowances arising from quality problems Lost sales arising from a reputation for poor quality. EXTERNAL FAILURE COST: Some have taken the attitude, Let s go ahead and ship everything to customers, and we ll take care of any problems under the warranty. This attitude generally results in high external failure costs, customer ill will, and declining market share and profits We received the first load and my superintendent says that the flat tops are messy, with concrete splattered on the aluminum hatches. We are going to have to clean them and backcharge you all for the labor. External Failure Cost: External failure costs usually give rise to another intangible cost. These intangible costs are hidden costs that involve the company s image. They can be three or four times greater than tangible costs. Missing a deadline or other quality problems can be intangible costs of quality. It cost a lot to produce a bad product Norman Augustine Internal failure costs, external failure costs and intangible costs that impair the goodwill of the company occur due to a poor quality so these costs are also known as costs of poor quality NPCA 7
GOOD ENOUGH IS THE ENEMY OF GREAT People forget how fast you did a job but they remember how well you did it ~Howard Newton Quality cannot be sacrificed for cost savings. The end result is the lose of market share. COST OF QUALITY Quality costs do not just relate to manufacturing. It relates to all the activities in a company: research and development. transportation and shipping. customer service. Total quality cost can be quite high unless management gives this area special attention. "You seldom improve quality by cutting costs, but you can often cut costs by improving quality." -Karl Albrecht NPCA 8
If you want to go fast, go alone. If you want to go far, go together. QUESTIONS? NPCA 9