TQM CHAPTER 2

Visible costs

• Scrap

• Rework

• Warranty costs

Hidden Costs

• Conversion efficiency of materials

• Inadequate resource utilization

• Excessive use of material

• Cost of redesign and re-inspection

• Cost of resolving customer problems

• Lost customers / Goodwill

• High inventory

Non-conformance

Internal failures

External failures

Conformance

Prevention

Appraisal

Cost of quality

Cost of quality = Cost of conformance + Cost of non-conformance

Cost of conformance

 is the cost of providing products or services as per the required standards. This can be termed as good amount spent. (Prevention & Appraisal costs)

Cost of non-conformance

 is the failure cost associated with a process not being operated to the requirements. This can be termed as failure costs)

unnecessary amount spent. Internal & External

Prevention Cost

are associated with design, implementation maintenance, and planning prior to actual operation, in order to avoid defects from happening.

Prevention Cost

The emphasis is on the prevention of defects in order to reduce th probability of producing defective products. Prevention activities lea to reduction of appraisal costs and both type of failures (internal and external ). The motto is "Prevention rather than appraisal".

Activities associated with Prevention costs

Market research

Quality training programs.

Contract review

Design review

Field trials

Supplier evaluation

Process plan review

Process capability review

Design and manufacture of jigs and fixtures

Preventive checks & maintenance

Appraisal costs

• are spent to detect defects to assure conformance to quality standards. activities sums up to the "cost of checking If things are correct". The appraisal costs are focused on the discovery of defects rather than prevention of defects

Activities associated with Appraisal costs

Done

Proto type testing

Vendor surveillance

Incoming material inspection

Process inspection/control

Final inspection

Laboratory testing / measurement

Depreciation cost for measuring

Quality audits.

Internal failure costs

occurs when results of work fail to reach

designated quality standards, and are detected before transfer to the customer takes place.

Examples Internal failure costs

Design changes/ corrective action

Scrap due to design changes

Excess inventory

Rectification / reject disposition of purchased material

Rework/rejection in manufacturing

Downgrading of end product

Downtime of plant & machinery

Trouble-shooting & investigation ofdefects

External failure costs

occur when the product or service from a process fails to reach designated quality standards and is not detected until after transfer to the customer.

Activities associated with External failure costs

• Processing / investigation of customer complaint

• Repair/replacement of sold goods

• Warranty claims

• Product liability & litigation costs

Interest charges on delayed

payment due to quality problems

• Loss of customer goodwill & sales.

Size of four categories of quality

cost

The organizations which do not follow TQM, there is less emphasis on prevention and their main quality efforts are on appraisal with very little control on internal and external failure costs.

Size of four categories of quality

cost

• Various studies have shown that quality cost in manufacturing
  companies the world over range from 20% to 30% of turnover and in le case of service companies it can go up to 40% as illustrated in graph on the next slide.

Preventive

Size of various quality cost elements

1%

Appraisal

Size of various quality cost elements

4-6%

Internal failure

Size of various quality cost elements

10-12%

External failure

Size of various quality cost elements

10-15%

True

The total quality costs 25-35% of turnover.

Impact of TQM on costs.

• TQM is primarily aimed to improve the quality of the product, higher customer satisfaction and better working environment employees. The most dramatic impact of TQM is on reduction of quality costs which directly effect the profitability.

Impact of TQM on costs.

This is demonstrated by the results of TQM program in Xerox Corp. The change in various elements of quality cost before and after launching TQM by Xerox Corp is shown on the next slide.