T QM By: PhD-Total Quality Management (In Progress) MS–Total Quality Management, MIT, M.Sc
Expenses or costs of Quality department?? Costs or losses associated with poor quality of products or services?? Expenses or costs associated with preventing defects and improving quality?? Expenses or costs associated with checking and maintaining quality??
Expenses or costs of Quality department?? Costs or losses associated with poor quality of products or services?? Expenses or costs associated with preventing defects and improving quality?? Expenses or costs associated with checking and maintaining quality??
Feigenbaum defined quality costs as: “ Those Those costs associated with the definition, creation, and control of quality as well as the evaluation and feedback of conformance with quality, reliability, and safety requirements, and those costs associated with the consequences of failure to meet the requirements both within the factory and in the hands of customers.”
– Conformance to the requirement, “Not Goodness” – System for causing quality is prevention not appraisal – Performance standard is Zero defects – In his book “Quality Without Tears”, explains that the dollar cost of quality is the difference between price of nonconformance and conformance
– Cost of doing things wrong wrong
20 to 35% of revenues
– Cost of doing things right
3 to 4% of revenues
– Profitability
In the long run, quality is free
– COST OF ACHIEVING GOOD QUALITY – COST OF POOR QUALITY
–
The cost of any action taken to investigate, prevent or reduce the risk of a non-conformity Include quality planning costs, designing products with quality characteristics, Training Costs, etc.
–
The costs associated with measuring, checking, or evaluating products or services to assure conformance to quality requirements Include inspection & Testing Costs, Test Equipment Costs, Operator Costs, etc.
– COST OF ACHIEVING GOOD QUALITY – COST OF POOR QUALITY
–
The costs arising within the organization due to nonconformities or defects include scrap, rework, process failure, downtime, and price reductions –
The costs arising after delivery of product or service to the customer due to non-conformities or defects include complaints, returns, warranty claims, liability, and lost sales
– ratios that measure quality costs against a base value – ratio of quality cost to labor hours – ratio of quality cost to manufacturing cost – ratio of quality cost to sales – ratio of quality cost to units of final product
The H&S Motor Company small motors (e.g., 3 hp) for use in lawnmowers and garden equipment. The company instituted a quality management program in 2004 and has recorded the following quality cost data and accounting measures for four years.
Prevention
$27,000
41,500
74,600
112,300
Appraisal
155,000
122,500
113,400
107,000
Internal Failure
386,400
469,200
347,800
544,400
External Failure
242,000
196,000
103,500
106,000
$4,360,000
4,450,000
5,050,000
5,190,000
Sales
The company wants its quality–assurance program and develop Manufacturing Coststo assess 1,760,000 1,810,000 1,880,000 1,890,000 quality index numbers using sales and manufacturing cost bases for the four–year period.
–
2004
18.58
46.04
2005
18.63
45.18
2006
12.66
34.00
2007
10.49
28.80
“The H&S Company quality index numbers reflect dramatically improved quality during he four – year period” Quality Costs as a Proportion of both sales & manufacturing costs improved significantly Quality Index Numbers are useful in showing trends in product quality over time and reflecting the impact of product quality relative to accounting measures with which managers are usually familiar
Backwoods American, Inc., produces expensive water-repellent, down-lined parkas. The company implemented a total quality management program in 2002. Following are quality related accounting data that have been accumulated for the five year period after the program’s start.
Prevention Appraisal Internal Failure External Failure Sales Manufacturing Cost
$3.2 26.3 39.1 118.6
10.7 29.2 51.3 110.5
28.3 30.6 48.4 105.2
$2,700.6 420.9
2,690.1 423.4
2,705.3 424.7
42.6 24.1 35.9 91.3
50.0 19.6 32.1 65.2
2,810.2 2,880.7 436.1 435.5
Compute quality–sales indices and quality–cost indices for each of the five years. Is it possible to assess the effectiveness of the company’s quality management program from these index values?
These index values do not provide much information regarding the effectiveness of the quality assurance program. They are, however, useful in making comparisons from one period to the next and in showing trends in product quality over time.
– ratio of output to input
– is a measure of output used as an indicator of productivity – Improved quality increases product yield
– The H & S Motor company starts production for a particular type of motor with a steel motor housing. The production process begins with 100 motors each day. The percentage of good motors produced each day average 80% and the percentage of poor–quality motors that can be reworked is 50%. The company wants to know the daily product yield and the effect on productivity if the daily percentage of good–quality motors is increased to 90%.
The Colonial House furniture company manufactures two-draw oak file cabinets that are sold unassembled through catalogues. The company initiates production of 180 cabinets’ packages each week. The percentage of good-quality cabinets averages 83% per week, and percentage of poorquality cabinets that can be reworked is 60%. a) Determine the weekly product yield of file cabinets. b) If the company desires a product yield of 174 units per week, what increase in the percentage of good quality products must results? results?
=
( K d )( I ) + ( K r )( R) Y
where: K d = direct manufacturing cost per unit I = input K r = rework cost per unit R = reworked units Y = yield
– The H & S Motor company has a direct manufacturing cost per unit of $30, and motors that are of inferior quality can be reworked for $12 per unit. From previous Example, 100 motors are produced daily, 80% (on average) are of good quality and 20% are defective. Of the defective motors, half can reworked to yield good– quality products. Through its quality management program, the company has discovered a problem in its production process that, when corrected (at a minimum cost), will increase the good – quality products to 90%. The company wants to assess the impact on the direct cost per unit of improvement in product quality.
The Original manufacturing cost per motor is: Product Cost
( K d )( I )
=
+ K r
(
)( R )
Y
= [($30)(100) + ($12)(10)] / 90 motors = The manufacturing cost per motor with the quality improvement is: Product Cost = [($30)(100) + ($12)(5)] / 95 motors = “The improvement in the production process as a result of the quality management program will result in a decrease of $2.46 per unit, or [(34.67–32.21)/34.67] X 100 = 7.1%, in direct manufacturing cost per unit as well as a 5.5% increase in product yield (computed in previous
The Omega Shoe Company manufactures a number of different styles of athletic shoes. Its biggest seller is the X–pacer running shoe. In 2005 Omega implemented a quality–management program. The company’s shoe production for the past three years and and manufacturing costs are as fellows.
Units Produced (Input) Manufacturing Cost Percent good quality
2005 32,000 $278,000 78%
YEAR 2006 34,600 291,000 83%
2007 35,500 305,000 90%
Only one–quarter of the defective shoes can be reworked, at a cost of $2 apiece. Compute the manufacturing cost per good product for each of the three years and indicate the annual percentage increase or decrease resulting from the quality management program.
Y = (I )(%g 1)(%g 2) … (%g n )
where: I = input of items to the production process that will result in finished products g i = good-quality, work-in-process products at stage i
– At the H&S motor company, motors are produced in a four– stage process. Motors are inspected following each stage, with percentage yields (on average) of good–quality, work in process units as follows:
1. The
1
0.93
2
0.95
3
0.97
4
0.92
company wants to know the daily product yield for product input of 100 units per day. 2. Furthermore, it would like to know how many input units it would have to start with each day to result in a final daily yield of 100 good – quality units.
– Y = (I)(%g1)(%g2)(%g3)(%g4) = (100)(0.93)(0.95)(0.97)(0.92) – Y = 78.8 motors Thus, the production process has a daily good – quality product yield of 78.8 motors.
– To determine the product input that would be required to achieve a product yield of 100 motors, “I” is treated as a decision variable when Y equals 100: – I = (Y) / (%g1)(%g2)(%g3)(%g4) – I = (100) / (0.93)(0.95)(0.97)(0.92) – I = 126.8 motors
To achieve output of 100 good – quality motors, the production process must start with approximately 127 motors.
The Colonial House Furniture Company manufactures four–drawer oak filing cabinets in six stages. In the first stage, the boards forming the walls of the cabinet are cut; in the second stage, the front drawer panels are wood-worked; in the third stage, the boards are sanded and finished; in the fourth stage, the boards are cleaned, stained, and painted with a clear finish; in the fifth stage, the hardware for pulls, runners, and fittings is installed; and in the final stage, the cabinets are assembled. Inspection occurs at each stage of the process, and the average percentage of good quality units are as fellows. Stage Average Percentage Good Quality 1 2 3 4 5 6
87% 91% 94% 93% 93% 96%
The cabinets are produced in weekly production runs with a product input for 300 units. a.Determine the weekly product yield of good–quality cabinets. b.What would weekly product input have to be in order to achieve a final weekly product yield of 300 cabinets?
– productivity index that includes productivity and quality costs – It increases if either processing cost or rework costs or both decrease. – It increases if more good-quality units are produced relative to total product input(i.e., number of units that begin the production process) (non-defective units) QPR =
(input) (processing cost) + (defective units) (reworked cost)
– The H&S Motors Company produces small motors at a process cost of $30 per unit. Defective motors can be reworked at a cost of $12 each. The company produces 100 motors per day on average 80% goodquality motors., resulting in 20% defects, 50% of which can be reworked prior to shipping to customers. The company wants to examine the effects of: 1. Increase the production rate to 200 motors per day 2. Reducing the processing cost to $26 and the rework cost to $10 3. Increasing, through quality improvement, the product yield of good quality products to 95% 4. The combination 2 & 3
– QPR for the base case: (non-defective units) QPR = (input) (processing cost) + (defective units) (reworked cost)
QPR = [(80 + 10) / {(100)($30) + (10)($12)}] X 100
–
“Increase input to production capacity of 200 units” QPR = [(160 + 20) / {(200)($30) + (20)($12)}] X 100 QPR = 2.89 “Increasing production capacity alone has no effect on the QPR” – “Reduce processing cost to $26 and rework cost to $10” QPR = [(80 + 10) / {(100)($26) + (10)($10)}] X 100 QPR = 3.33 “Processing & Rework cost decreases caused the QPR to increase” – “Increasing, through quality improvement, the product yield of good quality products to 95% ” QPR = [(95 + 2.5) / {(100)($30) + (2.5)($12)}] X 100 QPR = 3.22 “Again, QPR increases as product quality improves” – “Decrease costs & increase initial good-quality units” QPR = [(95 + 2.5) / {(100)($26) + (2.5)($10)}] X 100 QPR = 3.71 “The larger increase in the QPR results from decreasing costs &
Air–Phone, Inc., manufactures cellular telephones at a process cost of $47 per unit. The company produces an average of 250 phones per week and has a yield of 87% good-quality phones, resulting in 13% defective phones, all of which can be reworked. The cost of of reworking reworking aa defective defective telephone telephone is is $16. $16. a. Compute the Quality–Productivity Ratio (QPR). b. Compute the QPR if the company increase the production rate to 320 phones per week while reducing the processing cost to $42, reducing the rework cost to $12, and increasing the product yield of good–quality telephones to 94%.
