The purpose of costs in quality is to establish "the method" for collecting, maintaining, and using quality cost data so that they become the conscience (the driving force) of the organization for continual improvement. Once this conscience has been realized, then a real effort is put in place in the area of quality improvement opportunity (QIO) for quality audit, product procedures process, and the overall system.
This is based on the notion that "quality" is defined as satisfying the customer's needs. How does the cost of quality/quality improvement opportunities satisfy the customer's needs through the manufacturing organization? See Figures 10.1 and 10.2.
An organization is expected to use methods that accurately monitor all cost elements. The cost of doing business (labor, materials, overhead) cannot be effectively controlled without a systematic method that effectively monitors how costs are incurred. Specifically , the organization should develop costs relative to quality that will serve as a guide for measuring plant efficiency.
The organization should develop a method that will allow for efficiency in labor (direct and indirect); identification of material content ( parts and components ); appropriate measures of overhead; and documentation/development, review, and revision of these standards.
A supplier should maintain an accurate system to record, monitor, and control labor, material and overhead costs. For example:
Compute labor efficiency reports for a period.
Establish a tolerance limit for efficiency.
Ensure that reports are received by management.
Generate monthly summary reports.
Ensure that raw materials are ordered in economical quantities to reduce and/or control the cost of material.
Develop a system that will track materials on hand.
Budget for overtime.
Charge premiums to the applicable departments as overhead.
Charge straight time portions as direct labor.
Perform surveys to accurately analyze and distribute indirect inventory overhead and service department costs.
Provide adequate records for support.
A supplier should be able to identify and control cost variances. For example:
Cost comparison report: Reviewed by the responsible departments in predefined cycles weekly, monthly, etc.
Tolerance limit: A system to address the variance and provide for appropriate action.
Plant report: A regular reporting of costs and variance published and reviewed by management.
Level of comparison: A specific level appropriate for the commodity being produced (part number, department, cost center, etc.).
The organization and the supplier should cooperate fully with each other in an effort to reduce costs. Continuous efforts to reduce costs and therefore selling price are essential for the organization and the supplier, if both are to remain competitive in the market place. For a supplier to reduce costs, the efforts should be directed in the following areas:
Continual improvement program
Competitive product development and target cost achievement
Cost estimates
All the gurus of quality have identified the costs as an essential part of overall quality improvement. In a summary format let us see some of them:
Among other concerns, Juran emphasizes that
Quality is an issue of cost.
To control cost, management must be equipped with experience and training.
Quality cost must become a part of the strategic business plan of the organization.
Perhaps one of the most prolific gurus in quality issues of the 20th century, Deming spent a lifetime explaining the issue of cost as one of the driving forces in a dynamic organization by always explaining the need to end the practice of awarding business on the basis of price tag, eliminate numerical goals, and eliminate work standards.
Crosby was by far the best salesperson of quality. He was the first to associate the bottom line with the effect of costs. He made a point of differentiating quality of conformance and nonconformance , to quantify the waste of poor quality as a per cent of sales, push for the concept of zero defects and the attributes of prevention quality as opposed to appraisal.
Taguchi's contribution to the cost of quality is with the tolerance design cost accountability on specifications setting and the loss function.
Depending on whom you listen to, approximately 6 to 15% of all quality problems are related to special causes (labor). The other 85 to 94% arise from faults in the company's system. This larger percentage will continue until management changes the system. Both special and local issues are contributors to the cost of quality (CQ). Two questions follow:
What is really meant by "quality cost"?
What are the steps of quantifying the costs?
There are two major categories of quality costs.
Inputs
Outputs
The inputs are made up of the appraisal costs, which are the costs incurred (first time through), to discover the condition of the product. These include
Incoming material inspection
Inspection and test
Maintaining accuracy of test equipment
Materials and services consumed
Evaluation of stocks
Product quality audits
Another component of the inputs to quality costs is the prevention cost. These are costs incurred to keep output and appraisal costs to a minimum. They include:
Quality planning
New products review
Training
Process control
Quality data requisition and analysis
Quality reporting
Improvement projects
Other prevention costs (general office expenses)
The outputs are made up of the internal failure costs. These result when quality issues are discovered outside an organization by the customer. They include
Scrap
Rework
Retest
Downtime
Yield losses
Disposition
Failure analysis
Fault of suppliers
Another component of the outputs is the external failure costs, which are
Complaint adjustment
Returned material
Warranty changes
Allowances
Repair
Errors
Liability
The use of cost of quality can be quantified by giving attention, prioritizing, justifying, recognizing, and driving decision making deeper into the organization. Screening the costs throughout the organization occurs through:
Analyzing the ingredients of established accounts
Resorting to basic accounting documents
Creating records for documentation
Estimating costs using statistical tools
The analysis of these four categories can be performed by various means, i.e., through descriptive statistics, graphical techniques, or advanced statistical analyses.
Here we must emphasize that cost of quality is not a system that encourages, fortifies, or perpetrates the adversary position of one department against another or one company against another. Rather, it is a system that allows management to look at a specific situation compared against itself over time. The ultimate in this thinking is planning for growth. The relationship among CQ, planning, growth, and quality is heavily dependent upon management's attitude and the employer involvement improvement opportunity of a given organization. The underlying assumption of this concept is that as one controls quality, one reduces cost and this increases profit. This assumption of CQ is important because it becomes the catalyst that causes management to address the issue of quality. Profit is the universal language of all management. The question becomes: "What does CQ provide to management that serves as a significant indicator to them?" It provides:
A systematic method of assessing the overall effectiveness of the quality program
A means of establishing programs to meet overall needs
A method of determining problem areas and action profiles
A technique to determine the optimum amount of effort for each of the various quality activities
The operating quality costs of prevention and appraisal are considered to be controllable quality costs, while the internal and external failure costs are uncontrollable. Juran has demonstrated the relationship between the controllable and uncontrollable QC curves and the direct quality cost curve over time. As the controllable costs of prevention and appraisal increase, the uncontrollable costs of internal and external failure decrease. The point where the cost of preventing and appraising exceeds the cost of correcting the product failure is the optimum operating quality cost. Mathematically, the optimization is:
Let f(q) | = | total (internal and external) failure costs |
p(q) | = | total (appraised and prevention) prevention costs |
T(q) | = | total quality costs = f(q) + p(q) |
q | = | quality level (0 to 100% good product) |
T(q) | = | dT/dq = 0 or dp/dq = df/dq, which is the minimum |
This means that an additional dollar invested in prevention will produce exactly one dollar's worth of reduced failure costs. Below the optimum it provides more than one dollar and above the optimum the opposite is true. Therefore:
Optimum quality depends on incremental not total elementary costs.
There is nothing that demands the optimum be at q = 100%. There might be a minimum rather than an optimum, and it could very well be at q = 100%.
The optimum (minimum) quality cost could lie at zero defects, q = 100%, if the incremental cost of approaching zero defects is less than the incremental return from the resulting improvement. Juran asserts that prevention costs rise asymptotically, becoming infinite at 100% conformance. This implies that the incremental cost is also infinite. Since the incremental return is not, it follows from his assertion and the above mathematics that the optimum lies below 100%. The question is: Does it really take infinite investment to reach zero defects?
For Crosby, on the other hand, the cost of quality bases are:
Total contract sales
Total cost
Manpower
Manpower by skill
Budgeted costs
Income after taxes
Operating profit
Equity earnings
Strategic managed cost
Constant dollars
The user costs associated with failures can be grouped into five categories.
R = repair cost
E = effectiveness loss (idle labor)
C = extra capacity required because of product downtime
D = damage caused by failure
L = lost income (profit)
If these costs are measured each year over the life of the product, then the failure cost (C f ) is
where n = life of the product and i = the yearly interest rate.
Satisfying the complaint
Preventing a recurrence of isolated complaints
Pareto analysis
An in-depth analysis of the vital few
Further statistical analysis
The seven tools of total quality costs
Pareto chart
Course and effect diagram
Stratification chart
Check sheet
Histogram
Scatter plot
Graphs and control charts
Defect matrices
Cost analysis
Spare parts use growth curves
Probability paper
Simulation studies
Statistical modeling
Abnormality control chart. The abnormality chart is a chart that addresses the following questions/concerns:
How did it happen?
Date: | Place: | Lot number: |
Item name : | Found By: | Description: |
How it was found?
Emergency measure taken
Investigation of the causes
Cause(s)
Measures taken to prevent recurrence
How will these measures affect similar processes?
How to proceed next ?
Type of Standard | Standard is Based on | Managers Use the Report to Answer the Question |
---|---|---|
Engineered | Studies made by engineers , e.g., material usage, labor hours | Are we attaining the results that the engineering studies showed were obtainable? |
Historical | Statistical computation of past performance | Are we getting better or worse ? |
Market | Market studies to discover performance of competitors | Were do we stand compared to our competitors? |
Planned | Broad program of final results needed and allocation to subprograms, e.g., reliability goals | Are we going to be able to attain the overall planned goal? |
This format must serve as a catalyst to management to provide attention, prioritization, justifications, recognition, and corrective action.
We cannot reduce cost without affecting quality.
We can improve quality without increasing cost.
We can reduce cost by improving quality.
Cost of quality drives the system.
If quality costs money, do not do it.
Typical sources for cost of quality (CQ) are:
Types of Data | Sources |
---|---|
Field performance data | Customer service department |
Trend of sales by model customer, etc. | Internal sales analysis |
Trends of competitor activities, dealer reactions , and other "field intelligence" | Reports of field sales force |
Extent of field replacements due to failures in service | Sales of spare parts |
Competitive quality ratings | Customers who buy from multiple sources |
Independent quality ratings | Independent laboratories |
Results of research on quality research | Government departments; institutions |
Cost summary | Monthly quality cost report ” see Table 10.4 |
October | Year to Date | |||
---|---|---|---|---|
Actual | Variance | Category | Actual | Variance |
| ||||
18.3 | 3.2 |
| 190.1 | 10.1 |
4.6 | 0 6 |
| 61 8 | 7.5 |
2.6 | 0.9 |
| 207 | 7 3 |
7.3 | 2.1 |
| 46.8 | 20.3 |
2.4 | 3.4 |
| 312 | 25.0 |
35.2 | 10.2 | Total prevention cost | 350 6 | 55 2 |
7.7% | % of total quality cost | 9.4% | ||
| ||||
9.6 | 1.8 |
| 87.3 | 7.1 |
32.5 | 15.4 |
| 323.0 | 105.0 |
14.1 | 27.4 |
| 140.9 | 269.7 |
1.4 | 1.1 |
| 16.5 | 8.8 |
4.1 | 1.6 |
| 23.4 | 0 0 |
61.7 | 9.7 | Total appraisal cost | 591.1 | 166.4 |
13.5% | % of total quality cost | 15.9% | ||
9.6 |
| |||
14 6 | 124.3 |
| 50.0 | 8.0 |
197.2 | 8.1 |
| 1305.6 | 557 6 |
25.2 | 2.3 |
| 185.1 | 0.4 |
6.8 | 6.6 |
| 88.0 | 3.0 |
14.1 | 0.2 |
| 152.1 | 77.2 |
0.8 |
| 8.1 | 1 9 | |
258.7 | 129.9 | Total internal cost | 1788.9 | 621.5 |
56.4% | % of total quality cost | 48.1 | ||
| ||||
8.6 | 1.6 |
| 75.3 | 5.3 |
41.8 | 1.2 |
| 403.6 | 26.4 |
25.6 | 0.3 |
| 256.5 | 3.5 |
21.9 | 27.0 |
| 226.6 | 263.4 |
4.9 | 4.0 |
| 28.5 | 10.2 |
0.0 | 0.0 |
| 0.0 | 0.0 |
102.8 | 30.3 | Total external cost | 990.5 | 291.2 |
22.4% | % of total quality cost | 26.6% | ||
458.4 | 79.7 | Total operating cost | 3721.1 | 108.7 |
Measurement Bases | ||||
6.5 |
| 5.3 | ||
8.8 |
| 9.0 | ||
16.7 |
| 16.3 |
What to inspect | Raw materials |
Processes | |
Products | |
When to inspect | Prior to supplier shipment |
Upon receipt from suppliers | |
Before start of processes | |
During processes | |
Prior to costly processes | |
Prior to irreversible processes | |
Prior to covering processes (painting) | |
After processes | |
Before shipping to customers | |
How much to inspect | 100% inspection |
Sampling inspection | |
Type of measurements | Variable measurement (continuous) |
Attribute measurement (discrete) | |
Who inspects | External suppliers |
Workers themselves | |
Quality inspectors | |
Where to inspect | Work stations |
Inspection stations | |
Laboratories |
Cost Element | Description/Definition | Where to Obtain/ How to Calculate Cost |
---|---|---|
| All costs (salary and administrative) related to the planning of an effective quality system that translates customer requirements into the manufacturing process; test and inspection planning costs are reported separately (see #2) | Salary budget reports Expense budget reports Estimates Department budget reports (allocated) Time sheets Purchase orders Estimates |
By other departments
| Allocated costs for time spent in quality planning by personnel not reporting to the quality department | |
| Costs of planning and procuring developing test and inspection equipment (excluding actual equipment costs, which are part of appraisal costs) Development costs for test and inspection processes | Department budget reports (allocated) Purchase orders Estimates |
| Costs for qualifying new products, processes, and equipment (including of test and inspection) to meet customer requirements | Department budgets (allocated) Launch budget (allocated) Purchase orders Estimates |
| All costs for developing, implementing, operating, and maintaining formal quality training (including statistical training) | Training budget Purchase orders Estimates |
| All other costs associated with planning, implementing, and maintaining a quality system not specifically included elsewhere | Estimates Adjustments (including negative costs) |
Cost Element | Description/Definition | Where to Obtain/How to Calculate Cost |
---|---|---|
| All costs of inspectors, supervision, lab, and clerical personnel working on incoming material; includes costs to visit or station personnel at supplier locations | Department budgets (allocated) Process sheet standards Inspection sheets standards Estimates |
| Salaries and associated costs of all staff performing in-process inspection and testing either 100% or sampling; includes materials consumed during tests | Same as # 1 |
| Costs of tests, inspection, and lab equipment; equipment maintenance and purchased services also included | Department budgets (allocated) Purchase orders/maintenance contracts Estimates |
| Personnel expenses for performing quality reviews on in-process or finished products | Department budgets (allocated) Estimates |
| Costs incurred in field testing for product acceptance at a customer's site, prior to releasing the product | Field inspection reports Department budgets (allocated) Estimates |
| All other appraisal costs not specifically covered elsewhere | Estimates Adjustments (including negative costs) |
Identify the process to be evaluated.
Become acquainted with the process by reviewing process sheets and through discussion with line supervision.
Visit each operation to review for type of cost incurred, appraisal, internal failure, etc.
Talk to individual operators to define further what goes wrong at each operation; mis-assembly, wrong tools, poor setup, etc.; note machine numbers, part numbers , and shift.
Identify and quantify failures at each operation; scrap, damage, rework, etc., by shift.
Use the existing financial system to assign the cost of direct/indirect labor, benefits, material, etc., to each operation within the process.
For each operation calculate the cost of scrap, rework, testing, inspection, production checks, sorting, and audits. Also calculate the costs associated with return sales, warranty, and customer loyalty.
Cost Element | Description/Definition | Where to Obtain/How to Calculate Cost |
---|---|---|
| Costs of reworking defective product; includes costs associated with the renew and dispositioning of non-conforming purchased products | Cost accounting reports Detective material reports Department budgets (allocated) Estimates |
| All scrap losses incurred resulting defective purchased materials/products and incorrectly performing manufacturing operations; costs charged to suppliers are not included; scrap value, less handling charges, may be included as an offset | Salvage reports Defective material reports Estimates |
| Costs incurred in analyzing non-conforming product to determine causes | Department budgets (allocated) Problem reports |
| Costs to reinspect or retest products that previously failed | Department budgets (allocated) Estimates |
| Inventory costs resulting from producing defective products; includes storage of defective product and added inventory of good product to cover production shortfalls | Cost accounting reports Department budgets (allocated) Estimates |
| Costs to revise a product or process due to production of defective product | Estimates |
| All other costs related to the production of defective product nor specifically included elsewhere | Estimates Adjustments |
Sum these costs to obtain the total cost of quality within the process.
State this cost as a fraction of the total cost of the process or as a dollar amount that represents the opportunity for improvement in the process.
Ensure continuous improvement through ongoing process analysis (plan, do, check, act).
Identify the process or procedure to be evaluated.
Become acquainted with the process or procedure by reviewing instruction sheets and procedure manuals and by generating a unique process flow diagram; discuss with local supervision.
Cost Element | Description/Definition | Where to Obtain/ How to Calculate Cost |
---|---|---|
| All warranty costs that can be allocated to a manufacturing location due to the production of defective product or incoming material; includes internal processing and investigation of warranty | Warrant reports (allocated) Department budgets (allocated) Estimates |
| All costs associated with manufacturing location fault for recall campaigns or liability claims | Recall reports Corporate liability settlement reports Department budgets (allocated) |
| Costs of handling and accounting for defective product returned or rejected by the consuming plant or customer | Department budgets (allocated) Returned material reports Sales and service reports |
| Costs to reinspect or retest defective product at the customer's site | Department budgets (allocated) Estimates |
| Salary and administrative costs to handle meetings, visits , etc. with customer personnel resulting from the receipt of defective product | Department budgets (allocated) Estimates |
| Costs to revise the product or process to satisfy the customer who received defective product | Department budgets (allocated) Estimates |
| Extraordinary costs that result from attempting to satisfy a customer whose expectations were not met with previously received defective product | Travel and expense reports Department budgets (allocated) Estimates |
| All other costs related to defective product reaching the customer not specifically covered elsewhere | Estimates Adjustments (including negative costs) |
Review each operation for the type of cost incurred; appraisal (checks, reviews, etc.), internal failure (blueprint errors, incomplete forms, etc.).
Talk to individual employees to define further what goes wrong at each operation; redundant operations, misfiling, improper direction, delays, etc.
Identify and quantify failures at each operation and their effect on subsequent operations.
Use the existing financial system to assign the cost of labor and material to each operation.
Calculate the cost of losses associated with the items identified in steps 4 and 5.
Sum these costs to obtain the total cost of quality within the process.
State this cost as a fraction of the total cost of the process or as a dollar amount that represents the opportunity for improvement in the process.
Ensure continuous improvement through ongoing process analysis (plan, do, check, act).
Organize the team.
Describe the problem.
Estimate the magnitude of quality costs.
Identify the key business processes that have the greatest impact on the costs.
Define root causes.
Identify and prioritize the root causes of process problems.
Implement interim corrective action.
Establish control of the business process.
Implement permanent corrective action.
Improve the capability of the business process.
Verify effectiveness of actions.
Measure effect of actions identified in (4) and (5).
Prevent recurrence.
Modify management and operating systems, practices, procedures, and processes.
Congratulate team.
Non-manufacturing measurements, which are sometimes difficult to establish, might include the following:
Accounting
Percent of late reports
Computer input incorrect
Errors in specific reports as audited
Percentage of significant errors in reports; total number of reports
Percentage of late reports; total number of reports; average reduction in time spans associated with important reports
Pinpointing high-cost manufacturing elements for correction
Pinpointing jobs yielding low or no profit for correction
Providing various departments with the specific cost tools they need to manage their operations for lowest cost
Administrative
Success in maximizing discount opportunities through consolidated ordering
Success in eliminating security violations
Success in effecting pricing actions so as to preclude subsequent upward revisions
Success in estimating inventory requirements
Success in responses to customer inquiries so as to maximize customer satisfaction
Decimal points correctly placed
Correct calculations in bills, purchase orders, journal entries, payrolls, bills of lading, etc.
Time spent in locating filed material
Percentage of correct punches in paper used during a given period versus actual output in finished pages
Clerical
Accurate typing, spelling, hyphenation
Decimal points correctly placed
Correct calculations in bills, purchase orders, journal entries, payrolls, bills of lading, etc.
Time spent in locating filed material
Percentage of correct punches
Paper used during a given period versus actual output in finished pages
Data processing
Keypunch (KP) cards thrown out for error
Computer downtime due to error
Rerun time
Promptness in output delivery
Effectiveness of scheduling
Depth of investigations by programmers
Program debugging time
KP (data entering) efficiency
Engineering: design
Adequacy of systems specifications
Accuracy of system block diagrams
Thoroughness of system concepts
Simulation results compared to original design or prediction
Success in creating engineering designs that do not require change in order to make them perform as intended
Success in developing engineering cost estimates versus actual accruals
Success in meeting self-imposed schedules
Success in reducing drafting errors
Success in maximizing capture rates on RFPs for which the company was a contender
Success in meeting engineering test objectives
Number of error-free designs
Correct readings of gages and test devices
Accurate specifications and standards
Proper reporting and control of time schedules
Reduction of engineering design changes
Changes in tests or in illustrations of reports
Rework resulting from errors in computer program input
Advance material list accuracy
Design compliance to specifications
Customer acceptance of proposals
Meeting schedules
Thoroughness of systems concepts
Accuracy and thoroughness of reports
Adequacy of design reviews
Compliance to specifications
Adequacy of design reviews
Accuracy of computations
Accuracy of drawings
Reduction in number of engineering non-conformances to correct errors
Engineering: manufacturing
Accuracy of manufacturing processes
Timely delivery of manufacturing processes to the shop
Accuracy of time study data
Accuracy of time estimates
Timely response to bid requests
Schedule compliance
Asset utilization
Accuracy and thoroughness of test processes
Adequacy and promptness of program facilitation
Application of work simplification criteria
Minimum tool and fixture authorization
Labor utilization index
Methods improvement (in hours or dollars)
Contract cost
Lost business due to price
Process change notices due to error
Tool rework to correct design
Methods improvement
Engineering: plant
Effectiveness of preventive maintenance program
Accuracy of estimates (dollars and details)
Accuracy of layouts
Cost of building services
Completeness of plant engineering drawings
Adequacy of scheduling
Fixed versus variable portions of overhead
Maintenance cost versus floor space, manpower, etc.
Lost time due to equipment failures
Janitorial service
Success in meeting or beating budgets
Instrument calibration error
Fire equipment found defective
Lost time due to equipment failures
Purchase requisition errors
Schedule compliance
Timely response to bid requests
Adherence to contract specifications
Effectiveness of customer liaison
Effectiveness of cost negotiations
Status "ship not bill"
Change orders due to errors
Drafting errors found by checkers
Late releases
Time lost due to equipment failure
Callbacks on repairs
Finance
Billing errors (check accounts receivable overdues)
Accounts payable deductions missed
Vouchers prepared with no defects
Clock card or payroll transcription errors
Data entering errors
Computer downtime
Timeliness of financial reports
Effectiveness of scheduling program "debugging" time
Rerun time
Accuracy of predicted budgets
Clerical errors on entries
Inventory objectives met
Payroll errors
Discount missed
Amounts payable records
Billing error
Forecasting
Can departments function with maximum effectiveness with budgets set for them?
Can the company buy needed capital equipment, keep inventories supplied, pay its bills?
Do projects meet time schedules?
Assistance to line organizations (scheduling, planning, and control functions)
Methods for finance and cost control
Timeliness of financial reports
Assets control
Minimizing capital expenditures
Realistic budgets
Clear and concise operating policies; timely submission of realistic cost proposals
Completeness of financial reports
Effectiveness of disposition of government property
Effectiveness of cost negotiations
Legal
Amount of paper used versus finished pages produced
Misdelivered mail
Misfiled documents
Delays in execution of documents
Teletype errors
Patent claims omitted
Response time on request for legal opinion
Management
Output of staff elements, overall defects rates, budgets and schedule controls, and other factors that reflect on managerial effectiveness (In other words, the accomplishments of a manager are the sum totals of those working under him or her)
Success in developing estimates of costs versus actual accruals
Success in meeting schedules
Performance record of employees under the manager's supervision
Success in developing realistic estimates on a PERT or PERT/cost chart
Success in minimizing use of overtime operations
All nonproduction departments can be measured
Each department should be measured against itself, using time comparisons, and preferably by itself.
The best primary goals are those that measure cost performance, delivery performance, and quality performance of the of the department. Secondary goals can be derived from these primary goals.
There should be a base against which quality, cost or delivery performance can be measured as a percentage improvement. Examples of such a base would be direct labor, the sales dollar, the material dollars, or the budget dollar. A dollar base is more meaningful to management than a physical quantity of output.
Success in effecting pricing actions so as to preclude subsequent revisions.
Pages of data compiled with no defects
Clarity and conciseness of operating procedures
Evaluations of capital investment
Errors in applying standards on process sheets
Accuracy of estimates; actual costs versus estimated costs
Effectiveness of work measurement programs
Marketing
Success in reduction of defects through suggestion submittal
Success in capturing new business versus quotations
Responsiveness to customer inquiries
Accuracy of marketing forecasts
Response from news releases and advertisements
Effectiveness of cost and price negotiations
Success in response to customer inquiries (customer identification)
Customer liaison
Effectiveness of market intelligence
Attainment of new order targets
Operation within budgets
Effectiveness of proposals
Exercise of selectivity
Control of cost of sales
Meeting proposal submittal dates
Timely preparation of priced spare parts list
Aggressiveness
Utilization of field marketing services
Dissemination of customer information
Bookings budget met
Accuracy of predictions , planning and selections
Accurate and well-managed contracts
Exploitation of business potential
Effectiveness of proposals
Control of printing costs
Application of standard proposal material
Standardization of proposals
Reduction of reproduction expense
Contract errors
Order description error
Sales order errors
Material
Saving made
Late deliveries
Purchase order (PO) errors
Material received against no PO
Status of unplaced requisitions
Orders open to government agency for approval
Delays in processing material received
Damage or loss items received
Claims for products damaged after shipment from our plant
Delays in outbound shipments
Complaints or improper packing in our shipments
Errors in travel arrangements
Accuracy of route and rate information on shipments
Success in meeting schedules; material shortages in production
Success in estimating inventory requirements
Clock card errors by employees
Damaged shipments
Stock shelf life exceeded
Items in surplus
Purchase requisition errors
Effectiveness of material order follow up
Adequacy and effectiveness of planning and scheduling
Application of residual inventories to current needs
Inventory turnover manufacturing jobs without schedules
Timeliness of incorporating ECNs
Timely replacement of rejected parts
Adequacy of reject control plan
Effectiveness of packing operation
Application of residual inventories to current needs
Floor shortages
Labor utilization index
Data processing rerun time on material programs
Bad requisitions
Value of termination stores and residual inventory
Manpower fluctuations around mean
Percent supplier material ($) rejected and returned; total material ($) purchased
Number of defective suppliers (repetitive); total number of suppliers
Number of single source suppliers; total number of suppliers
Percent of supplier material ($) holding up production: total material $
Number of late lots received (actually holding up production); total lots received
Percent of purchased material (actual); total material bid or budgeted
Percent of reductions in B/M effected through purchasing effort; total material bid or budgeted.
Correct quotations or rates
Customers call back as promised
Installation of exact equipment requested by customer
Appointments kept at the time promised customers
Prompt handling of complaints
Accurate meter readings
Courteous treatment of customers
Right packages of goods ordered shipped
Number of telephone numbers correctly dialed
PMI rejects
Savings made
Material handling budget met
Travel expense against open shop orders
Orders to government for approval ” disapproved, resubmitted, and open, not approved
Personnel
Success in eliminating security violations
Hiring effectiveness
Thoroughness and speed of responding to suggestions
Employee participation in company sponsored activities
Administration of insurance programs
Accident prevention record
Processing insurance claims
Provision of adequate food services
Personnel security clearance errors
External classified visit authorization errors
Speedy processing of visitors through lobbies
Records accuracy
Adequacy of training programs
Thoroughness and speed of investigating suggestions
Grievances
Employment requisitions filled
Administration of insurance program
Acceptance of organization development recommendations
Effectiveness of administration of merit increases
Overhead budget performance
Product assurance
Participation in design reviews
Customer liaison
Technical society participation
Accuracy of proposals and contracts
Application of program policies
Prevention of field complaints
Effectiveness of reporting and recording
Customer rejects
Rejected material on the floor
Adequacy of vendor ratings
Effectiveness of field quality control
Rejects
Screening efficiency
Inspection documentation
Quality assurance audits
Product control
Success in developing realistic schedules
Success in developing realistic estimates
Success in identifying defective specifications
Process sheets written with no error
Transportation hours without damage to product
Parts shortages in production
Downtime due to shortages
Production
Success in reducing the scrap, rework, and "use-as-is" categories
Success in maintaining perfect attendance records
Success in identifying defective manufacturing specifications
Success in meeting production schedules
Success in cost reduction through suggestion submittal
Success in improving first article acceptance
Performance against standard
Success in reducing required MRB action
Utilities improperly left running at close of shift
Application of higher learning curves
Floor parts shortages
Delays due to rework, material shortage, etc.
Control of overtime (nonscheduled)
Prevention of damage to work in process
Cleanliness of assigned areas
Conformance to estimates
Suggestions submitted
Labor utilization index
Defects
Asset utilization
Scrap
Utilization of correct materials, drawings, and procedures
Prevention of damage
Safety records
Inches of weld with no defects
Log book entries with no defects
Security violations
Compliance to schedules
Accuracy of estimates
Program Management
Liaison with customer
Financial quality of proposals (technical approach, cost, time)
Soundness of project plans
Coordination of support activities
Satisfactory field sell off
Backlog
New business volume versus budgeted
Publications
Compliance to specifications
Errors corrected
Thoroughness of material
Quality of production
Quality control
Inspection errors
Sampling program errors
Timeliness of inspection reports
Adequacy of vendor quality ratings
Returned goods and field rework due to inspection oversight; customer rejects
Quality assurance audits
Inspection documentation
Customer liaison
Research and development
Can it be applied?
Can it be developed?
Can it be manufactured?
Can it be marketed?
Security
Personnel security clearance errors
Timely and accurate processing
External classified visit authorization errors
Accurate processing of visitor identification
Effectiveness of security program
Guards, security checks, badges, passes
Records accuracy
Fire watch
Services: general
Promptness in reply to requests
Quality of service rendered
Blueprint and drawing control, reproduction, distribution
Test equipment maintenance and calibration
TRW communication
Reproduction facilities
Purchasing
Purchase order changed due to error
Late receipt of materials
Rejections due to incomplete description
Supervision
A supervisor's performance is measured by the overall effectiveness of the department; in other words, the supervisor is judged by the sum total of accomplishments of the people working for him or her. The worth of individual or group achievements should be evaluated against the following criteria:
Impact of potential error (abort of mission, cost effect on schedules, etc.)
Contributions of the individual or group to the prevention of error
Difficulty of the job and level of skill required
Work schedules and load impact on error potential
Ability of individual to correct his/her own errors
Attitude of the individual toward work, project, or command mission
Note | Nonconformance elements listed reflect those that are the responsibility of that department. |
Engineering: price of conformance
a. | Design specification reviews |
b. | Product qualification, evaluation, characterization |
c. | Drawing checking |
d. | Supplier evaluation |
e. | Preventive maintenance |
f. | Process capability studies |
g. | Fabrication of special test fixtures |
h. | Verification of workmanship standards |
i. | Review of test specifications |
j. | Failure effects/mode analysis |
k. | Pilot production runs |
l. | Packaging qualification |
m. | Customer interface |
n. | Safety review ” operator safety |
o. | Technical manuals |
p. | Preproduction reviews |
q. | Defect prevention program |
r. | Schedule reviews |
s. | Process reviews |
t. | Early approval of production specifications |
u. | Computer-aided design (CAD) |
v. | First piece approval |
w. | Agency approval |
x. | Supplier qualification |
y. | Special test fixture design review |
z. | Education |
aa. | Prototype inspection and test |
ab. | Testing |
ac. | Receiving sample testing |
ad. | In-process sample testing |
ae. | Final sample testing |
af. | Laboratory analysis and test |
ag. | Fault insertion test |
ah. | Engineering audits |
ai. | Training for special testing |
aj. | Personnel appraisal |
Engineering: price of nonconformance
Warranty expense
Engineering travel and time on problems
Redesign
Premium freight costs
Material review activities
Failure analysis (return evaluation)
Corrective action
Failure reports
Return goods analysis
Product liability (design related)
Comptroller: price of conformance
Forecasting performance
Training and procedures
Ledger review of P & L and balance sheet
Budget generation
Long-range planning
Job description
Cost of quality budget
Timecard review
Capital expenditure reviews
Total expenditure reviews and delegation of authority
Order entry review
Product cost standards
Cost reduction
Cost of quality reviews
Data processing report/financial report reviews
Ledger reviews
Invoicing review
Comptroller: price of nonconformance
Billing errors
Inventory out of control
Improper A/P vendor payments
Incorrect accounting entries
Bad debts turnovers, overdue A/R
Payroll errors
Software: price of conformance
Software planning
Software reliability projection/prediction
Systems analyst interrogating activities
Documentation review
Learn/understand customer requirement/business
Preparation and review of system specifications
Flow chart review
Correlation analysis
Data entering operator training
Tape duplication and verification
Program testing
Function test
Performance test
Code verification
Depreciation of software ( outdated )
System test
Inspect programs
Software: price of nonconformance
Keeping track of system failures
Going back to customer to re-evaluate
Customer change requirement
Recode; debug; retest
Documentation changes
Plant administration: price of conformance
Consultants
Preventive maintenance program
Modeling
Controlled/critical storage
Environmental control
Labor training
Review of labor production rates
Security
Surveillance
Machine maintenance ” P.M.
Machine maintenance training
Timely machine replacement
Periodic equipment depreciation review
Equipment depreciation reappraisal
Facility planning ” audits
Facility inspection and test
Data on labor productivity
Pilot run to check standard
Labor surveillance
Time card control test
Time card audit
Machine maintenance test
Machine maintenance inspection
Equipment depreciation inventory
Equipment depreciation audit
Equipment depreciation tracking
Plant administration: price of nonconformance
Facility planning redesign
Facility equipment replacement
Missed schedule
Incorrect labor level
Increased failure
Incorrect time
Machine scrap
Machine rework
Machine downtime
Product liability
Equipment depreciation ” obsolete
Equipment depreciation ” premature
Purchasing: price of conformance
Supplier review and approval
Send proper specs to vendor ” make it clear what is required
Periodic seminars
Forecasting ” cost of carrying hard-to-get materials
Material cost resulting from multiple sourcing
Strike build-up costs
Evaluation of supplier's equipment that will be used to do the job
Review supplier incoming quality practices
Recertification of suppliers
Incoming inspection cost
Information ” systems cost associated with vendor rating
Purchasing: price of nonconformance
Scrap
Sorting
Reinspection due to rejects
Rework
Excess inventory due to lack of confidence in vendor delivery
Loss incurred as a result of vendor delinquencies
Corrective action cost
Shipping cost on returns to vendors
Purchase order changes resulting from error
Incoming inspection cost
Premium freight
Trips to suppliers to resolve problems
Expediting cost to ensure proper deliveries (i.e., phone bill)
Marketing: price of conformance
Procedures
Training
Forms design
Sales support material
Design specs
P&L
Computive data
Market forecast
Legal and product safety review
User market research
Sales support cost
Customer survey
Sales dollars
Service cost by area/advertising
Loss leaders
Launch U.S. availability
Pilot and field test
Incentive programs
Market survey
Marketing: price of nonconformance
Labor of redos ” administration
Incorrect order entry
A/R receivables
Special instruction
Field service ” excessive
Warranty
Literature reprint
Contingent liability
Unit productivity
Product recall
Loss of market share
Human resources: price of conformance
Pre-screen applications
Interviewing
Personnel testing
Reference checking
Security clearance, if necessary
Orientation
Training
Job description and work plans
Safety program
Quality improvement program
Exit interviews
Performance appraisal
Attendance tracking
Productivity rates
Personnel records audits
Tracking of injuries
Human resources: price of nonconformance
Turnover rates
Grievance tracking
Non-timely filling of position
Cost of injuries
Manufacturing: price of conformance
Training: supervisor hourly
Special review
Tool/equipment control
Preventive maintenance
ZD program
Identify incorrect (zero defect) specifications/drawings
Housekeeping
Controlled overtime
Checking labor
Trend charting
Customer source inspection
First piece inspection
Stock audits
Certification
Manufacturing: price of nonconformance
Rework
Scrap
Repair and return expenses
Obsolescence
Equipment/facility damage
Repair equipment/material
Expense of controllable absence
Supervision of manufacturing failure element
Discipline costs
Lost time accidents
Product liability
Quality control: price of conformance
Quality training
Test planning
Inspection planning
Audit planning
Product design review
Supplier qualification
Productibility/quality analysis review
Process capability studies
Machine capability studies
Calibration of quality equipment
Operator certification
Incoming inspection
In-process inspection
Final product inspection
Product test
Product audit
Test equipment
Checking gauges, fixtures, etc.
Prototype inspection
Quality systems audits
Customer/agency audits
Outside lab evaluations
Life testing
Product audits
Quality control: price of nonconformance
Scrap analysis
Rework analysis
Warranty cost analysis
Concessions analysis
Factory returns analysis
Material review board action
Industrial engineering: price of conformance
Operator training
Design review
Inventory control
Job description
Methods description
Test equipment description verification
Material utilization
Line rebalance
Process verification
Product control card system
Material usage verification
Industrial engineering: price of nonconformance
Tool repair
Tool modification
Corrective action costs
Engineering change order
Purchasing change order
Turnover
Obsolete job description
Information systems: price of conformance
Job descriptions (written)
Hiring and testing
Schools
Program documentation and testing
Cost benefit analysis
Risk analysis of project
Proper communication of user requirements between user and information systems
Verification of input data
Test techniques
Pilots
Parallel runs
Post implementation audit
Information systems: price of nonconformance
Systems do not meet user requirements ” redo
Corrective maintenance
Reruns
Input cycles edit and update
Hardware downtime
Scheduling failures
Law department: price of conformance
Maintenance of law library
Seminar on prevention of product liability claims
Label copy evaluation
Advertisement copy review
Safety program audit
Equal opportunity program audit
Compliance audit of SEC
Contract review
Checking paperwork for errors
Compliance audit on environmental protection agency (EPA)
Review of federal/state submissions (new products, patents, etc.)
Law department: price of nonconformance
Product liability matters (travel, litigation, outside firms, time)
Warranty reviews
Penalties for late filing
Product complaint review (internal and with regulatory agency)
Product recalls
Defense of patent infringement suit
Representing grievances
Internal department rework (rewrite, retype, etc.)
Seminar on defending product liability suits
Settlements
We made the statement earlier that perhaps one of the key contributions of COQ in DFSS is to identify and eliminate the "hidden factory" cost. To do that, let us visit some of the more demanding calculations.
First, we begin with a review of the Poisson distribution:
Y = this of course is equivalent to Y =
where n is the total number of independent trials; p is the probability of occurrence; r is the number of occurrences; u is the number of units produced; and d is the number of non-conformities (defects). This value (d) is also known as the np.
Under special conditions, such as normalizing per unit, the d/u = np/u. Therefore, if we substitute terms for the normalizing case where u = 1, for the special case where r = 0 (remember 0! = 1), we are able to reduce the above formulas into
Y =
The reader will notice that this equation really reflects the first time yield (Y FT ) for a specific d/u. Of course, if we know the first time yield we can solve for d/u with the following formula:
d/u = -ln(Y FT )
where ln is the natural log.
If the assumptions for the Poisson model are not reasonable then we may use the binomial model
Y = p r q m-r
This of course, becomes Y = (1 - p) m for the special case of r = 0 where p is the constant probability of an event and q = 1 - p.
In dealing with COQ issues, as Grant and Leavenworth (1980) have pointed out, the Poisson approximation may be applied when the number of opportunities for non-conformance (n) is large and the probability (p) of an event (r) is small. In fact, as n increases and r decreases, the approximation by the Poisson model improves .
Furthermore, we can use COQ issues and information to generate or double-check the validity of the critical to quality characteristic (CTQ) as well as the critical to process characteristic (CTP). Above all, we are capable of measuring the classical perspective of yield. The traditional formula, which is based on process capability, is
Y final =
where Y final = final yield; S = number of units that pass; and U = number of units tested .
Another way to view yield is to calculate the rolled throughput, which is
Y rt = e -dpu or
Y rt = Y tp;1 * Y tp;2 *,... * Y tp;m or the normalized variation of Y norm =
where Y norm is the normalized yield; Y rt is the rolled throughput yield; m is the number of categories; tp is the throughput yield of any given category; and dpu is defects per unit.