cost of quality_final - 24.01.2012
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EDP Project
SEPT - 2011
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Define Cost of Quality and Develop Report for Cost of Quality
Project Objective: To Study and Define Cost of Quality and Developing Report for
measuring and analysing Cost of Quality
Project Deliverables:
1. To Define Cost of Quality (before sales and after sale)
2. To determine the elements of Cost to be considered for determining the Cost of Quality.
3. To standardize a format for capturing the Cost of Quality
4. Assess the status where TML stands in comparison to other Auto industry
Project Guide: Uttam Biswas, Head (Finance)
Name Location
Riat Rashpalsingh Pune PCBU
Verma Manish Jamshedpur Works
Kumar Dhanu Jamshedpur Works
Taiyab Md. Jamshedpur Works
Kothari Manoj Pantnagar Works
TEAM MEMBERS
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Cost of Quality
The COQ is the cost (both Tangible and Intangible)
relating to the Quality characteristics of a product orService.
Definition
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1. Cos ts of conformance
(Cost of control):It has twocomponents:
Prevention costs
Appraisal costs
2. Cos ts of non conformance(Cost of failure of control):It
has two components:
Internal failure costs
External failure costs
Elements of costs to determine Cost of Quality
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1. Quality management has a major impact on the financial results.
2. Many areas do not realize the actual cost of quality leading to high quality cost
3. To achieve the most effective improvement effort, it is evident that quality and
costs are complementary and not conflicting objectives.
GENESIS OF THE PROJECT
The goals of this project are to measure as
accurately as possible the Costs of Quality, to identify
what could be improved in order to optimize costsand processes, and to set up a framework
for the collection and analysis of quality costs.
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Quality Cost
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Scraps
Customer returns
Inspection costs
Testing costs
Reprocess
Loss of market share
Loss of costumers
Lack of motivation
Development cost of
failed product
Unused capacity
Loss of productivity
Inefficient processes
Longer product life
cycle
Iceberg Model - Intangible costs,
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WORK DONE FOR DEVELOPING FORMAT FOR CAPTURING COST OF QUALITY
Benchmark data for cost of quality is not available from other Automotive
Industries
Cost of Quality for all the four plants (Jsr, Lkw, Pune & Pantnagar) were
gathered and studied.
Comparison was done in between the reporting of Cost of Quality for all theplants.
All elements of cost involvement were studied inside the plant and
recommendations given for capturing the same
Cost elements were categorized according to the type of costs
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Scraps
Customer returns
Inspection costs
Testing costs
Reprocess
Loss of market share
Loss of costumers
Lack of motivation
Development cost of
failed product
Unused capacity
Loss of productivity
Inefficient processes
Longer product life
cycle
Iceberg Model - Intangible costs,
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JAMSHEDPUR FORMAT FOR CAPTURING COST OF QUALITY
S. No. Particulars Source of Data
1.0 Prevention Costs
1 Products/Service/Design Development 80% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 %
Share of Common Services
1 Purchasing Prevention Costs Total expense of ADD (BC 1216936) and Sourcing World Truck (1216272) has been
considered for purchasing prevention cost + 26 % Share of C.S .
1 Operations Prevention Costs Cost of maintenence work + 26 % Share of C.S .
1 Quality Administration Total expense of Inspection + 26 % Share of Common Services
1 Other Prevention Costs
2.0 Appraisal Costs
2 Purchasing Appraisal Costs Not Tracked
2 Operations Appraisal Costs Total cost of Inspection + 26% Share of Common Service2 External Appraisal Costs PDI provision
2 Review of Test and Inspection Data 20% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 %
Share of C.S.
2 Misc. Quality evaluations
3.0 Internal Failure Costs
3 Product/Service Design Failure Costs Not Tracked
3 Purchasing Failure Costs Not Tracked
3 Operations Failure Costs Not Tracked
3 Scrap Net Values of amount booked as scrap in GL 400001 & 891001& Recovery in 4001013 Rework
3 Rectification Cost of Rectification work Centres
3 Other Internal failure costs
4.0 External Failure Costs
4 Warranty Cost Warranty Provision
TOTAL QUALITY COSTS
PRODUCTION: (Eq. Nos.) Total Eq Veh
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S. No. Particulars Source of Data
1.0 Prevention Costs
1 Products/Service/Design Development 80% of ERC Revenue and Support Projects cost
1 Purchasing Prevention Costs Total expense of ADD (BC 1316240) has been considered for purchasing preventioncost.(Manpower Cost)
1 Operations Prevention Costs Manpower Cost for workers employed for maintenence work (data manually by area
owner) and machinery spares expense (SAP)
1 Quality Administration Total expense of QA (BC 1316500)+ C/s share
1 Other Prevention Costs
2.0 Appraisal Costs
2 Purchasing Appraisal Costs 80% of ERC Revenue and Support Projects cost
2 Operations Appraisal Costs Total expense of ADD (BC 1316240) has been considered for purchasing prevention
cost.(Manpower Cost)
2 External Appraisal Costs Manpower Cost for workers employed for maintenence work (data manually by area
owner) and machinery spares expense (SAP)
2 Review of Test and Ispection Data Total expense of QA (BC 1316500)+ C/s share
2 Misc. Quality evaluations
3.0 Internal Failure Costs
3 Product/Service Design Failure Costs Not Tracked
3 Purchasing Failure Costs Not Tracked
3 Operations Failure Costs Not Tracked
3 Scrap Values booked as scrap in GL 400001 & 891001
3 Rework 3 Rectification Manpower employed for Rectification work in R2 area and other direct cost centres
(Captured Mannualy)
3 Other Internal failure costs
4.0 External Failure Costs
4 Warranty Cost Warranty Provision
Retro Cost Values booked in GL 445915 Campgn/RetroFit Exps
TOTAL QUALITY COSTS
PRODUCTION: (Eq. Nos.) Total Eq Veh
LUCKNOW FORMAT FOR CAPTURING COST OF QUALITY
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PUNE FORMAT FOR CAPTURING COST OF QUALITY
PREVENTIVE COSTS
Quality Planning & Process Control Planning
Quality Planning Salary -10 % of QA BCs + C/s shareProcess Control Planning Salary 22 % of QA BCs + C/s share
Quality Planning by functions other than Quality Control M/s Purchase + Projects + APL - 10 % of Salary
10 % Design of ERC & PE Bc
30 % Testing Charges of ERC
Quality Training Training cost - 50 %
Other Preventive Costs QA Balance Expenses
APPRAISAL COSTS
Test & Inspection of purchased Material QA Cost involved in Inward Inspection - 9510 & 9711Self Checking 1 % Salary of Auto for self checking
Inspection & Testing QA Cost involved in Inward Inspection - Balance salaries + C/s Allocation
Test & Inspection Material Estimated Rs.25 lakhs per Qtr
Outside Endorsements / Approvals a/c 439350 - Testing charges
Maintenance & Calibration of Inspection & Test Equipments QA Metrology Expenses - Partial salary + depreciation Cost
INTERNAL FAILURES
Rejections Rejection value of auto provided by QA - Value of Controllable Fault (CF)
Trouble Shooting 5 % of salary of M1 to M5 in Auto + Foundry
EXTERNAL FAILURES
Domestic Warranty provision for Current Year
Export Warranty provision for Current Year
Additional Provision for previous years (Domestic)
Additional Provision for previous years (Export)
Retro fitment Cost
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S NO P A R T I C U L A R S Source of Data
I
1 Quality Planning & Process Control Planning
a Quality Planning
b Process Control Planning
2 Quality Planning by functions other than Quality Control
3 Quality Training
4 Other Preventive Costs
II
1 Test & Inspection of purchased Material
2 Self Checking3 Inspection & Testing
4 Test & Inspection Material
5 Outside Endorsements / Approvals
6 Maintenance & Calibration of Inspection & Test Equipments
III
1 Rejections
2 Trouble Shooting
IV1 Warranty provision for domestic vehicles sold during
the period
2 Additional Provis ion for previous years
V
1 Interest on Investments
APPRAISAL COSTS
PREVENTIVE COSTS
OTHERS
% of Turnover
GRAND TOTAL ( I TO V )
EXTERNAL FAILURES
INTERNAL FAILURES
PANTNAGAR FORMAT FOR CAPTURING COST OF QUALITY
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Particulars Source Of data Particulars Source Of data
Marketing/Customer/User Not Tracked Quality Planning & Process
Control Planning
Products/Service/Design
Development
80% of ERC Revenue and Support
Projects costQuality Planning
Salary -10 % of QA BCs + C/s
share
Purchasing Prevention
Costs
Total expense of ADD (BC 1316240)
has been considered for purchasing
prevention cost.(Manpower Cost) Process Control PlanningSalary 22 % of QA BCs + C/s
share
Operations Prevention
Costs
Manpower Cost for workers
employed for maintenence work
(data manually by area owner) and
machinery spares expense (SAP)
M/s Purchase + Projects +
APL - 10 % of Salary
Quality Administration Total expense of QA (BC 1316500)+
C/s share 10 % Design of ERC & PE BC
Other Prevention Costs 30 % Testing Charges of ERC
Quality Training Training cost - 50 %
Other Preventive Costs QA Balance Expenses
Lko & Jsr (Format and Reporting Same) Pune & Pantnagar (Format and Reporting Same)
Quality Planning by functions
other than Quality Control
RemarksCOQ
Elements
1. Cell indicated with
red colour are totally
different for cost
tracking
2. Cell indicated with
same colour (other than
red) are showing data
capturing from samesource but criteria is
different
Preventive
Cost
COMPARISION OF REPORTING FOR ALL LOCATIONS
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COMPARISION OF REPORTING FOR ALL LOCATIONS
Particulars Source Of data Particulars Source Of data
Purchasing Appraisal Costs Not TrackedTest & Inspection of purchased
Material
QA Cost involved in Inward
Inspection - 9510 & 9711
Operations Appraisal Costs
Total cost of VQA (BC 1316550) +
Manpower employed for Inspection
work in R2 area and other direct
cost centres(Manually)
Self Checking1 % Salary of Auto for self
checking
External Appraisal Costs PDI provision Inspection & Testing
QA Cost involved in Inward
Inspection - Balance salaries
+ C/s Allocation
Review of Test and
Inspection Data
20% of ERC Revenue and Support
Projects costTest & Inspection Material Estimated Rs.25 lakhs per Qtr
Misc. Quality evaluations Outside Endorsements /Approvals a/c 439350 - Testing charges
Maintenance & Calibration of
Inspection & Test Equipments
QA Metrology Expenses -
Partial salary + dpe
Lko & Jsr (Format and Reporting Same) Pune & Pantnagar (Format and Reporting Same)
Appraisal
Cost
RemarksCOQ
Elements
1. Cell indicated with
red colour are totally
different for cost
tracking
2. Cell indicated with
same colour (other than
red) are showing data
capturing from same
source but criteria is
different
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COMPARISION OF REPORTING FOR ALL LOCATIONS
Particulars Source Of data Particulars Source Of data
Product/Service Design
Failure CostsNot Tracked Rejections
Rejection value of auto provided by
QA - Value of CF
Purchasing Failure Costs Not Tracked Trouble Shooting5 % of salary of M1 to M5 in Auto +
Foundry
Operations Failure Costs Not Tracked
ScrapValues booked as scrap in GL
400001 & 891001
Rework
Rectification
Manpower employed for
Rectification work in R2 area and
other direct cost centres
(Captured Mannualy)
Other Internal failure
costs
Lko & Jsr (Format and Reporting Same) Pune & Pantnagar (Format and Reporting Same)
Internal
Failure
RemarksCOQ
Elements
1. Cell indicated with
same colour (other than
red) are showing data
capturing from same
source but criteria is
different
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COMPARISION OF REPORTING FOR ALL LOCATIONS
Particulars Source Of data Particulars Source Of data
Warranty Cost Warraty ProvisionDomestic Warranty provision for
Current Year
Retro CostValues booked in GL 445915
Campgn/RetroFit Exps
Export Warranty provision for Current
Year
Additional Provision for previous
years (Domestic)
Additional Provision for previous
years (Export)
Retro fitment Cost
Interest on Investments Interest on QA Net Block
Inventory Carrying CostInterest on Inventory - 5 % held
for QA
Lko & Jsr (Format and Reporting Same) Pune & Pantnagar (Format and Reporting Same)
External
Failure
1. Cell indicated with
same colour (other than
red) are showing data
capturing from same
source but criteria is
different
1. Cell indicated with
red colour are totally
different for costtracking
RemarksCOQ
Elements
Others
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Prevention Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar
All cost towards failed project to be
considered
All costs related to design development tobe considered
Expenses of ADDAll Expenses of ADD team for developing
new vendors to take care of quality issues
Expenses of SQIG
Total Expenses of SQIG team as they are
involved in process correction for getting
quality components
Expenses of QA & Materials team for
conducting PPAP & Training at vendors endAll Expenses of this team to be taken
Expenses of CFT team for Quality Improvement
at vendors end All Expenses of this team to be taken
Expenses for Dies/ Jigs/ Fixtures / ToolsAll expenses for correcting old or providing
new things to be taken
Maintenance of machines which are not giving
desired quality output
All expenses for correction of machines to
be taken
Online updation of Hourly Production Control
Chart to be started
Time lost due to Defect/ Repair & Waiting
for matl for Quality issues to be taken
Manpower related cost of Central Quality to
be considered
Manpower related cost of Divisional QA
persons to be considered
Manpower related cost of SQA persons to
be considered
Cost of Training to be considered
Cost of released Manpower to be
considered
PDI COST (Internal )All cost related to conducting internal PDI to
be consirered
Project CostProducts / Service / Design
Development
Other Prevention Costs
Training Related cost to be considered
Purchasing Prevention
Costs
Operations Prevention
Costs
Quality Administration Administ rative Costs
Not Being Monitored Being Monitored but not taken in COQ Being Monitored & also taken in COQ
RECOMMENDATIONS
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Not Being Monitored Being Monitored but not taken in COQ Being Monitored & also taken in COQ
RECOMMENDATIONS
Appraisal Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar
Cost related to testing of components
Cost related to destructive testing ofmaterials
Self Audit Cost
Pre Delivery Inspection Cost External PDI Cost to be included
Camps setup for Quality Check of the
VehiclesCost for setting up camps + Manpower cost
CFT Team formed for study/ analysis of
quality issues of vehicles in the field CFT Cost to be included
Testing Cost of products Cost of testing of vehicles on the field
Test from other agencies Cost of testing from other agencies
Cost for calibrationTotal cost of calibration of jigs, Fixtures,
Tools & Guages
Misc. Quality evaluations Cost of checking of incoming material
(Dimensional + Paint)
Persons cost for checking of incoming
components
Operations Appraisal Costs
External Appraisal Costs
Review of Test and
Inspection Data
Testing Cost
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Not Being Monitored Being Monitored but not taken in COQ Being Monitored & also taken in COQ
RECOMMENDATIONS
Internal Failure Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar
Cost of rejection
Cost of Transportation
Cost of Manpower in Document Preparation
Manpower cost involved in rectification
Tool Room cost for rectification of jobs
Manufacturing cost for job rectification
Cost involved in delayed supply of Vehicles
Total interest paid on QA Blocked stock
Interest paid on Hold Vehicles/ Aggregates
Interest on excess inventory held for line
feeding in case of rejections
Cost of returning defective material to the
supplier
Cost of manpower in despatching the materials
Misc CostMisc. Cost
Rejection Rejection Cost
Rectification Rectification Cost
Interest on Investments Interest on QA Hold Stock
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Not Being Monitored Being Monitored but not taken in COQ Being Monitored & also taken in COQ
RECOMMENDATIONS
External Failure Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar
Domestic warranty cost
Export Warranty cost
Market share loss
Payout for the material of Retro fitment
Manpower cost for doing retrofitment
Expenses incured for training to the drivers
Expenses incurred for training to Vehicle
Owners
Training to the Drivers and
Vehicle OwnersCost of Training
Warranty Cost for the vehicle Payout of warranty cost
Retro fitment Cost Payout of Retro Fitment
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Thank You