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COST OF QUALITY

By Marcus Barnett

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Quality is a Lousy Idea,

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Quality and Best Practices

Equals

Fitness for Purpose

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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

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Quality is the ‘ability’ of your product to be able to satisfy your

customers

Quality means your product is ‘useful’

FITNESS FOR PURPOSE

Quality will help to ‘future-proof’ your products

-without ‘quality’ you may have little to offer

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WHAT IS QUALITY ASSURANCE?

It is the process that ‘demonstrates’ your product is able to satisfy your customers.

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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

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“Quality Assurance is the

responsibility of everyone at all

levels in the company, rather

than those of quality departments

only.” — Unknown

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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’

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1. Leadership

2. Determination

3. Resilience

4. Commitment

5. Engagement

IT REQUIRES …..

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RESILIENCE

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“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

ENGAGEMENT

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“IT IS NOT NECESSARY TO CHANGE. SURVIVAL IS NOT MANDATORY.”

~W. EDWARDS DEMING

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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.

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QUALITY COSTS

Learning objective:

Identify the four types of quality costs and

explain how they interact

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• 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.

DEFINITION AND EXPLANATION OF QUALITY COSTS:

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• Preventing, detecting, and dealing with defects cause costs that are called quality costs or costs of quality.

• 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.

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• Quality costs can be broken down into four broad groups.

• 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.

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• 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

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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

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• Any defective materials or products should be caught as early as possible in the production process.

• Appraisal costs, which are sometimes called inspection costs, are incurred to identify defective products before the products are shipped to the customers.

APPRAISAL COSTS:

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• Unfortunately performing appraisal activities doesn’t keep defects from happening again.

• Most managers realize now that maintaining an army of inspectors is a costly and ineffective approach to quality control.

APPRAISAL COSTS:

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• Employees are increasingly being asked to be responsible for their own quality control.

• 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.

APPRAISAL COSTS:

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“You cannot inspect quality into a

product.” — Harold F. Dodge

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APPRAISAL COSTS

• 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

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“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. “

“Should it be upsized to 60” diameter for better structural integrity to avoid this scenario again?”

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“As I said earlier, box looks good, customer satisfied with product and service.”

“Quality is market driven”

Bill Thompson

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• 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:

costs of poor quality

DEFINITION AND EXPLANATION OF QUALITY COSTS:

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• 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:

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• 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.

INTERNAL FAILURE COST:

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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

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• 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 COST:

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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.

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• 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

EXTERNAL FAILURE COST:

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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 back-charge you all for the labor.

“It cost a lot to produce a bad product”Norman Augustine

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• 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.

• 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

External Failure Cost:

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“GOOD ENOUGH” IS THE ENEMY OF GREAT

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“Quality cannot be sacrificed for cost savings.

The end result is the lose of market share.”

“People forget how fast you did a job – but they

remember how well you did it”

~Howard Newton

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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

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Precast Show 2017

NPCA 9

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If you want to go far, go together.

If you want to go fast, go alone.

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QUESTIONS?