quality management unit 5 slm v3

7/27/2019 Quality Management Unit 5 SLM V3

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Course:

Quality Management

Unit 5:Management Systems


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Table of Contents

5.1. Introduction to ISO Standards ..................................................................................................... 3 5.2. Learning Objectives ....................................................................................................................... 3

5.3. ISO Standards ................................................................................................................................ 4

5.3.1. Evaluating ISO Standards as a Brand ....................................................................................... 6

5.3.2. Procedures to Adopt ISO Standards ......................................................................................... 7

5.3.3. How to Manage ISO Systems .................................................................................................. 8

5.3.4. Analysing and Adopting Quality System Audit ....................................................................... 8

5.3.5. Scope of Requirements for ISO 9001 ..................................................................................... 10

5.4. ISO Standard Certification ......................................................................................................... 10

5.4.1. Advantages of ISO Certification ............................................................................................ 11

5.4.2. ISO Certification Process ....................................................................................................... 11

5.4.3. Steps involved in ISO Certification ........................................................................................ 13

5.4.4. Certification Agencies ............................................................................................................ 14

5.5. Business Excellence Models ......................................................................................................... 15

5.5.1. The Malcolm Baldrige Criteria for Performance Excellence ................................................. 16

5.5.2. EFQM Business Excellence Model ........................................................................................ 20

5.6. Cost of Poor Quality (COPQ) ..................................................................................................... 22

5.6.1. Examples of Cost of Poor Quality .......................................................................................... 22 5.6.2. Contributors to Cost of Quality and Cost of Poor Quality ..................................................... 23

5.6.3. Analysing impact of TQM on Cost of Good Quality and Cost of Poor Quality .................... 27

5.6.4. Benefits of Reduction in Cost of Poor Quality ....................................................................... 27

5.7. Summary ....................................................................................................................................... 27

5.8. References ..................................................................................................................................... 29


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5.1. Introduction to ISO Standards

Exhibit 1

Source: Total Quality Management: Text and Cases by K. Shridhara Bhat

Quality management became an important strategic objective and it was decided to achieve

standardisation of quality requirements. This led to the establishment of a specialised agency for standardisation called the International Organisation for Standardisation (ISO).

ISO agency consisted of representatives from the national standards bodies of 91 countries. A seriesof written quality standards caked as ISO 9000 standards were adopted in 1987. These standards wererevised in 1994. The International Organisation for Standardisation used the ISO prefix while namingthe standards.

ISO standards are the minimum standards of quality that must be met by industries. These standardsare universal in nature and are specific to a particular product, material, or process. ISO standardsenable an organisation to implement a structure for meeting the objectives related to quality

management or environmental management.

There are various ISO standards relating to the different elements such as safety, customer service,usability, and quality-related aspects. ISO standards are applicable to any organisation irrespective of its size, type, or function. These standards could be applied in any scenario such as:

Large or Small Organisations Manufacturing or Service Organisations Business or Organisation involved in any type of activity Business Enterprises, Public Administration Entities, or Government Departments

5.2. Learning Objectives

By the end of this unit, you will be able to:

Recognise the need of ISO standards and its contributions to total quality management Recall the procedures to adopt ISO standards List the categories of Quality Audits List the various elements in the ISO certification process

I SO 9000 Standards

ISO 9000 standards have a philosophy of Document it and do it like you documen t it. If it moves, train it. If not, calibrate it.

Certification for ISO standards may not represent an order winner, but it is rapidlybecoming a universal order qualifier.


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Recall the steps involved in ISO certification Recognise the need of the various Business Excellence models

Recall the impact of TQM on the various costs that contribute to the Cost of Good Qualityand Cost of Poor Quality

5.3. ISO Standards

Let us look at two important ISO standards, namely, ISO 9000 and ISO 14000.

I SO 9000 Fami ly of Standards

The ISO 9000 family of standards is associated with management of quality . ISO 9000 is consideredto be an international reference for requirements relating to quality management in the dealings

between businesses.

ISO 9000 would ensure that an organisation meets the specified standards while considering thefollowing aspects.

Quality Requirements of the Customer Regulatory Requirements that are Applicable Enhancement of Customer Satisfaction Achievement of Continued Improvement in Performance

Objectives, Structu re, and Elements of I SO Standards

The key objectives of ISO standards include:

Achieving, maintaining and seeking continuous improvement in product / service quality inrelationship to the requirements

Improving quality of operations for continuously meeting the stated and implied needs of customers and stakeholders

Providing confidence in internal management and other employees regarding fulfillment of quality requirements and occurrence of improvement

Providing confidence to customers and other stakeholders regarding achievement of qualityrequirements in the delivered product

Providing confidence regarding fulfillment of quality system requirements

Source: http://www.iso.org/iso/iso_catalogue/management_standards/iso_9000_iso_14000.htm

Figure 5.1 displays the structure of ISO 9000 series.


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F igur e 5.1 Structur e of I SO 9000 Seri es

I SO 9000:2000

A version of ISO 9000, namely ISO 9000:2000 provides guidance on creating a customer-orientedculture. The guidance is provided for meeting the customer needs instead of prescribing a set of

quality control practices to be implemented for achieving compliance. The ISO 9000:2000 standardwas closely aligned to the quality management principles established by Philip Crosby.

I SO 14000 F amily of Standards

The ISO 14000 family of standards is associated with management of the environment. ISO 14000is a standard that facilitates organisations in meeting their environmental challenges.

ISO 8402

ConceptDefinition

ISO 9000

Selection and Utilisation of Standards

Non-contractualScenarios

ContractualScenarios

Quality Management andQuality System Elements

ISO 9004

Models for QualityAssurance

ISO 9001, ISO 9002, ISO 9003


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ISO 14000 would ensure that an organisation meets the specified standards while considering thefollowing aspects.

Minimisation of harmful effects on the environment as a result of the organis ations activities

Achievement of continued improvement of environmental performance

Source: Total Quality Management Text and Cases, by K. Shridhara Bhat

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ISO 14000 has an objective to ensure that the environment was protected during the production of the product.

I SO 9000 and TQM ISO 9000 is a sub-component of TQM. ISO 9000 is the minimum quality standard that is to bedemonstrated by a supplier for receiving the ISO 9000 accreditation, whereas TQM is morecomprehensive.

Source: Total Quality Management: Text and Cases, K. Shridhara Bhat

5.3.1. Evaluating ISO Standards as a Brand

International standardisation organis ations such as ISO are well -known brands. The re is asignificant impact of the identification of this brand on the adoption of standards. The ISO brandseemed to have a positive impact on the adoption of the standards.

The aspect of mentioning to users about conformance to a standard, such as ISO, has greater impactthan mentioning a product that has conformance to some specifications. It is also perceived thatadoption of the standards could be positively influenced by effectively marketing the standards. ISOneeds to treat their brands as an asset from a strategic perspective.

Figure 5.2 depicts the impact of issues relating to standardisation for adopting and diffusing standards.

I SO Standar ds, its Objectives and TQM

I SO Standards and Objectives ISO 9000 has an objective to ensure high quality of the produced product and themaintenance of quality for all productions.


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F igur e 5.2 Impact of i ssues relati ng to Standardisation f or A doptin g and Dif fu sin g Standards

Source: Data-Exchange Standards and International Organisations: Adoption and Diffusion, Josephine WapakabuloThomas

5.3.2. Procedures to Adopt ISO Standards

The following procedures are involved in the adoption of ISO standards.

Establishment of a steering committee consisting of representatives from various functions(such as, purchasing, production, design, quality assurance)

Coordination of project tasks by the steering committee (for example, collection of existing procedures, and their review and revision as required)

Establishment of a quality policy Development of a corrective action process for monitoring and controlling non -conformances

Writin g document control procedures Completion of drafts of detailed procedures for each element of ISO and t heir review and

approval Consolidation of all procedures in the quality manual Providing training to all employees on the quality policy and audit procedures of the

organisation Conducting internal audits Preparing for registration audit

The adoption of ISO standards requires the support of the top management in an organisation. Sinceemployees will apply the procedures and take care of the details, they need to be trained well. Theemployees also need to anticipate questions that might be asked by external auditors.

Funding

Timelines for Development

Intellectual PropertyRights

Identification of the Brand

Adoption and Diffusionof Standards

Marketing


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5.3.3. How to Manage ISO Systems

The following are the key elements involved in the management of ISO-based systems. Planning: The activities that are to be performed need to be planned ahead. It is also

required to establish clear responsibility and accountability. All requirements anddocuments are the base against which quality is measured

Performance: Records need to be maintained so that measurement could be done. The people performing the tasks have to be given appropriate tools and the necessary training tocomplete the job as specified

Measurement: The success or failure of an activity needs to be measured against an

accepted standard. Some of the tools of measurement are audit, inspection, appraisal,evaluation, and review.

Improvement: Based on the measured data, problems need to be corrected and the processhas to be improved.

5.3.4. Analysing and Adopting Quality System Audit

Categories of A udi ts Audits could be classified as either Compliance audits or Performance audits. These could be further categorised as given below.

1. System Audits2. Process Audits3. Product Audits

System Audits The following are the significant aspects of system audits.

It audits the system processes and management controls within an organisation It examines an enterprise at the macro level They usually cover many activities and cut across organisation, product, and process

boundaries It could include the training system, quality circle system, maintenance system, so on.

System audits could be horizontal or vertical.

H ori zontal System Audit: A horizontal system audit looks at how processes and controlshave been applied across various functional groups. It provides an understanding of themanner in which common rules have been implemented across the organisation. Ahorizontal system audit is useful in analysing consistency.


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Verti cal System Audi t: A vertical system audit looks at how various processes and controlshave been applied within a single unit. It enables a view of whether the various rules work

together effectively and efficiently.

It is necessary to have a mix of horizontal and vertical system audits within an organisation.System audits could be done on various elements, examples of which include:

Process Areas Functional Departments Quality Systems Customers Specific Projects

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Compliance Audit Performance AuditSystem Audit Looks at consistency in

implementation of adefined system. It helps to

promote stability

Looks at the ability toachieve organisationalgoals. It helps to promotechange

Process Audit Looks at the ability to perform according todefined processes

Looks at the ability of processes to achieve thedesired characteristics

Product Audit Looks at the production of goods or delivery of services according todefined requirements

Looks at the suitability of goods or services for intended use

F igur e 5.3. Audit Categories

Source: Quality audits for improved performance by Dennis R. Arter

System compliance audits are usually external audits conducted by third-party agencies. This includesconformity assessments and regulatory audits. The auditors look at the products (goods and/or services) and the processes (operational and management) during their visit to determine thecompliance with system requirements.

Au dit Categories

Figure 5.3 displays the types of audit categories


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Process Au dits Process audits are usually internal audits. A process audit examines an activity for verifying that the

inputs, actions, and outputs are according to the defined requirements. After a number of short processaudits, sufficient information will be available to draw conclusions.

However, there could be a one-time series of process audits conducted on the activities of suppliers if they ask for it (which could happen in cases of high degree of customer-supplier relationship). In anideal scenario, internal audits need to be a mix of 75% process audits and 25% system audits.

5.3.5. Scope of Requirements for ISO 9001

The following are the scope of requirements for ISO 9001.

1.

Management Responsibility2. Quality System3. Contract Review4. Design Control5. Document and Data Control6. Purchasing7. Control of Supplied Products8. Product Identification and Traceability9. Process Control10. Inspection and Testing11. Control of Inspection, Measuring and Test Equipment12. Inspection and Test Status13. Control of Non-conforming Products14. Corrective and Preventive Action15. Handling, Storage, Packaging, Preservation and Delivery16. Control of Quality Records17. Internal Quality Audits18. Training19. Servicing20. Statistical Techniques

5.4. ISO Standard Certification

The International Organisation for Standardisation (ISO) maintains the ISO 9000 standards. It isadministered by agencies involved in accreditation and certification. An organisation could beconsidered to be ISO 9001 certified once it has been independently audited and certified to conformto ISO 9001 standards.

ISO 9000 certification provides an assurance to customers that an organisation has designed andmanaged its processes for delivering a quality product.


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According to ISO 9000 standards, third party audits need to be performed leading to certification of the suppliers. This certification has acceptance by all customers, (thus, eliminating the need to

conduct 10 to 20 different audits by many organisations) who are interested in business transactionswith a supplier.

In the beginning, ISO 9000 standards had the following objectives.

To be advisory in nature To be used in contractual scenarios between two parties (customer and supplier) To be used for internal auditing

Later, the ISO standards evolved into criteria for organisations intending to certify their qualitymanagement or achieve registration through a third party auditor (generally, a registration agency

known as registrar).

The registrar certifies the company and the certificate is acceptable to all the supplier s customers.This eliminates the need for each customer to audit a supplier for compliance to the standards.

5.4.1. Advantages of ISO Certification

The following are some of the advantages of ISO certification.

ISO Certification:

1.

Provides a set of good common practices for quality assurance systems2. Helps reinforcement of the stated quality system due to the requirements for periodic auditsuntil the quality system becomes in-built into the organisation

3. Facilitates discovery of problems and improvement of processes4. Helps to enforce a discipline of control5. Enables organisations to have a competitive advantage and better marketability of their

products / services6. Helps organisations to meet contractual obligations with their customers7. Makes the selection process easier if a potential supplier has ISO certification

5.4.2. ISO Certification Process

The following are the basic requirements for ISO 9000 certification.

Documentation: It is required to develop necessary documentation of procedures for carrying out all activities

Performance: The documentation is to be used as a working tool by doing everything thatis recorded

Verification: It is required to verify that the developed and documented procedures arefollowed by all the parties concerned and in all cases


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Filing: It is required to retain a written trace of all procedures. This should be updated andmade available to all the persons concerned

An independent third party does the certification. The cost towards certification could be quite high,and it could take up to two years to obtain certification. Examiners who are accredited to the nationalstandards setting agency assess the adherence to procedures on an annual basis.

Re-certification for ISO standards is required once in three years. Individual departments or divisionshave to achieve registration on an individual basis. Figure 5.4 displays the various elements in the ISOcertification process.

Figur e 5.4. Elements in I SO Cer tif ication Process

The details of each of these elements are provided below.

Document Review Document review involves review of quality manual or quality system documents by the registrar.

Pr e-assessment Pre-assessment involves identification of potential non-compliance in the quality system and itsdocumentation. This serves as a final check facilitating correction of last-minute issues.

Assessment An assessment of the quality system and its documentation is done by a team of two or three auditors.After the audit, corrective actions need to be taken and re-audit is to be done, if required. After

passing the audit, the registrar could certify if ISO standards have been followed. The organisation is


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provided with a letter and a certificate that could be used to announce to the external world about theISO certification.

Surveillance Surveillance is a periodic re-audit for verification of conformance with the practices and systemsregistered.

5.4.3. Steps involved in ISO Certification

Table 5.1 displays the key steps involved in ISO 9001 certification.

Table 5.1 Key Steps involved in I SO 9001 Cer ti f ication Step Explanation

Step 1: Gap Analysis Gap analysis involves assessment of existingquality management practices against ISO 9001requirements.

Step 2: Orientation Training Orientation training involves providing training onISO 9001 requirements and action plans to theTop/Senior Management.

Step 3: Documentation of the System

It involves preparation of quality manuals anddesigning quality record formats.

Step 4: Implementation of the System

Implementation of quality system in theorganisation will be according to the qualitymanual.

Step 5: Organisation-wideTraining

Organising for training on ISO 9001 clauses,Statistical Quality Control Techniques,Housekeeping (Japanese 5S), and Quality Audit inthe entire organisation.is done in this step.

Step 6: Internal QualityAudits

Internal Quality Audit is a periodic assessment of quality system implementation and correctiveactions.

Step 7: Pre-assessment Pre-assessment is an initial audit by the certifyingagency, and involves implementation of correctiveactions.

Step 8: Final Assessment Final assessment involves certification audit by thecertifying agency and providing recommendationfor certification.

Source: http://www.globalqualityvillage.com


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5.4.4. Certification Agencies

The ISO does not directly certify organisations. It is required to engage an external organisation thathas specialisation in assessing compliance with the standard certification agencies (also called asregistrars). These standard certification agencies are usually authorised by accreditation agencies that

are set up for accreditation purpose.

The certification agencies audit the organisations that apply for ISO compliance certification. Thecertification agencies charge fees for providing services. The certifications issued by any of thecertification agencies are accepted worldwide.

The following are some of the factors involved in selecting a certification agency.

Credibility of the Certifying Agency: All countries have a body to control theactivities of registrars and also to ensure that they have their own quality systems whichare equivalent to ISO. Lists of approved registrars are also maintained in most

countries. Recognition of Certification: It is better to consider agencies that are recognised in thehome country of an organisation.

Focus on Specific Industry by Registrar: It may be better to select a registrar whofocuses on a specific industry due to better familiarity with the processes generally usedin that industry.

References: A registrars process needs to be reviewed and references are to bechecked to have an idea about the quality of service.

L ikely Questions during the Assessment

The questions that are usually asked by the auditors during the assessment phaseof ISO certification include the following.

Is there a documented policy on quality? Are management objectives for quality defined? Are the quality policy and objectives transmitted and explained at all levels

of the organisation? Is there a documentation of the job descriptions for people who manage or

perform work that impacts quality? Are the functions that impact quality described?

Has the management designated an individual or group with the authorityto prevent non-conformities in products, identify and record quality issuesand also recommend solutions?

What are the mechanisms used for verification of solutions?


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Costs and Charges: A comparison of the costs and charges involved (like applicationfees, administrative fees, document assessment fees, fees for annual or semi-annual

review of quality process so on) needs to be done. It also needs to be ensured that thereare no hidden costs.

Source: Quality Control for Dummies by Larry Web ber and Michael Wallace

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The Bank is required to ensure that all the local rules and regulations are thoroughly followed. The American Bureau of Shipping issued the ISO 9000 certificate to Bank of Boston.

The Chairman of Bank of Boston, Charles K. Gifford expressed that ISO 9000 certification being aninternationally standardized process was a good measure of the ability of a company to deliver thehighest level of service quality.

Charles K. Gifford mentioned that any company, irrespective of the industry needs to meet the samerigorous management requirements for obtaining the certificate. He also added that Bank of Boston

actively pursued ISO 9000 certification to demonstrate the commitment of the bank to its existing and potential customers in providing products and services of the highest quality.

Source: http://www.thefreelibrary.com

5.5. Business Excellence Models

The evolution of the Excellence model and its usage has facilitated the development of Total QualityManagement (TQM) and Business Excellence within organisations.

The management of quality is a continuous process. There are various Business Excellence models

and awards that have been instituted for quality management and business excellence.

Figure 5.5 displays two of the Business Excellence models.

I SO 9001 I mplementation: A Bu siness Case

Bank of Boston became the first bank in South America to be awarded ISO 9000certification. It received ISO 9000 certification for its international safekeeping

services (a banking service wherein the bank acts as a foreign investors attorney,liquidator and representative for operations such as securities and stock brokerage.


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F igur e 5.5 Two Business Excell ence M odels

Sources: Measuring Business Excellence by Gopal K. Kanji, Total Quality Management: Text and Cases by K.Shridhara Bhat

5.5.1. The Malcolm Baldrige Criteria for Performance Excellence

The following key aspects are the Baldrige criteria for performance excellence.

Leadership: The leadership system, values, expectations, and public responsibilities of theorganisation

Strategic Planning: The effectiveness of strategic planning and its deployment with a focuson customer needs and operational performance requirements

Customer and Market Focus: The manner in which an organisation determines thecustomer needs, market requirements and expectations, enhancement of relationships withcustomers, and assessment of customer satisfaction

Information and Analysis: The level of effectiveness in collecting information andanalysing it for supporting customer-driven performance excellence and success in themarket

Human Resource Focus (Workforce focus): The success of efforts to achieve the entire potential of the employees for creating a high-performing organisation

Process Management: The extent of effectiveness of systems and processes to assure thequality of products and services

Business Results: Results of performance, trends, and comparison with competitors in key business areas

Malcolm BaldrigeCriteria for

PerformanceExcellence

Business Excellence

Models

EFQM BusinessExcellence

Model


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Figure 5.6 is the pictorial description of the Baldrige Criteria for Performance Excellence framework.

F igur e 5.6 Baldri ge Cri ter ia for Per for mance Excell ence F ramework

Source: http://www.quality-management-tools.com

M alcolm Baldri ge National Quali ty Award

The Malcolm Baldrige National Quality Award was established in the year 1987. It was set up by theUS Congress and named after a former secretary of commerce. It could be said to be the Americanequivalent of Deming prize instituted by the Japanese. The award is administered by the NationalInstitute of Standards and Technology.

The key aspects of the Malcolm Baldrige award are as follows.

It serves as a strong catalyst for quality Only companies located in the United States (US) are eligible for this award The Criteria for Performance Excellence of this award has a framework to integrate total

quality principles and practices in an organisation The award is given to two US companies every year in each of the three categories, namely

manufacturing, services, and small business Organisations that are most effective in pursuing and attaining total quality are recognised


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Evaluation Process for M alcolm Baldr ige Award

A rigorous process is involved in the evaluation of applications for the Malcolm Baldrige award. Theseven Baldrige criteria namely, Leadership, Strategic planning, Customer and market focus,Information and analysis, Human resource focus, Process management, and Business results are

judged on the following basis.

Self-evaluation report provided by an applicant for the award Initial screening of the key evaluation report of applicants Site visit by Baldrige examiners for the applicants who successfully clear the initial

screening phase of the key evaluation report

Figure 5.7 displays the steps involved in the Malcolm Baldrige award process.

F igur e 5.7. Evaluation Steps in M alcolm Baldri ge Award Pr ocess

The following steps are involved in the Malcolm Baldrige award process.

The responses to the seven Baldrige criteria namely, Leadership, Strategic planning,Customer and market focus, Information and analysis, Human resource focus, Processmanagement, and Business results are provided by an applicant for the award.

Every application that has been received is reviewed extensively by up to 15 examiners whohave been selected from among leading professionals of quality in business, academia,government, and healthcare.

The response of applicants to each award criteria is evaluated by examiners. The major strengths and improvement areas related to the criteria are examined. According to the strengths identified, a percentage score in the range of 0 to 100 in

increments of 10 is provided to each item. Each of the items examined are evaluated on the following aspects.

Approach: This is the method utilised by the organisation for achieving therequirements specified in each category

Submissionof

Responses

ExtensiveReview

Examinationof

Strengths

Awarding of Percentage

Score

Evaluationof

Responses

Evaluation of Examined

Items


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Deployment: This is the extent of application of the various approaches to all therelevant areas and activities that are specified and implied in each category

Results: This has reference to the effects and outcome in the achievement of objectives specified and implied in each criteria of the award

Benefi ts of the Malcolm Baldri ge National Quality Award Program

The following are the benefits for firms applying for the Baldrige award.

Self-assessment Tool Baldrige Effect Sharing Information

Self-assessment Tool When the categories for the awards are applied to organisational processes, managers and other employees have a better idea about their own operations and the level of success achieved inserving their customers. This aspect of self-assessment provides important insights.

Baldri ge Ef fect Though an organisation may not be keen to apply for the Malcolm Baldrige award, itsmanagers may utilise the categories and evaluation process as guidelines for processimprovement.

Sharing I nformation All those who win the Baldrige award agree to actively work towards teaching other organisations about quality and their organisational experiences in this regard. This facilitates

beneficial exchange of information between organisations.

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Ritz-Carlton Hotels won the prestigious Malcolm Baldridge Quality Award twice. The organizationhas truly taken customer service to a level much above their competition. However, such superior level of service did not simply happen by chance.

The Ritz-Carlton Hotels molded their employees into superior service providers with a variety of intensive trainings, merit- based appraisal systems, and continuous reinforcement of the companys

Win ner of M alcolm Baldri ge Quali ty Award A B usiness Case

Here is a business case of Ritz-Carlton Hotels, an organization with a focus oncustomer service and a winner of the Malcolm Baldrige Quality Award on twooccasions. The commitment of the organization towards customer satisfaction and

guest services is apparent in every aspect of their business. It is the duty of an

employee to go above and beyond the call of duty with each and every customer they service.


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commitment to these Gold Standards. This commitment by the organization and each and everyteam member enabled Ritz- Carlton to follow the concept that the customer is always right and

evolve it into an ultimate customer service experience. This was the core element of their success.

Apart from this, the usage of Total Quality Management (TQM) at Ritz-Carlton Hotel Companyenabled them to drive significant and sustainable change. This level of adaptability, whilemaintaining the highest levels of quality, propelled Ritz-Carlton to the forefront of its industry.

Source: http://www.grin.com/e-book/60430/total-quality-management-a-case-study-of-a-quality-award-winning-organization

5.5.2. EFQM Business Excellence Model

The EFQM (European Foundation for Quality Management) Business Excellence Model is a non- prescriptive framework which recognises the existence of many approaches in achieving sustainableexcellence. The EFQM Business Excellence model is based on the following aspect.

Excellent results with respect to Performance, Customers, People and Society are achieved throughLeadership driving Policy and Strategy, People, Partnerships and Resources, and Processes .

Figure 5.8 represents the nine aspects of EFQM Business Excellence model.

F igur e 5.8 EF QM Business Excell ence M odel

L e a

d e r s h

i

P r o c e s s e s

K e y

P e r

f o r m a n c e

R e s u l

t sPeople

Policy andStrategy

Partnership and

Resources

People Results

Customer Results

Society Results

Enablers Results

Innovation and Learning


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The fundamental concepts that form the essence of the model are:

Results Orientation Customer Focus

Management by Processes and Facts Leadership and Constancy of Purpose Continuous Learning People Development and Involvement Partnership Development Innovation and Improvement Public Responsibility

According to EFQM, excellence is an outstanding practice in managing the organisation andachieving results based on the fundamental concepts highlighted above. The EFQM BusinessExcellence Model has the enablers and results criteria, with each of th em constituting a total of 50

percentage of the total weight.

Enablers Enablers are the set of factors that enable an organi sation to achieve model performance. TheEnablers are leadership, policy and strategy, people, partnership and resources, and p rocesses.

Results Results are basically what an organisation achieves in relation to the criteria established in the resultscategory. They are the outcome of the Enablers. The Results include customer results, people

results, society results, and key performance results.

There are nine boxes in the EFQM model, which represent the criteria used for assessment of theorganis ations progress towards excellence. Each of these nine criteria has a definition explaining thehigh-level meaning of that criterion. Each criterion is supported by sub-criteria. Each of the sub-criteria has lists of possible areas to be addressed.

EFQM Award The EFQM Award was designed to provide European Community and businesses with an increasedawareness of the growing significance of quality to their competitiveness in the global market, and anincreased standard of living.

The key aspects of the EFQM award are:

EFQM award was initiated in 1991 by the European Foundation for Quality Management,and consists of two parts:

The European Quality Prize The European Quality Award


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The European Quality Prize is given to organisations that demonstrate excellence in qualitymanagement practice by meeting the criteria for the award

The European Quality Award is given to the most successful applicant

Evaluation Process for EF QM Award The applicants for the award need to demonstrate that their Total Quality Management approach hassignificantly contributed towards meeting the expectations of employees, customers, and other stakeholders.

The assessment is done on the basis of customer satisfaction, business results, leadership, processes,resources, policy and strategy, employee satisfaction, people management, and impact on society.

Results related to customer satisfaction, employee satisfaction, and impact on society constitutes a

high percentage of the overall score. The mechanisms by which an organisation approaches itsresponsibilities of business are called as Enablers . These drive the factors that constitute a high percentage of the total score.

5.6. Cost of Poor Quality (COPQ)

It is said Cost $1 to prevent a problem, $10 to find it, and $100 to fix it

Source: Actionable performance measurement: a key to success by Martin T. Howell

The imperfections in the process could be in the delivery of products or services. The measure of Cost of Poor Q uality helps to specify the impact of poor quality on a business.

Source: Six Sigma for Managers by Greg Brue

5.6.1. Examples of Cost of Poor Quality

Some of the examples of Cost of Poor Quality are:

Inspection Rework Duplicate Work Rejections Scrap Replacements Refunds

When products or services may not meet specifications or expectations, the

materials, labor, and overhead costs that could be attributed to imperfections inthe process are called Cost of Poor Quality (COPQ).


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Customer Complaints Loss of Customers

Damage to Reputation

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5.6.2. Contributors to Cost of Quality and Cost of Poor Quality

There are various costs that contribute to the Cost of Quality such as Prevention costs, Appraisalcosts, and Failure costs. The failure costs contribute to the Cost of Poor Quality.

Figure 5.9 is the pictorial depiction of the costs that are considered while assessing the Cost of Qualityand Cost of Poor Quality.

F igur e 5.9 Cost of Quali ty and Cost of Poor Qual ity

Cost of Quality (COQ)

PreventionCosts

AppraisalCosts

InternalFailure Costs

ExternalFailure Costs

FailureCosts

Cost of Poor Quality (COPQ)Cost of Good Quality

Cost of Poor Quali ty An E xample

Whenever a rework is carried out, there is an increase in the cost of poor quality.

As an example, correcting a bank statement increases cost of quality. Similarlyrework on a service such as processing a transaction again leads to an increase incost of poor quality.


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The Cost of Poor Quality (COPQ) includes the two types of failure costs, namely, internal failurecosts and external failure costs.

QualityPoor of CostQualityGoodof CostQualityof Cost where,

CostsAppraisalCostseventionPr CostsControlledQualityGoodof Cost

CostsFailureExternalCostsFailureInternalQualityPoor of Cost

We can also say that:

Cost of Poor Quality = Actual cost of product or service Reduced cost that would have been

possible without failure or defects of products or without poor quality of service

Each type of cost that contributes to the Cost of Good Quality is given below.

1. Prevention CostsPrevention cost is the cost incurred to prevent defects (that is, nonconformance torequirements) from occurring. It is the cost involved in minimising failure costs andappraisal costs. It includes cost of those activities that are performed to avoid poor quality ina product or service.

Examples of Preventive Costs are:

Quality Planning Training Policies and Procedures Preventive Maintenance

2. Appraisal CostsAppraisal cost is the cost incurred for the detection of defects (that is, to appraise a productor service whether it conforms to requirements). It is the cost involved in determination of the degree of conformance to quality requirements.

Examples of Appraisal Costs are:

Testing Inspection Quality Audits


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Each type of cost that contributes to the Cost of Poor Quality is given below.

1.

Failure Costs

Failure costs could be categorised as either internal failure costs or external failure costs.

I ntern al Fail ur e Costs Internal failure cost is the cost of failure that is incurred before delivering or shipping a

product, or providing a service to the customer (that is, cost arising from defects identified before the product or service is received by the customer).

Examples of Internal Failure Costs are:

Re-working a Product or Re-doing a Service/Activity Re-inspection/Re-testing Scrap Downtime

External F ailu re Costs External failure cost is the cost of failure that is incurred after delivering or shipping a

product/after providing a service to the customer (that is, defects found after the customer receives the product or service).

Examples of External Failure Costs are:

Warranty-Related Claims Returned Material/Items Recalling of Products Customer Complaints Processing Compensation for Defects Damage to Reputation


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Exhi bit - 8

According to another estimate by firms, COPQ could cost between 15% and 40% of sales or budget. A focus on cost reduction and quality costs has led to a reduction of COPQ in manyorganisations to 3% or less. Organisations usually spend more on controlled costs (preventioncosts, appraisal costs) to reduce failure costs, especially external failures that lead to major costs.


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Table 5.2. Ex tent of Estimated Contr ibuti on of the Var ious Costs Towards COPQ COPQ

CategoryEstimated

Contribution (%)Internal Failure Costs 25% 40%External Failure Costs 25% 40%


Exhi bit - 10

I ntern al Failu re costs More than 25 million of new 5 notes of Bank of England that was supposed to have been issued one month later had to be discarded and pulped. This was done due to a controversy regarding the

portraying of George Stevenson, who was a pioneer in railway engineering. The notes had mentioned that he died in the year 1845 instead of the correct year of 1848.

Source: The Essence of Total Quality Management, John Bank

Cost of Poor Quali ty in Organisations

Cost of Poor Quality (COPQ) for traditionally managed organisations has beenestimated to be in the range of 20% - 40% of the budget. This indicates that anorganisation with revenues of $1 million has waste and defects in its systems that cost between $200,000 and $400,000.

Estimation of Costs Contri buting to Cost of Poor Qual ity (COPQ)

Table 5.2 represents the extent of estimated contribution of the various coststowards Cost of Poor Quality.

Preventi on Costs and I nternal F ailur e Costs: Real -li fe Examples

Prevention costs According to a statement issued by the Law Society, judges were to receivetraining for avoiding mistakes that could involve a minimum cost of 10,000 for

hearin an a eal to recti the error.


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5.6.3. Analysing impact of TQM on Cost of Good Quality and Cost of Poor Quality

Let us look at the impact of TQM on the various costs that contribute to the Cost of Good Quality andCost of Poor Quality.

I mpact on Preventi on Costs In the short term, investment is required for planning, processes, systems, and training since it isrequired to set the base for the future. Hence, prevention costs will increase in the short term

I mpact on Appraisal Costs As time progresses, it is not required to carry out inspection, verification of the work of others andsuch tasks. This causes the appraisal costs to gradually decrease.

I mpact on I ntern al and Extern al F ailu re Costs Internal and external failure costs decrease drastically due to the effect of prevention activitiesundertaken.

5.6.4. Benefits of Reduction in Cost of Poor Quality

The benefits through reduction in Cost of Poor Quality are not immediate. Initially, the cost of prevention may increase. However, all the costs contributing to the Cost of Poor Quality could be brought down to half of the original values. There could be further reduction in costs by almost 50%and the process could be repeated again and again.

A reduction in the Cost of Poor Quality could lead to an improvement in sales, productivity, revenue, profit, product quality, service quality and the overall results of an organisation.

5.7. Summary

Here is a quick recap of what you have learnt in this unit.

ISO standards established by International Organisation for Standardisation are theminimum standards of quality that must be met by industries. These standards are applicableto any organisation irrespective of its size, type, or function.

The ISO 9000 famil y of standards is associated with management of quality , and the ISO14000 family of standards is associated with management of the environment .

The adoption of ISO standards requires the support of the top management in anorganisation.


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The key elements involved in the management of ISO systems are:

Planning Performance

Measurement Improvement

Audits could be either Compliance audits or Performance audits, and these could be further categorised as System audits, Process audits, and Product audits.

ISO 9000 certification provides an assurance to customers that an organisation has designedand managed its processes for delivering a quality product.

The various elements in the ISO certification process are: Document review Pre-assessment Assessment Surveillance

It is necessary to engage an external organisation that has specialisation in assessingcompliance with the standard.

Two of the Business Excellence models include Malcolm Baldrige Criteria for Performance

Excellence, and EFQM Business Excellence Model.

The Malcolm Baldrige criteria for Performance Excellence include Leadership, Strategic planning, Customer and market focus, Information and analysis, Human resource focus,Process management, and Business results.

The EFQM Business Excelle nce Model has the enablers and results criteria, with each of them constituting a total of 50 percentage of the total weight.

Cost of Quality includes prevention cost, appraisal cost, and failure cost.

The Cost of Poor Quality (COPQ) includes the failure cost, which are of two types, namely,internal failure costs and external failure costs.

A reduction in the Cost of Poor Quality could lead to an improvement in sales, productivity,revenue, profit, product quality, service quality and the overall results of an organisation.


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5.8. References

Book References

Gryna, Chua, Defeo, Juran`s Quality Planning & Analysis for Enterprise Quality, 5 th Edition, Tata McGraw Hill, 2008

Kanishka Bedi, Quality Management, 3 rd Edition, Oxford University Press, 2006 Debashis Sarkar, Quality in Business, Sage/Response Books, 2003 Debashis Sarkar, Lessons in Six Sigma - 72 Must know truths for managers,

Sage/Response Books, 2004

Articles/Information for Additional Reading

ISO 9000 Frequently Asked Questions (FAQ s), http://bis.org.in/cert/faqmscd.htm

EFQM Excellence Model, http://ww1.efqm.org/en/PdfResources/teaser-model170609.pdf

Cost of Poor Quality - COPQ, http://www.isixsigma.com/dictionary/Cost_of_Poor_Quality_-_COPQ-63.htm

The Cost of Poor Quality How to make better business decisions and positively affectyour bottom line, http://www.dnb.co.in/Whitepaper.pdf

Cost of Poor Quality http://web2.concordia.ca/Quality/tools/8costofpoorquality.pdf

COPQ: The Truth Behind the Hidden Plant, http://www.bestpraxclub.com/pdf/sample.pdf

Cost of Poor Quality Worksheet, http://www.quality-improvement-matters.com/support-files/copq-pens.pdf


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Web References

http://www.iso.org http://www.tqmcasestudies.com/baldrige/baldrige.html http://www.efqm.org http://www.asq.org/learn-about-quality/cost-of-quality/overview/overview.html http://www.qimpro.com/Cost_of_Poor_Quality.php

Video References

The ISO 9000 family Global management standards http://www.iso.org/iso/pressrelease.htm?refid=Ref1174 www.iso.org/iso/iso14001_video Cost of Quality http://www.youtube.com

quality management unit 5 slm v3

Documents