Estimate Capabilities

Estimate:

Capabilities of current processes, machines, systems, etc. Develop realistic programs and projects: Develop realistic programs and projects consistent with the company’s goals

Determine the resource requirements:

• Determine the resource requirements for approved programs and projects

• Set up quality cost categories:

• Set up quality cost categories of prevention, appraisal, and failure

Arrange for accounting:

Arrange for accounting to collect and present quality costs

Ensure accurate figures:

Ensure accurate figures or reasonable estimates by category

Analyze the quality cost data:

Analyze the quality cost data for major improvement candidates

Utilize the Pareto principle:

Utilize the Pareto principle to isolate specific vital areas for investigation. Quality Cost Comparison Bases. Quality costs should be related to as many different volume bases as practical. Two or three comparisons are normal. The bases selected vary, depending upon product, company, etc. Some examples are:

Labor bases:

Total direct labor (worked)Standard labor (planned)

Manufacturing cost bases:

Production engineering costs and expensesProvision for complaints packing and shipping

Sales bases: Net sales billed Contributed value (net sales minus direct material).

Unit bases: Quality costs, dollars per unit of production

1.Quality costs related to production

2.Quality costs are normally summarized monthly on a report form.

3.Typical Quality Cost Report

Advantages of a Quality Cost System

• Provides a manageable entity and a single overview of quality.

• Aligns quality and company goals.

• Provides a problem prioritization system and a means of measuring change

• Provides a way to distribute controllable quality costs for maximum profit

• Improves the effective use of resources

• Provides emphasis for doing the job right every time

• Helps to establish new product processes

Limitations of a Quality Cost System.

• Quality cost measurement does not solve quality problems.

• Quality cost reports do not suggest specific actions.

• Quality costs are susceptible to short-term mismanagement.

• It is often difficult to match effort and accomplishments.

• Important costs may be omitte from quality cost reports.

• Inappropriate costs may be included in quality cost reports.

• Many quality costs are susceptible to measurement errors.

Quality Cost Pitfalls Perfectionism in the numbers:

Lengthy debates can occur in some companies over the need for precision. This delay may cost the company the initiative to move forward with considerable total savings.

Other data pitfalls:

Presentation to managers should be done in a way that discussion is on the merits of improvement proposals and not on data validity.

Inclusion of non-quality costs:

The management group should decide on a definition of waste. That is, will only pure product quality waste be included? Implications of reducing quality costs to zero: A quality cost presentation should recognize that it may not be realistic or economically sound to reduce quality costs to zero.

Reducing quality costs but increasing total company costs:

It may be necessary to ensure that a reduction in quality costs will not increase total costs.

Understatement of quality Costs:

There are many ways to understate the costs of quality. One of the most common is to deal with quality costs only in excess of some normal standard. Inthe prevention approach, the emphasis should be to challenge whether the standard level can be improved.