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Chapter 2: Companywide Assessment of Quality
Course Instructor:
Ibrahim Abdulla
Major Topics
Why Assessment
Cost of Poor Quality
Categories of Quality costs
Relating Cost of Poor Quality to Business Measure
Optimum Cost of Quality
Standing in Marketplace
Organization Culture and Quality
Assessment of Current Quality Activities
National Quality Award
ISO 9000 Quality System Standards
1- Why Assessment
Develop Quality Strategy
a) Size of Quality Issues
b) Areas requiring attention
Elements of Quality Assessmenta) Cost of Poor Quality
b) Standing In Market Place
c) Quality Culture in Organization
d) Operation of Company Quality system
Quality SWOT Analysisbases for Strategic Quality Management.
All companies require companywide assessment of Quality
2- Cost of Poor Quality
In 1950s: Cost of Quality = Cost of attaining Quality Cost of Quality = Cost of Poor Quality
Cost of Poor Quality (COPQ) Cost of Poor Performance Processes (COP3) cost not only
associated with poor quality but also cost of waste
Reasons for estimating COPQ: Quantifying quality problems improves communication
Cost higher than estimates Identify areas that require immediate attention
Identify opportunities for cost reduction Identify opportunities for customer dissatisfaction reduction
Means to evaluate quality improvement progress Bases for quality improvement strategy
3- Categories of Quality Costs
Internal Failure Costs Costs of deficiencies identified before delivery Failure to meet specs and customer requirements Main Subcategories:
Scrape Rework Scrape and Rework 100% sorting inspection Re-inspection Changing process Redesign of hardware Redesign of software Scrapping of obsolete products Scrap in support operation Rework in internal support operations Downgrading of selling price
Cost of inefficient Processes Subcategories
Variability of product characteristics Unplanned downtime of equipment Inventory Shrinkage Variation of Process Characteristics from best practice Non Value added activities
External Failure CostsSubcategories
Warranty Charges Complaints Adjustments Returned Materials Allowances Penalties due to poor quality
Rework on support operations Revenues losses in support operations
Lost Opportunity in sales revenues
Appraisal Costs Subcategories
Incoming inspections and test In-process inspection and test Final inspection and test Document Review Balancing Product Quality audits Maintenance Accuracy of Test Equipment Inspection and test materials and Services Evaluation of Stocks
Prevention Costs Subcategories
Quality Planning New Products review Process planning Process Control Quality audits Supplier Quality evaluation Training
Read Example page 33
Hidden Costs of Poor Quality
4 - Relating Cost of Poor Quality to Business Measure
Example Situation A
COPQ = 10% Profit = 7% Turnover = 3 Net profit = 21%
Situation B COPQ = 6% Profit = 7% Turnover = 3 Net profit = 33%
5- Optimum Cost of Quality
What are the rights costs?
Unfortunately, shortage of credible data Companies information not published Companies varies
For Industrial Companies COPQ = 15% of sales revenue
For Services companies COPQ about 30|% of operational expenses
For Health COPQ about 30% of healthcare outlays
Indirect costs COPQ ranges between 2.5 to 5%
Optimum cost model
6 - Standing in Marketplace
Company need to identify it standing in quality compared to competitors through market research study
Main Question Categories What is the relative importance of various product qualities as
seen by the user? For each quality how does our product compare with
competitors products as seen by the user? How likely is the customer to purchase form us again or
recommend us to thers?
Example Field Study of Health Products Manufacturer
Example 2: Telephone Services company
Performance Vs. Importance in Deriving Satisfaction Matrix
7 - Organization Culture and Quality
8 - Assessment of Current Quality Activities
9- National Quality Awards
National Institute of Standards and Technology (NIST)
Areas: Industry Services Small Business Education Health Care
Each country has its own System and regulatory body
Baldrige Criteria For Performance
EFMQ Excellence Model
10 - ISO 9000 Quality System Standards
Developed by International Organization for Standards
Minimum Criteria for quality Systems
Required to meet domestic and International competition
Some industries have their own quality systems (Example QS9000 for Automotive Industry). These systems includes ISO 9000 and additional industry related standards
ISO Do not emphasis on results, but rather on Existence of quality systems
Baldrige Criteria Focus on Customer Satisfaction.
Baldrige and ISO 9000 complement each other
Questions/Queries