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Chapter 2: Companywide Assessment of Quality

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1 Chapter 2: Companywide Assessment of Quality
Course Instructor: Ibrahim Abdulla

2 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

3 1- Why Assessment Develop Quality Strategy a) Size of Quality Issues
b) Areas requiring attention Elements of Quality Assessment a) Cost of Poor Quality b) Standing In Market Place c) Quality Culture in Organization d) Operation of Company Quality system Quality SWOT Analysis bases for Strategic Quality Management. All companies require companywide assessment of Quality

4 2- Cost of Poor Quality In 1950s: Cost of Poor Quality (COPQ)
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

5 Means to evaluate quality improvement progress
Bases for quality improvement strategy

6 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

7 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 Costs Warranty Charges Complaints Adjustments Returned Materials Allowances Penalties due to poor quality

8 Appraisal Costs Lost Opportunity in sales revenues Subcategories
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

9 Prevention Costs Subcategories Read Example page 33 Quality Planning
New Products review Process planning Process Control Quality audits Supplier Quality evaluation Training Read Example page 33

10 Hidden Costs of Poor Quality

11 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% Net profit = 33%


13 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%

14 Optimum cost model

15 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?

16 Example Field Study of Health Products Manufacturer

17 Example 2: Telephone Services company

18 Performance Vs. Importance in Deriving Satisfaction Matrix

19 7 - Organization Culture and Quality

20 8 - Assessment of Current Quality Activities

21 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


23 Baldrige Criteria For Performance

24 EFMQ Excellence Model

25 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

26 Questions/Queries

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