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Implementing Quality Concepts

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Presentation on theme: "Implementing Quality Concepts"— Presentation transcript:

1 Implementing Quality Concepts
Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney Chapter 8 Implementing Quality Concepts

2 Learning Objectives (1 of 3)
Explain why the emphasis on quality in business is unlikely to decline List ways to define and evaluate quality Define the characteristics of product quality and service quality Explain how benchmarking is used to improve quality

3 Learning Objectives (2 of 3)
Describe the role of Total Quality Management List the types of quality costs and how these costs are related Explain how to measure the costs of quality Clarify the need for both a management accounting system and a financial accounting system

4 Learning Objectives (3 of 3)
Demonstrate how cost management systems provide support for quality initiatives Explain how quality can become a part of an organization’s culture

5 Quality The sum of all of the characteristics of a product or service that influence its ability to meet the stated or implied needs of the person acquiring it Must be viewed from the user’s perspective Relates to both performance and value Quality

6 The quantity of output generated from the amount of input
Productivity The quantity of output generated from the amount of input

7 Production View of Quality
Increase productivity by reducing non-value-added activities do not store slow-moving inventory reduce unnecessary material moves reduce unscheduled production interruptions increase supplier quality/reduce inspections have suppliers inspect before shipping reduce the need to reprocess, rework, replace, repair fit machinery for mistake-proof operations have employees monitor and be responsible for own output (Statistical Process Control)

8 Statistical Process Control
Analyze where fluctuations occur in processes Use control charts SPC charts require workers to respond when there are occurrences outside the control limits nonrandom patterns Workers can prevent product defects and process malfunctions

9 Consumer View of Quality
Product or service meets and satisfies all specified needs Quality

10 Characteristics of Product Quality
Objective Performance Features Reliability Conformance Durability Serviceability Subjective Aesthetics Perceived quality Quality

11 Characteristics of Service Quality
Reliability Assurance Tangibles Empathy Responsiveness First Class First Class

12 Evaluating Quality Grade
Ability of product or service to satisfy needs, including price Value Meet the highest number of needs at the lowest possible cost It’s too expensive First Class

13 Benchmarking Investigate, compare, evaluate
own products, processes, services against competitors or “best of breed”

14 Benchmarking Results benchmarking Focus on competitors
Reverse engineering Focus on product/service specifications and performance results Determines “best in class” Process benchmarking Noncompetitor benchmarking extremely valuable “Best- in- (specific characteristic)” flexible manufacturing equipment maintenance worker training distributions and logistics

15 Steps in Benchmarking Determine area for improvement
Select characteristic to measure quality Identify “best-in-class” companies Ask for cooperation from “best-in-class” company Collect information Analyze the “negative gap” Make improvements Strive for continuous improvement

16 The Quality System Moves from after-the-fact inspection to proactive quality assurance Emphasizes prevention continuous improvement building quality into process or product Measures quality Encourages teamwork and employee involvement

17 Product/Service Improvement
Identify value-adding customers Identify customer wants quality value “good” service interaction between customer and organizational employees

18 Types of Quality Costs Cost of Compliance Cost of Noncompliance
Preventive costs - prevent product defects Appraisal costs - monitor and compensate when prevention fails Cost of Noncompliance Failure costs Internal losses - scrap, rework External losses - warranty work, customer complaint departments, litigation, product recalls

19 Quality Costs Reduce appraisal and prevention costs by increased spending on prevention Improvements in quality often result in lower total cost improved productivity Quality

20 The Quality Goal Meet the purchaser’s stated or implied quality needs
Provide confidence that quality level is achieved and sustained to provider’s management to customer Quality

21 Malcolm Baldrige National Quality Award
Focuses on Management systems Processes Consumer satisfaction Business results Types of entrants Manufacturing Service Small business Education Health care Represents Excellence

22 Measuring the Cost of Quality
Determine where to spend dollars on quality prevention Pareto Analysis Track the costs of quality change chart of accounts or coding system Develop a quality reporting system

23 Calculating Lost Profits
Total Defective Units Number of Units Reworked Profit Lost by Selling Units as Defects = X Profit for Good Unit Profit for Defective Unit Z = (D - Y) (P1 - P2 )

24 Calculating Internal Costs of Failure
Cost to Rework Defective Unit Number of Units Reworked Rework Cost = X R = (Y)(r)

25 Calculating External Costs of Failure
Cost of Processing Customer Returns Number of Defective Units Returned Cost of a Return = X W = (Dr )(w)

26 Total Failure Cost Profit lost by selling units as defects Rework cost
Cost of processing customer returns Cost of warranty work Cost of product recalls Cost of litigation related to products Opportunity cost of lost customers

27 Calculating the Total Quality Cost
Prevention Cost Appraisal Cost Failure Cost = + + T = K + A + F

28 Strategic Cost Management
Use of management accounting information to set and communicate organizational strategies establish, implement, assess the methods to accomplish the strategies assess the achievement of strategies Includes reporting information on quality goals and objectives

29 Strategic Cost Management
Provides a link from failure cost to prevention cost Continuous monitoring allows changes to reduce/prevent failures Production Failure Feedback

30 Quality as an Organizational Goal
Exceeding customer expectations Creating Customer Value Not just doing it well but learning to do it better Employee Empowerment

31 Questions What is quality?
What is benchmarking? How can benchmarking be used to improve quality? What are the different ways to measure the costs of quality?


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