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