Agenda

1. Agenda Week 14 • Return homework • Reliability • Solve problems: • Chapter 10 - 6, 10 • Cost of Quality • Solve problems: • Chapter 12 - 7 • Discuss final exam • Week 15 Assignment • Complete final exam • Present exam results

2. Question: • What are costs of quality? • Task: Create your list of quality costs and share with the class. • What is the relationship between quality and productivity? Cost of Quality

3. Cost of Quality Chapter Eleven Cost of Quality

4. Quality cost A quality cost is considered to be any cost that the company would not have incurred if the quality of the product or service were perfect. Cost of Quality

5. Quality costs Total quality costs are the sum of prevention costs, appraisal costs, and internal and external failure costs. Cost of Quality

6. Quality costs increase over time Liability costs Failure found by customer Field repair costs Failure Costs Failure found at installation Failure found at final inspection Failure found at onset of manufacture Failure found during design phase Prevention Costs Time when failure found Cost of Quality

7. Hidden Costs of Poor Quality Reprocessing Customer returns Rejects Warranty expenses Lost sales Loss of goodwill Overtime to correct errors Process downtime Extra inventory Delays Extra process capacity Premium freight costs Extra inventory Cost of Quality

8. Balanced Score Card TQM Element Financial Measure Non-financial Measure Customer satisfaction External failure cost. Field service expense. Results of customer satisfaction survey. On-time delivery. Number of customer complaints. Internal performance Appraisal cost. Internal failure cost. Prevention cost. Defect rates Yields Lead times Idle capacity Unscheduled machine downtime Cost of Quality

9. Traditional Model Total quality costs Failure costs Cost per good unit of product Cost of appraisal plus prevention 0% Quality of conformance 100%

10. Emerging COQ Model Total quality costs Failure costs Cost per good unit of product Cost of appraisal plus prevention 0% Quality of conformance 100%

11. COQ as motivator • Companies under TQM do not focus on quality cost minimization. • Quality improvement projects tend to focus on zero defects or defect reduction to the six-sigma level.

12. The 1-10-100 Rule Prevention $ 1 Correction 10 $ Failure $ 100 $ $

13. COQ Theme • Costs are not incurred or allocated, but rather caused. • Cost information does not solve quality problems, nor does it suggest specific solutions. • Problems are solved by tracing the cause of a quality deficiency.