The TQM Journal

Emerald Article: Introducing models for implementing cost of quality system ARVIND CHOPRA, Dixit Garg

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This is an EarlyCite pre-publication article: ARVIND CHOPRA, Dixit Garg, (2012),"Introducing models for implementing cost of quality system", The TQM Journal, Vol. 24 Iss: 6 (Date online 28/8/2012) Downloaded on: 16-08-2012 To copy this document: permissions@emeraldinsight.com

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Article Title Page

Introducing models for implementing cost of quality system
Author Details Author 1 Name: ARVIND CHOPRA Department: MECHANICAL ENGINEERING University/Institution: TECHNICAL EDUCATION DEPARTMENT, PUNJAB Town/City: PATIALA Country: INDIA

Author 2 Name: DIXIT GARG Department: MECHANICAL ENGINEERING University/Institution: NATIONAL INSTITUTE OF TECHNOLOGY, KURUKSHETRA Town/City: KURUKSHETRA Country: INDIA

Corresponding author: [ARVIND CHOPRA] Corresponding Authors Email: arvindchopra3k@yahoo.com Acknowledgments (if applicable): n/a Biographical Details (if applicable): n/a Structured Abstract: Purpose: The purpose of this research paper is to develop two models in the field of cost of quality. One model would for estimating/ calculating cost of quality and second model would be for implementing cost of quality system in an industry. Design/ methodology/approach: Although most of industries are aware about the benefits of cost of quality, but only a few of them are using same in their organization. It is because they do not know how to calculate and implement same. Hence to help those industries, simple models are proposed for calculating cost of quality and for implementing cost of quality system. Findings: Cost of quality models are developed and later on they are validated through a case study. It is observed that by implementing same, the cost of quality reduced significantly in the chosen industry. Originality/ Value: Average industries do not have resources to hire services of consultants for implement cost of quality system in their industries. Hence these proposed simple models will of great value to them. Keywords: Cost of quality models, Implementing cost of quality, quality costs, Quality management Article Classification: Research Paper

Introducing models for implementing cost of quality system

Purpose: The purpose of this research paper is to develop two models in the field of cost of quality. One model would for estimating/ calculating cost of quality and second model would be for implementing cost of quality system in an industry. Design/ methodology/approach: Although most of industries are aware about the benefits of cost of quality, but only a few of them are using same in their organization. It is because they do not know how to calculate and implement same. Hence to help those industries, simple models are proposed for calculating cost of quality and for implementing cost of quality system. Findings: Cost of quality models are developed and later on they are validated through a case study. It is observed that by implementing same, the cost of quality reduced significantly in the chosen industry. Originality/ Value: Average industries do not have resources to hire services of consultants for implement cost of quality system in their industries. Hence these proposed simple models will of great value to them.

Key words: cost of quality models, Implementing cost of quality , quality costs, Quality management

Introducing models for implementing cost of quality system

Introduction: In a globally competitive market, manufacturers are forced to design and manufacture highly reliable and quality products with competitive pricing to fulfill customer expectations (Rathod et al, 2010). The Indian Industries, which will have to compete with internationally, established manufacturing organizations needs to produce their products very economically (Singh et al., 2009). As the volume, sources and types of business rules continue to grow, so do the needs of organizations to accurately, consistently and effectively manage their resources. Under these conditions, the role of quality management has expanded. Total quality costs represent the difference between the actual cost of a product or service and what the cost would be if the quality was perfect. It should also be understood that the cost of quality is a comprehensive system, not a piecemeal tool (Chiadamrong, 2003).Companies can lose money because they fail to use significant opportunities to reduce their costs of quality. (Rodchua, 2006). Organizations should consider Cost of quality (CoQ) as an integrated approach and long-term process, and focus on the cost factors in order to improve customer satisfaction.( Kiani et al, 2009).The Cost of Quality had a directly impact on the overall financial goal of a company. Even a small reduction in CoQ may boost the profitability of a company by a significant amount. Cost of quality technique resulted in cost cutting as well as quality improvement (Desai, 2008). Hence, efforts should be made to reduce the CoQ as much as possible (Srivastava, 2008). Four important factors and measures contributing to a successful quality cost program implementation. The same were; management Support and Commitment, understanding Concepts of Cost of Quality, Effective Systems and Application, and Cooperation from other departments (Rodchua, 2006). Organizations should develop an appropriate quality cost system according to their need. measuring the cost of quality requires both technical knowledge and accounting know-how and was a joint effort of many, including quality control, accounting, engineering, production, marketing, and service (Mwaura & Nyaboga, 2006). COQ tracking was not as widespread as some would believe. Only a small proportion of the industries systematically tracked quality costs. (Sower et al, 2007). Very few firms had included all quality cost categories (prevention, appraisal, internal failure and external failure costs) in total quality costs and made attempt to estimate value for all quality cost categories. The concept of reporting quality costs data was not widely accepted by firms (Shah & Mandal, 1999). Hence the researcher proposed two models in the field of cost of quality. One is for estimating/ measuring cost of quality and second for implementing cost of quality system in any organization. Development of Models: Two models are proposed, one for calculating cost of quality and another for development of cost of quality system.
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a) Model for calculating cost of quality A model is proposed in figure 1 to calculate cost of quality program in any industry. It consists of seven steps and all steps are self explanatory.

Figure 1: Model for calculating 'cost of quality'

b) Model for implementing cost of quality program A model is proposed in figure 2 to implement cost of quality program in any industry. It consists of four steps. The implementing this model, the concerned organization shall be able to gain bigger market share, enhanced profitability, reduction in quality costs and improved reputation. The customers in return shall be delighted ones by getting value for money, product satisfaction at competitive prices.

Figure 2: Model for implementation of cost of quality program

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Case Study A case study is conducted at a textile industry loacted at Amritsar (Punjab).The industry manufactues Acrylics Loyies , Shawls, Dress Material etc. Annual sales of the organization is about 3.48 Crores INR.Cost of quality program is implemented in the organization as per recommended models in two phases. Phase-1: Calculating Present Cost of Quality Step-1: A CoQ team was constituted to calculate/estimate present level of CoQ. The team included quality assurance manager, production manager and accountant as members. Step-2: The top management had finalized the scope of work for the above team. Their scope of work included calculating / estimating present level of CoQ and thereafter analyzing same so as to recommend necessary steps/ investment to reduce present level of CoQ. Step-3: The team organized various awareness meetings and seminars with the employees of all departments about CoQ concepts and its benefits. Step-4: The team made in depth analysis of activities of all departments and thereafter had identified all quality related activities. Step-5: The team jointly discussed and framed methodology to assign money cost to quality activities identified in step-4. Step-6: Money cost was assigned to all quality related activities. The same is tabulated as under in Table 1: Table 1: Money cost of all quality activities S.NO NAME OF ACTIVITY 1 Salaries expense On Quality Personnel 2 Quality Training 3 Expense on Quality Administration 4 Quality Planning 5 In-Process inspection charges 6 Calibration & Maintenance Costs Measuring Equipment 7 ISO 9000 certification charges 8 Expenses on Process Wastage 9 Expenses on rejection 10 Extra Operations 11 Discount on Non-conforming material 12 Traveling Expenses

of

COST (INR) 3,84,000.0 12,500.0 8,500.0 0.0 5,31,000.0 8,000.0 20,000.0 16,84,211.0 4,10,062.5 1,32,000.0 2,43,200.0 25,000.0
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Step-7: Various quality activities were put under different quality cost categories and tabulated as under in Table 2: Table 2: Category wise quality costs S.NO. 1 2 3 4 TYPE OF QUALITY COST Total Prevention Cost Total Appraisal Cost Total Internal Failure Cost Total External Failure Cost COST (IN LACS ) 4.05 5.59 22.26 2.68

Phase-2: Implementing Cost of Quality program Step-1: The present level of CoQ was taken as reference and shown as under in Figure 3.

Figure 3: Pie- Chart of present costs of quality Step-2: Analyzing the present level of Costs of Quality

a) A Pareto analysis is applied on present quality costs.

Figure 4: Pareto analysis of costs of quality This analysis shows that the first four quality cost categories are responsible for 82.19 % of total quality costs. b) Costs of Quality in terms of profit had been calculated and same was found to be around 95.59%. It shows that there is a vast scope of reduction in these costs. c) Costs of Quality in terms of annual sales had been calculated and same was found to be around 9.93%. It also shows present quality costs are on higher side. Step-3: Following action plan was suggested to reduce present level of CoQ. Target following critical quality costs. Wastage Expense on in process inspection Salaries Discounts. Provide more training to employees on CoQ related aspects. Put more emphasis on prevention and appraisal activities Start vendor evaluation program Step-4: CoQ team sent their observations/report along with proposed action plan to top management. The team had convinced management that the proposed action plan can reduce the quality costs by 23%. The suggested actions would help to reduce CoQ / Sales from 9.93 % to 7.56 % and CoQ/ Profit from 95.59% to 72.78%..

After gaining approval from top management, the proposed action plan was implemented. The revised costs of quality shall be expected to be reduced by around 23%. Conclusion: The basic aim was to introduce and implement the CoQ system as one of the most effective performance measurement techniques to the firm and thereby bring bottom line improvements.
Quality cost Category Calculated quality costs Quality Costs with proposed changes 384000 112500 40000 53600 50000 640100 265500 8000

Prevention Costs: Salaries Quality Training Quality Administration Quality Planning Vendor Evauation, Development and ratings Sub Total Appraisal Costs Expense on in-process inspection Calibration & Maintenance Costs ISO 9000 Certification Charges Sub Total INTERNAL FAILURE COSTS Wastage Rejection Extra Operations Sub Total External Failure Costs Discount Traveling Expenses Sub Total TOTAL COSTS OF QUALITY (Rs.) ANNUAL SALES PROFIT COQ % of SALES COQ % of Profit

384000 12500 8500 0 0 405000 531000 8000

20000 559000 1684211 410062 132000 2226273 243200 25000 268200

50000 323500 986400 343899 132000 1462299 182400 25000 207400 2633299 34811500 3618000 7.56 72.78

3458473 34811500 3618000 9.93 95.59

Figure 5: Quality costs before and after implementing CoQ System

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The proposed models resulted in benefits such as: Calculating/estimating present level of quality costs Analyzing the present quality costs Further it is shown that these models helped the organization to reduce the quality costs by 23%.The cost of quality/ sales ratio shall come down from 9.93% to 7.56% and cost of quality/ profit will be reduced from 95% to 76%. As shown in figure 5. References: 1. Chiadamrong ,N. (2003) , The development of an economic quality cost model , TQM & Business Excellence , VOL. 14, NO. 9, november, 2003, pp 9991014. 2. Desai, Darshak A.(2008), Cost of quality in small- and medium-sized enterprises: case of an Indian engineering company, Production Planning & Control, 19: 1, 25 34 3. Kajdan, Vladimir (2007), Why Quality, Cost and Business Excellence are Inseparable, Total Quality Management & Business Excellence, 18:1, 147 152 4. Kiani, Behdad ; Shirouyehzad, Hadi; Bafti, Fahime Khoshsaligheh ; Fouladgar, Hamidreza (2009), Analysing the cost factors effects, International Journal of Quality & Reliability Management, Vol. 26 No. 7, 2009 pp. 685-698 5. Mwaura, Muroki F. & Nyaboga, Andrew(2007), Measuring And Reporting The Cost Of Quality A Pedagogical Quandry, 2007 ABR & TLC Conference Proceedings , Hawaii, USA 6. Rathod, Vijay ; Yadav, Om Prakesh; Rathore, Ajay and Jain, Rakesh (2010) Capturing life cycle issues by incorporating degradation behavior in RBRDO 2nd International Conference on Production and Industrial Engineering (CPIE-2010) at Dr B R Ambedkar National Institute of Technology Jalandhar, India on December 03-05, 2010, pp 1-7 7. Rodchua, Suhansa (2006), Factors, Measures, and Problems of Quality Costs Program Implementation in the Manufacturing Environment, Journal of Industrial Technology ,Volume 22, Number 4 ,October 2006 through December 2006 8. Shah, Kamlesh and Mandal, Purnendu (1999), Issues related to implementing quality cost programmes, Total Quality Management & Business Excellence, 10:8, pp 1093 1106 9. Singh, Rajesh K.; Garg, Suresh K. and Deshmukh, S.G. (2009) "The competitiveness of SMEs in a globalized economy: Observations from China and India", Management Research Review, Vol. 33 Issue: 1, pp.54 65 10. Sower, Victor E. ;Quarles, Ross & Broussard, Eric (2007) , Cost of quality usage and its relationship to quality system Maturity , International Journal of Quality & Reliability Management, Vol. 24 No. 2, 2007 pp. 121-140 . 11. Srivastava (2008), Towards estimating cost of quality in supply chains, Total Quality Management, Vol. 19, No. 3, pp 193-208