In the Name of Allah

Most Gracious, Most Merciful.

 CONTENTS

1. Business Environment
Quality &
Productivity
2. Q. C. D. S. Society of
Pakistan
3. What is Cost of Quality (CoQ)

4. Why CoQ

5. How Analyze CoQ

6. DMAIC Approach

7. Changing the Corporate Culture

Please think for a moment……
Can you identify some changes
happened at your workplace
Business Environment
(Fierce Competition)
Can you name a few organizations,
which do not exist any more.

Why Organizations
Prosper?
 The main challenges for the
organization?

1. Quality

2. Cost

3. Delivery / Productivity

4. Safety

5. Culture
Cost of
Quality
 It’s not the tip
of the iceberg
It’s what you
that’s the problem….can’t see…
The Hidden Factory!!!
Primary focus :
To reduce
Cost of Quality.
WHY ARE QUALITY COSTS
IMPORTANT?

HARVRD PROFESSOR MICHAEL E. PORTER

WHAT IS COST OF QUALITY?

Expenditure in Defect
Appraisals activities

+
COST Losses due to
OF Internal & External
failure
QUALITY
+

Expenditure in Defect
Prevention activities
CATEGORIES OF COST OF QUALITY
Cost of Conformance
PREVENTION COST
The cost of any action taken to
investigate, prevent or reduce
the risk of a non-conformity
APPRAISAL COST
The costs associated with
measuring, checking, or
evaluating products or services
to assure conformance to
quality requirements
Cost of Non-conformance
(Cost of Poor Quality)
INTERNAL FAILURE COST
The costs arising within the
organization due to non-
conformities or defects
EXTERNAL FAILURE COST
The costs arising after delivery
of product or service to the
customer due to non-
conformities or defects
EXAMPLE OF QUALITY COSTS
PREVENTION COST
- Training cost
-Supplier Training / Evaluations
- Quality Audits cost
- Preventive Maintenance cost
- SPC implementation cost
- quality improvement projects,
etc.
APPRAISAL COST
- Inspection & test cost
- Calibration cost
- Laboratory expenses
- Equipment cost
etc.
INTERNAL FAILURE COST
- Rejection cost
- Rework/Repair cost
- Loss due to down grading
- Re-testing costs,
etc.
EXTERNAL FAILURE COST
- Warrantee Expenses
- Claims
- Returns/Replacements
- Complaints handling,
etc.
GOAL OF CoQ SYSTEM

MOST COSTLY LESS COSTLY LEAST COSTLY

The customer finds The manufacturer or The company’s quality

defect in the delivered service organization system is designed for
parts or service finds and corrects the defect prevention and
defects internally continuous quality
improvement
GOAL OF CoQ SYSTEM

Litigation Loss
Failure Cost (Rs.)

Field Failure

Field Repair

Ship Point
Final Inspection

Subsystem/assembly

Component

Prevention

Process
GOAL OF CoQ SYSTEM

TO FACILITATE QUALITY EFFORTS

THAT WILL LEAD TO
OPERATING COST REDUCTION OPPORTUNITIES

STRATEGY
•Direct attack on Failure Costs to minimize them
•Investment in Prevention activities
•Reduction in Appraisal Costs
HOW TO START A QUALITY COST
PROGRAM?
 MANAGEMENT AWARENESS

Cost of
Quality Concept
CoQ Program
Objective of
Implementation Plan CoQ Program

results and improvements existing financial data and the

expected from the CoQ program general level of quality costs in the
organization
Six Sigma Infrastructure
PROJECT TEAM

FINANCE/ACCOUNT QUALITY
COORDINATOR INCHARGE

Six Sigma BBs /

GBs
DEPARTMENTAL
REPRESENTATIVE
IDENTIFICATION OF QUALITY COST ELEMENTS
Prepare a Checklist of
Quality Cost elements

Identify the Quality Cost

elements in each function

Review the data available

Identify the data to be

collected

(Xs) Leading Process --> Product --> Lagging (Ys)

XZY errors DPU/Yield

Temperature Manufacturing
Offset Scrap
Viscosity Cost of Quality
Pressure Rework, RMA
 Voice of the Customer
Analyze
Measure Improve

Define Control

Institutionalization

The DMAIC Model

 Compilation of quality
cost data
REPORTING OF QUALITY
COSTS
Function-wise quality
cost reporting

0.2 0.16
0.15
0.2
0.14 Company-wide quality
0.1
0.12
cost reporting
0.1 0.11
Millions

0.1

0.1

0.1 0.05
0.0

0.0

-
Jan 08 Feb 08 Mar 08 Apr 08 May 08 June 08 July 08
 JURAN SAID…

“All quality
improvement
occurs on a
project-by-project
basis and in no
other way.”
 Thanks
Let’s Achieve Excellence