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  1. 1. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336 Assessment of Cost of poor quality in Automobile Industry Prof.S.N.Teli1 Dr. U.M.Bhushi 2 Mr.V.G.Surange 3 1. Associate Professor -Mech. Engg. Dept., SCOE, Kharghar 2. Principal - Sahyadri College of Mangalore Engineering & Management. 3.Research scholar- Mech. Engg. Dept., SCOE, KhargharAbstract The cost of poor Quality would help in By using the basic six sigma tools of Statisticalanalyzing the operating costs for effective and Process Control (SPC) and Capability Processes, theprofitable business management. In the era of cut average factory can reduce the cost of poor qualitythroat completion, success achieved by market and increase their bottom line profits.leaders is credited to their improvementinitiatives. A common element within many of Symptoms for Need of Quality Costthese successful companies is the use of powerful Measurement:cost of poor quality concepts in connecting Organizations that have no cost of qualityimprovement priorities to strategic objectives, measurement system often see the followingassessing the financial impact of poor quality, symptoms:understanding the root causes of poor quality,  Slow rate of improvementselecting high payback improvement projects  Bureaucracy or complexity in processes thatand managing the Improvement initiative to continues to worsensimultaneously deliver improved financial  Changes in one area tend to have large,performance and greater customer satisfaction. negative effects in one or more other areasA widely used rule of thumb says if a defect costs  Management gets personally involved in qualityRs 100 to fix in the field it would only cost Rs 10 problems only during a major crisisto fix in your facility and only Rs 1 to prevent, so  Management is running out of ideas as to howin this case an ounce of prevention is definitely to cut costs furthergreater than the pound of cure. This means in the  All employees are not actively and personallymanufacturing process we want to stop defects involved in driving the organization’s missionbefore they are created. The six sigma capability forwardand SPC tools can stop the defects before they  Many individuals and departments disagree onare created and reduce the cost of poor quality what the top priorities are for the organization(COPQ) by allowing maintenance to movetoward a predictive model instead of a reactive  Sub-processes and departments are operated in a manner that is detrimental to theone. The ability to schedule downtime and get toissues root causes allow for less production organization’s overall best interestinterruptions and better quality. 4.3 Goal of Quality Cost: The goal of any quality cost systemKey words: Cost of poor quality (COPQ), six therefore is to facilitate quality improvement effortssigma, Taguchi Quality Loss Function (QLF), that will lead to operating cost reductionDeming Wheel: PDCA Cycle. opportunities. The strategy for using quality cost simpleIntroduction  Take direct attack on failure costs in an attempt A simple definition of the cost of poor to drive them to zeroquality (COPQ) is all the costs that would disappear  Invest in the right prevention activities to bringif your manufacturing process was perfect. This about improvementsincludes all appraisal, prevention, and failure costs.Anyone running a company knows these costs exist,  Reduce the appraisal costs according to resultsbut what they may not realize is how much of their achieved.expenses are tied directly to COPQ. The industry  Continuously evaluate and redirect preventionaverage is around 20% efforts to gain further improvement. Of sales with a range of 1% of sales in a six The quality-costing approach is a provensigma organization up to 40% of sales at a three means of tracking, guiding, and motivating qualitysigma organization, meaning for the average improvement. The selection of best approachcompany there is large potential for improvement. ultimately will be based on maturity of quality efforts, type of organization or process and other TQM tools applied concurrently. 330 | P a g e
  2. 2. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336Categories of Quality cost:Figure1The Six Sigma Philosophy of Cost of Quality: (Table 1) SIGMA LEVELS DPMO(Defects per Sigma level Quality level COPQ million Opportunities) 1 691,000 31% 2 309,000 69% >40% 3 67,000 93.3% 25-40% 4 6,200 99.4% 15-25% 5 230 99.98% 5-10% 6 3.4 99.997% 0-5%As a company moves toward becoming a six sigma methods that achive rapid improvents in cost andcorporation the COPQ as a percent of sales will drop quality by optimizing product design anddrastically (Table1). The better your control over the manufacuring process.process, the fewer defects you will have, reducing  We canot reduce cost without affectingthe cost of poor quality. The cost of poor quality is qualityaccounted as the annual monitory loss of an industry  We can improve quality without increasingon its balance sheet. Apparently the cost of poor costquality is not concerned with the quality only but  We can reduce cost by reducing variartion ,cost of waste associated because of poor when we do so, performance and qualityperformance and process along with serious impact will automatically improve.on companies market and good will. The cost of Taguchi defines quality as “ the loss imparted tocompetition and customer satisfaction are the society from the time the product is shipped.paramount challenge to the manufacturer and thus Fundamental to his approach to quality engineeringthe cost of poor quality is now become most is this concept of loss.significant factor to bring down the same to its Quality costs are usually quantified inminimum and associated with culture of zero terms of scarp and rework , warranty ordefects. othertangible costs.As we saw however theseThe Taguchi Quality Loss Function(QLF): constitute only the “tip of the iceberg”(figure2) Dr.Genichi Taguchi developed TaguchiMethods-combined engineering and stastical 331 | P a g e
  3. 3. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336 Figure 2What about the hidden costs or long-termlosses 1) Nominal the best (achiving a desired target valuerelated to engineering/managemnt time , inventory with minium variation, such as dimension), customer dissatisfaction , and loss to company’s 2) Smaller the Better(Minimizing the response suchbad reputation, which leads to eventual loss to as shrinkage & wear)market share. Indeed we need a way the largest 3) Larger the better(Maximizing a response, suchcontributators to taotal quality loss. Taguchi uses as pull of force & tensile strength)the Quality Loss Function(QLF) for this purpose. 4) Attribute(clsifyong and/or counting data, such asThe way the QLF is established depends of the apperance)quality chararcteristic is whether to jugde the 5) Dynamic(response varies dependingon input,performance(quality). There are five types of such as speed of fan driveshould varyQaulity Charactristics. depending on th engine temperature) Figure 3L=Loss in Rs.K=Cost CoefficientY=Value of quality characterT=Target ValueIn this wayof thinking, loss occurs not only when a above.While a loss function may take on manyproduct is outside the specifications, but also when forms.In short the the QLF is a measure of qualitya product falls withinthe specifications. Further it’s in monetary units that reflects not only immediatereasonable to belive that loss contiually increases costs, such as scrap and rework, long term losses asas product deviates further from the target value, as well.the parabola/(QLF) as shown in figure3 332 | P a g e
  4. 4. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336Six Sigma implementation frameworks: Figure 4Six Sigma is not restricted to large corporate and well-crafted pilot project. That way if the pilotmanufacturing companies but it can be equally doesnt deliver the results you expected, you get the Applicable to small and medium-sized chance to fix and improve things before you fullyenterprises and service organizations too. Although commit your reputation and resources. A popularthe key findings in Indian small medium tool for doing just this is the Plan-Do-Check-Actenterprises are promising but still there is a huge Cycle (Figure5). This is often referred to as theresearch gap yet to be explored with respect to Deming Cycle or the Deming Wheel. Deming isIndian medium scale automotive industries for best known as a pioneer of the quality managementfeasibility of implementing Six Sigma. Six approach and for introducing statistical processSigma Methodology is a proven tool set for control techniques for manufacturing, which isDriving and used them with great success. It is believed that aachieving transformational change within an organi key source of production quality lay in havingzation. Six Sigma is a continuous Improvement clearly defined, repeatable processes. And so theprocess focusing an organization on: Customer PDCA Cycle as an approach to change andRequirements, Process Alignment, and Timely problem solving is very much at the heart ofExecution. Therefore, to be globally competitive, it Demings quality-driven philosophy.is essential for the Indian automobile sector to The four phases in the Plan-Do-Check-Act Cyclefollow Six Sigma program as an effective involve:continuous improvement tool to deploy TQM  Plan: Identifying and analyzing thephilosophy. This tool will help the Indian problem;automobile sector to track their performance  Do: Developing and testing a potentialovertime and to take requisite counter-measures. solution;  Check: Measuring how effective the testDeming Wheel: PDCA Cycle approach to solution was, and analyzing whether itproblem solving and implementing could be improved in any way; andsolutions:  Act: Implementing the improved solution Where the consequences of getting things fully.wrong are significant, it often makes sense to run a 333 | P a g e
  5. 5. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336 Figure 5Cost of quality models: Table 2 Generic model Cost/Activity categories P-A-F Model Prevention + appraisal + failure Crosby’s model Prevention + appraisal + failure + opportunity Conformance + non-conformance Conformance + non-conformance + opportunity Opportunities/intangible cost models Tangibles + intangibles P-A-F (failure cost includes opportunity cost) Process cost model Conformance + non-conformance ABC models Value-added + non-value-addedThe P-A-F model is the most recognized framework was proposed in 1998 and it was statedinternationally approach for quality costing. that “the cost and non-financial informationHowever the P-A-F model is mainly a cost achieved from the integrated COQ-ABC system cancategorization scheme and it has serious limitations. be used to identify the magnitude of the qualityA promising alternative for quality costing is the improvement opportunities, to identify where thefamily of process cost models. Models based on the quality improvement opportunities exist, and toactivity based costing (ABC) methodology. Which continuously plan the quality improvementare activity –oriented for the cost assignment view programs and control quality costs” In general, oneand process oriented for the process view could be serious limitation of the ABC approach is the needalso applied for quality cost. Every quality cost to conduct a full-blown activity-based costingmodel is limited because of the complex nature of analysis to identify and rank each activity. However,the problem that they face. The company should a wide variety of service and manufacturing firmsdevelop a proper quality cost reduction program. It have found that simplified activity-based costingis important that organization should focus on how concepts can be used to identify non-value-addedto achieve the cost-efficient quality and come to an activities and quality improvement opportunities,acceptable quality level and should treat the quality without the time and expense required to implementcost system as a worthy investment project and get a full ABC system.the profit from it. An integrated COQ-ABC 334 | P a g e
  6. 6. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336 Comparison between main COQ approaches and ABC: Table 3: CoQ Aspect of PAF approach Process cost ABC comparison modelOrientation Activity-oriented Process-oriented Activity-oriented (cost assignment view) Process-oriented (process view)Activity/cost Prevention Conformance Value-addedcategories Appraisal Non-conformance Non-value-added Internal failure External failureTreatment of No consensus method to allocate Assigning overhead tooverhead overhead to CoQ elements under current activities by using resource drivers in the first CoQ measurement systems and traditional stage cost accounting of ABC cost assignment viewTracing costs to No adequate method to trace quality costs Tracing activity costs to cost objects by usingtheir sources? to their sources activity drivers in the second stage of ABC cost assignment viewImprovement CoQ-related Processes Processes/activitiesobjects activities activitiesTools for Quality circle Process/activity valueimprovement Brainstorming Nominal analysis Performance measurement group technique Cause Benchmarking and effect analysis Force- Cost driver analysis field analysisInformation The cost elements of The CoC and The costs of activities and processesoutputs PAF categories CoNC elements of The costs of value- added and non-value- added Total quality cost the processses activities and their percentages of various bases and the costs of PAF investigated Accurate costs of various cost objects categories and their Total process cost, (product, departments and customers) Activity- percentages of CoC and CoNC of based various bases the processses performance measures investigated and Cost drivers of activities their percentages of various bases 335 | P a g e
  7. 7. Prof.S.N.Teli, Dr. U.M.Bhushi, Mr.V.G.Surange / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248-9622 www.ijera.com Vol. 2, Issue 6, November- December 2012, pp.330-336Conclusion: 4. The Juran Institute Research on Cost of• The overall awareness of quality tools in India Poor Quality: August, 2005 by Mark De lacks in depth. TQM is the only mechanism to Feo either sustain competitive advantage or survive 5. Reducing the Cost of Poor Quality: competitive disadvantage. This tool will help Michael Cieslinski, Panasonic Factory Indian automobile sector to track their Solutions Company of America, Buffalo performance overtime and to take requisite Grove, IL 847-495-6100 counter-measures. 6. Impact of Knowledge Management• The market is saturated while the market scale Practices in Indian Automobile has remained unchanged. A set of effective Industry –An Empirical Investigation quality control performance and improvement K.Karthikeyan1 & R. Rengaraj Alias models needs to be established. By initiating a Muralidharan2 mechanism of low cost and high processing 7. Six sigma implementation in Indian speeds, an improved competitiveness will medium scale Automotive enterprises – develop in this highly competitive, highly a review and agenda for Future research, demanding, and constantly changing Rajeshkumar U. Sambhe, int. J. Six sigma environment. This, in turn, will create a and competitive advantage, vol. 6, no. 3, product of high customer satisfaction, which is 201 needed for the industry to survive.• The increase in demand of the growing 8. Principles of quality costs- customer looking for a better quality of Principles,implimentations and use,third product has compelled corporations to adopt edition,ASQ Quality cost committee;Jack Six Sigma in order to improve the quality for Campanella,editor. enhanced competitive advantage.• Though most TQM tools are not new ideas in manufacturing or quality, they just need to be implemented properly as every quality cost model is limited because of the complex nature of the problem, a proper analysis is necessary before implementation, which leads to bring down cost of poor quality and increase the overall profit of an organisation.• By limiting to obvious costs like scrap and rework, companies completely overlook the most damaging hidden costs. And hence can analyze the tool necessary for implementation which leads to performance enhancement.• A realistic estimation of quality costs is an essential element of any TQM initiative.TQM system requires a process approach and P-A-F model generally fails in this area. A promising alternative for quality costing is a family of process cost models.References 1. Impacts of cost of poor quality in Indian automobile sector: international journal of engineering research and applications (IJERA), ISSN 2248-9622 Mar-Apr 2012 2. Usage of quality tools in Indian automobile sector: V.K. Khanna, Prem Vrat, Ravi Shankar, & B S Sahay 3. Cost of quality models and their implementation in manufacturing firms: international journal of quality research UDK005.642.3:338.3, scientific review paper (1.02) 336 | P a g e