The Cost of Quality (COQ)• COQ – the cost of avoiding poor quality, or incurred as a result of poor quality• Translates defects, errors, etc. into the “language of management” – $$$• Provides a basis for identifying improvement opportunities and success of improvement programs 2
Defects, Scrap, Rework, Inspection, Returns, Warranty, Quality AssurancePrevention : Design Review, Zero Appraisal: Vendor surveillance,Defect Program, Supplier Training, Receiving Inspection, ProductSupplier Evaluation, Specification Acceptance, Process Control,Review, Quality Audits, Preventative Inspection Labor, QualityMaintenance, Engineering Changes, Control Labor, TestingProduct Liability, Increased Overhead Equipment CostsInternal Failure External Failure: ConsumerDowntime, Engineering Changes, Affairs, Purchase Changes,Excess Inventory, Disposal Costs, Re- Service After Service, Productinspection Liability, Lost Market Share, Delivery Delay Reduced Benefits ImprovedInventory turn, lead Finish Goods, Return on assets, Scale economies,time, time to market warehouse space, return on investment, scheduling,turnaround WIP thru put, order vendor relations, productivity process time Dock- transportation, to-stock learning curves 4
Quality Cost Management Tools• Cost indexes• Pareto analysis• Sampling and work measurement• Activity-based costing 5
Managing Data and Information• Validity – Does the indicator measure what it says it does?• Reliability – How well does an indicator consistently measure the “true value” of the characteristic?• Accessibility – Do the right people have access to the data? 6
The Use Of Quality Cost Information • To identify profit opportunities • To make capital budgeting and decision • To improve purchasing and supplier-related costs • To identify west in overhead caused by activities not required by the customer • To identify redundant systems • To determine whether quality costs are properly distributed • To establish goals for budgets and profit planning • To identify quality problems • As a management tool for comparative measures I-O • As a tool of Pareto analysis • As a strategic management tool to allocate resources • As an objective performance appraisal measure 7
Accounting System and Quality Management• Activity based costing 8
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