This document discusses quality costs and productivity measurement. It defines eight dimensions of quality and explains concepts like quality of design and quality of conformance. It describes different types of quality costs including prevention, appraisal, internal failure, and external failure costs. Methods for estimating hidden quality costs like the multiplier method, market research method, and Taguchi quality loss function are presented. Graphs for reporting quality costs over time and depicting the cost of quality versus percent defects are shown. The document also discusses productivity measurement in terms of technical efficiency and total factor productivity. It provides examples for calculating partial and total productivity ratios.
A unique approach of QFD in overall design process improvement..
This presentation is a part of case-study based lecture at Symbiosis Institute of Business Management, Bangalore, India.
The presentation discusses about Customer Focus, Customer Satisfaction, Customer Orientation, Customer Complaints and Customer Retention in relation with Total Quality Management.
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A unique approach of QFD in overall design process improvement..
This presentation is a part of case-study based lecture at Symbiosis Institute of Business Management, Bangalore, India.
The presentation discusses about Customer Focus, Customer Satisfaction, Customer Orientation, Customer Complaints and Customer Retention in relation with Total Quality Management.
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Process Approach in Total Quality ManagementJess Henson
Process Approach in Total Quality Management
- ETX Model
- 6s of Process Improvement
- Customer-Supplier Chain
- Just-In-Time
- Lean Manufacturing
- Kanban System
- Cellular Manufacturing
- Zero Defects
Process Characteristics in Operations: Volume, Variety, Flows, Types of Processes & Operations System, continuous flow & intermittent flow system. Process Product Matrix: Job production, batch production, Assembly line & Continuous flow process & production layout Service System Design Matrix: Design of Service system, Service Blue print
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Supplier Quality Management (SQM) is becoming an important business practice as more companies are out-sourcing manufacturing, distribution, shipping, and sales across the globe. Aside from the implications of failure to comply with a myriad of regulations, failure of SQM can lead to litigation, added costs, and harmed reputation among other problems such as product adulteration and mis-branding. However, there is a trade-off between managing supplier quality and costs. As such, SQ managers need to be aware of the risks and benefits of the relationship with suppliers as a whole.
Our panel of key thought leaders and practitioners assembled by The Knowledge Group will discuss Supplier Quality Management and provide Best Practices and Practical Insights.
Key topics include:
Supplier Quality Management – Overview
Supplier Selection, Evaluation, and Monitoring
Supplier Quality Agreements and Contracts
Cost of Poor Supplier Quality (COPQ)
Quality Management Systems
Cost Recovery and Supplier Audit
Closed Loop Corrective Actions
Suppliers Quality Metrics
Supply Chain Pressures
To view the webcast go to this link: http://youtu.be/FhW15o2pfCw
To learn more about the webcast please visit our website: http://theknowledgegroup.org
Process Approach in Total Quality ManagementJess Henson
Process Approach in Total Quality Management
- ETX Model
- 6s of Process Improvement
- Customer-Supplier Chain
- Just-In-Time
- Lean Manufacturing
- Kanban System
- Cellular Manufacturing
- Zero Defects
Process Characteristics in Operations: Volume, Variety, Flows, Types of Processes & Operations System, continuous flow & intermittent flow system. Process Product Matrix: Job production, batch production, Assembly line & Continuous flow process & production layout Service System Design Matrix: Design of Service system, Service Blue print
Supplier Quality Management: Best Practices and Practical Insights in 2015 LI...Thomas LaPointe
Supplier Quality Management (SQM) is becoming an important business practice as more companies are out-sourcing manufacturing, distribution, shipping, and sales across the globe. Aside from the implications of failure to comply with a myriad of regulations, failure of SQM can lead to litigation, added costs, and harmed reputation among other problems such as product adulteration and mis-branding. However, there is a trade-off between managing supplier quality and costs. As such, SQ managers need to be aware of the risks and benefits of the relationship with suppliers as a whole.
Our panel of key thought leaders and practitioners assembled by The Knowledge Group will discuss Supplier Quality Management and provide Best Practices and Practical Insights.
Key topics include:
Supplier Quality Management – Overview
Supplier Selection, Evaluation, and Monitoring
Supplier Quality Agreements and Contracts
Cost of Poor Supplier Quality (COPQ)
Quality Management Systems
Cost Recovery and Supplier Audit
Closed Loop Corrective Actions
Suppliers Quality Metrics
Supply Chain Pressures
To view the webcast go to this link: http://youtu.be/FhW15o2pfCw
To learn more about the webcast please visit our website: http://theknowledgegroup.org
Excellente organisaties, ze bestaan echt. Wat doen zij anders en hoe richten zij het ondersteunende kwaliteitssysteem in?
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A presentation on the different methods to use to control quality and prevent internal and external failure to avoid the catastrophic inestimable price of poor quality.
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Target Costing and PricingExercise 8 Lovebug Company has de.docxjosies1
Target Costing and Pricing
Exercise 8:
Lovebug Company has determined that its new automotive hood screen would gain widespread customer acceptance if the company could price it at or under $30.
Anticipated labor hours and costs for each unit of the new product follow.
Direct Materials Cost
$5
Direct labor cost
Manufacturing labor:
Hours
0.2
Hourly labor rate
$10
Assembly labor:
Hours
0.5
Hourly labor rate
$15
Machine hours
1
The company currently uses the following three activity-based cost rates:
Machine handling
$0.30 per dollar of direct materials
Production
$5.00 per machine hour
Product delivery
$0.50 per unit
The company’s minimum desired profit is 40 percent over total production and delivery cost.
Compute the target cost for the new hood screen, and determine if the company should market it (Round to two decimal places).
Problem 5
Developing Transfer Prices
Sand Company has two divisions, Glass Division and Instrument Division.
For several years, Glass Division has manufactured a special glass container, which it sells to Instrument Division at the prevailing market price of $20.
Glass Division produces the glass containers only for Instrument Division and does not sell the product to outside customers.
Annual production and sales volume is 20,000 containers.
A unit cost analysis for Glass Division follows.
Cost Categories
Costs per Container
Direct Materials
$3.50
Direct labor, 1/4 hour
2.3
Variable overhead
7.5
Avoidable fixed costs: $30,000/20,000 units
1.5
Corporate overhead: $3.60 per direct labor hour
4.5
Variable shipping costs
1.2
Unit Cost
$20.50
Corporate overhead represents the allocated joint fixed costs of production- building depreciation, property taxes, insurance, and executives’ salaries.
A profit markup of 20 percent is used to determine transfer prices.
REQUIRED:
What would the appropriate transfer price for Glass Division to use in billing its transactions with Instrument Division?
If Glass Division decided to sell some containers to outside customers, would your answer to requirement 1 change?
Defend your response.
What factors concerning transfer price should management consider when transferring products between divisions?
Exercise 4:
Measures of Quality in a Service Business
Rehab Health Care, LLC, incurred the service-related activity costs for the month that follow.
Total sales
$40,000
Customer complaint processing
1,000
Employee training
400
Reinspection and retesting
500
Design review of service procedures
300
Technical support
200
Investigation of service defects
800
Sample testing of vendors
100
Inspection of supplies
150
Quality audits
250
Quality-related downtime
300
Prepare an analysis of the costs of quality for Rehab Health Care.
Categorize the costs as (a) costs of conformance, with subsets of prevention costs and appraisal costs, or (b) costs.
Cost ManagementLecture 24Chapter 10 Modified from P.docxfaithxdunce63732
Cost Management
Lecture 24
Chapter 10
* Modified from PPT slides of McGraw-Hill/Irwin
Activities
consume
resources Products
consume
activities
Recap of what we covered last class
Costing method that first assigns costs to
activities and then allocate them to products
based on the products’ consumption of
activities.
Activity-Based Costing
Activity-Based Cost Management
Activity-based cost
management uses activity
analysis in decision making.
Activity-based costing
focuses on activities in
allocating overhead
costs to products.
Activity-based
management focuses
on managing activities
to reduce costs.
Overview:
1. Explain the concept of activity-based cost management.
2. Use activity-based costing methods to assess customer and
supplier costs.
3. Distinguish between resources used and resources supplied.
4. Design cost management systems to assign capacity costs.
5. Describe how activities that influence quality affect costs and
profitability.
Managing the Cost of Customers and Supplies
Resources cost Customers (and suppliers)
use resources
Some customers use more
resources than others
Time Money=
Activities consume
resources
Services consume
activities
ABC and the Cost: Customers and Suppliers
Use the same four-step ABC product costing process to
assess customers and suppliers.
3. Compute a cost rate per cost driver unit or
transaction.
4. Allocate costs to customers by multiplying the
cost driver rate by the volume of cost driver units
consumed by the activity or transaction that
occurred.
1. Identify the activities that consume resources and
assign costs to them.
2. Identify the cost driver(s) associated with each
activity.
Example: Cost of Customers
Operating Data
Red’s Lumber
Jack Jill Firm
Sales 50,000$ 50,000$ 5,000,000$
Cost of goods (@60%) 30,000 30,000 3,000,000
Gross margin 20,000 20,000 2,000,000
Order/Delivery Charges (@16%) 8,000 8,000 800,000
Delivery costs 800,000
Other operating costs 1,435,000
Operating profit 565,000$
All customers pay a 16% delivery charge
Example: Red’s Lumber – Step 1
What activities consume resources
for Red’s delivering service?
Process Flow of the Delivery Service
Red’s Lumber
Entering
Order
Loading
Order
Delivering
Order
Identify the activitiesStep 1
Example: Red’s Lumber – Step 2
Identify the cost drivers and the
expected volume of each cost driver.Step 2
Entering order Number of orders entered
Loading order Number of items loaded
Delivering order Number of deliveries made
Delivery administration Order value
Activity Cost Driver
Example: Red’s Lumber – Step 2
Identify the cost drivers and the
expected volume of each cost driver.Step 2
Entering order Number of orders entered
Loading order Number of items loaded
Delivering order Number of deliveries made
Delivery administration Order value.
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1. Quality Costs and Productivity:
Measurement, Reporting, and
Control
Kristel Pamela P. Caluya
2. Eight Dimensions of Quality
•
•
•
•
•
•
•
•
Performance
Aesthetics
Serviceability
Features (quality of design)
Reliability
Durability
Quality of Conformance
Fitness of Use
3. Quality Defined
• Features (Quality of Design) refer to characteristics
of a product that differentiate functionally similar
products.
–
Example: Compare first class air travel with economy travel. First
Class typically offers more leg room, better meals and more
luxurious seats.
• Quality of Conformance is a measure of how well
the product meets its requirements or specifications.
–
Example: If a Honda Civic does what it is designed to do and does it
well, quality exists. For example, if economy cars are designed to
provide reliable, low-cost, low-maintenance transportation, the
desired
quality exists.
5. Examples of Quality Costs
Prevention costs
Appraisal Costs
Quality engineering
Quality training programs
Quality planning
Quality reporting
Supplier evaluation and selection
Quality audits
Quality circles
Field trials
Inspection of raw materials
Testing of raw materials
Packaging inspection
Supervising appraisal activities
Product acceptance
Process acceptance
Inspection of equipment
Test equipment
Design reviews
Outside endorsements
6. Examples of Quality Costs
Internal failure costs
Scrap
Rework
Downtime (defect related)
Reinspection
Retesting
Design changes
External failure costs
Cost of recalls
Lost sales
Returns/allowances
Warranties
Repairs
Product liability
Customer dissatisfaction
Lost market share
Complaint adjustment
7.
8. Estimating Hidden Quality Costs
Hidden Quality Costs are opportunity costs
resulting from poor quality.
•
The Multiplier Method
•
The Market Research Method
•
Taguchi Quality Loss Function
9. The Multiplier Method
The multiplier method assumes that the total failure
cost is simply some multiple of measured failure
costs:
Total external failure cost = k(Measured external failure costs)
where k is the multiplier effect
If k =4, and the measured external failure costs are $2 million,
then the actual external failure costs are estimated to be $8
million.
10. The Market Research Method
The market research method uses formal market
research methods to assess the effect of poor
quality on sales and market share.
– Customer surveys and interviews with members of a
company’s sales force can provide significant insights into the
magnitude of a company’s hidden costs.
– Market research results can be used to project future profit
losses attributable to poor quality
11. The Taguchi Quality Loss
Function
The Taguchi loss function assumes any
variation from the target value of a quality
characteristic causes hidden quality costs.
Furthermore, the hidden quality costs
increase quadratically as the actual
value deviates from the target value.
12. L(y)= k(y-T) 2
Where
k= a proportionality constant dependent upon the
organization’s external failure cost structure
y= Actual value of quality characteristics
T= Target value of quality characteristic
L= Quality loss
y-T
(y-T) 2
k(y-T) 2
1
Actual
Diameter
(y)
9.9
-0.10
0.010
4.00
2
10.1
0.10
0.010
4.00
3
10.2
0.20
0.040
16.00
4
9.8
-0.20
0.040
16.00
Total
0.100
40.00
Average
0.025
10.00
Unit
13. Total units produced are 2,000
Total expected hidden quality costs
10(0.025*$400)=$20,000
Total expected loss for the 2000 units
20. Multiple-Trend Analysis for Individual
Quality Costs
Assume the following quality cost data:
Prevention
2002
2003
2004
2005
2006
1Expressed
Appraisal
6.0%1
6.0
5.4
5.6
4.4
as a % of sales
4.5%
4.0
3.6
3.2
2.4
Internal
Failure
4.5%
3.5
3.0
3.1
3.0
External
Failure
6.0%
4.5
3.0
2.6
2.3
21. Productive Efficiency
Productivity
concerned with producing output efficiently
specifically addresses the relationship of output and
the inputs used to produce the outputs
Total productive efficiency is the point at which
two conditions are satisfied
For any mix of inputs that will produce a given
output, no more of any one input is used than
necessary to produce the output.
Given the mixes that satisfy the first condition, the
least costly mix is chosen
23
22. Productive Efficiency
Technical Efficiency
the condition where no more of any one input is
used than necessary to produce a given output.
Technical efficiency improvement occurs when less
inputs are used to produce the same output or more
output are produced using the same input.
24
27. Productive Efficiency
Of the two combinations that produce the same output,
the least costly combination would be chosen.
29
28. Partial Productivity Measurement
Partial Productivity Measure
Measuring productivity for one input at a time.
Productivity ratio = Output
Input
Operational Productivity Measure
Partial measure where both input and output are
expressed in physical terms.
Financial Productivity Measure
Partial measure where both input and output are
expressed in dollars.
30
29. Total Productivity Measurement
2009
2010
Number of frames produced
Labor hours used
Materials used (lbs.)
240,000
60,000
250,000
240,000
240,000 250,000
60,000
50,000
1,200,000 1,150,000
50,000
1,200,000
250,000
1,150,000
31
30. Total Productivity Measurement
Profit-Linkage Rule
For the current period, calculate the cost of the
inputs that would have been used in the absence of
any productivity change
Compare this cost with the cost of the inputs
actually used.
The difference in costs is the amount by which
profits changed because of productivity changes
32
31. Total Productivity Measurement
PQ = the inputs that would have been used
Current-period output
PQ =
Base-period productivity ratio
33
32. Total Productivity Measurement
2009
Number of frames produced
Labor hours used
Materials used (lbs.)
Unit selling price (frames)
Wages per labor hour
Cost per pound of material
240,000
60,000
1,200,000
$30
$15
$3
2010
250,000
50,000
1,300,000
$30
$15
$3.50
34
33. Total Productivity Measurement
PQ (labor) =
PQ (materials) =
250,000 4 =
250,000 ÷ 0.200 =
Cost of labor: (62,500 $15)
Cost of materials: (1,250,000
Total PQ cost
The actual cost of inputs:
Cost of labor: (50,000 $15)
Cost of materials: (1,300,000
Total current cost
62,500 hrs.
1,250,000 lbs.
$3.50)
$ 937,500
4,375,000
$5,312,500
$3.50)
$ 750,000
4,550,000
$5,300,000
35