Cost of Quality

1
Cost of QualityExternal Failures
CUSTOMER RETURNS Product Value of product
returned from customer Replacement Effort Return
transaction cost, replacement transaction cost,
labor effort to manage MRB
Activity Disposition and restocking of returned
product WARRANTY COSTSParts/Materials Warrant
y parts materials used for warranty jobs
Labor Labor applied to warranty jobs
Overhead Overhead applied to warranty jobs
Travel Travel cost incurred on warranty jobs
Transportation Costs Transportation costs
incurred on warranty jobs Compliant
Investigation Quality Quality effort expended
to investigate complaints/claims
Engineering Engineering effort expended to
investigate complaints/claims Sales Sales
effort expended to investigate complaints/claims
Manufacturing Manufacturing effort expended to
investigate complaints/claims Customer
Service Customer service effort expended in
investigate complaints/ claims
2
Cost of QualityExternal Failures
LIABILITY EPA Penalties Fine/penalties paid for
violations OSHA Penalties Fines/penalties paid
for violations Attorneys Fees Legal fees
incurred to defend/defray liability claims Court
Costs Court expenses incurred to defend/defray
liability claims Awards/Settlements Awards/penalt
ies/settlements incurred in liability
claims Product Delays Fines/penalties paid for
delay of product delivery Product
Recallls Effort and value of merchandise recalled
scrapped/reworked SERVICE PROBLEMS Concessions
Parts/services provided to soothe ruffled
customers/salespeople Discounts Discounts given
as concessions Additional Services Service
required after original service has been
provided Shipping Errors Time expanse of
correcting shipping errors Total
External Failures
3
Cost of QualityInternal Failures
REJECT REVIEW - MRB Material Review Board
Activity Staff Time Attending MRB meetings
maintaining records Product Lost usage of
product held in MRB SCRAP Material Cost of
scrapped material, including trim losses Labor
Investment Overhead content in partially or fully
completed scrap Disposal Cost Cost to dispose of
scrap not recoverable Salvage Credit Income from
salvaged scrap First-run Yield Lost product due
to expecting less than 100 yield Downgrading
Product Lost value in going from primary product
to seconds Administration Effort White collar
activity to control scrap and reporting REWORK W
orker Error Mtl, labor overhead for rework due
to worker error Process Driven Mtl, labor
overhead for rework due to faulty
process Customer Initiated Mtl, labor overhead
for rework initiated by customer
returns Process or Test Change Mtl, labor ovhd
for rework due to a change in process or
test Engineering Change Mtl, labor overhead
for rework due to engineering change Purchased
Mtl Short or Sub Addl mtl, labor ovhd needed
to use substitute purchased mtl. Fab Mtl Short
or Sub Addl mtl, labor ovhd needed to use
substitute Fab Mtl Flaws Touch-up/repair Mtl,
labor ovhd to touch-up flaws introduced during
production Rework Overtime Overtime premium
required to perform rework
4
CUSTOMER B/O WHITE COLLAR ERRORS Order
Entry White Collar effort correcting
errors Order Entry Reverification Internal
checking of Customer Orders Picking Errors Labor
and loss of packing materials to repack
Audits to Verify Picks Labor Cost (Total
verification costs in distribution) Verifying
Inv. Bal. Errors Time spent verifying in Cust
Serv Warehouse verifying errors Backorder
fulfillment Time spent in Cust Serv, Picking,
shipping in filling Backorders SCHEDULE
CHANGES Change Administration Effort to change
original schedules due to errors or priority
changes Mfg Impact of Change Mfg effort required
to accommodate schedule change Scrap/Rework Repla
cement Production control effort to replace
scrap/rework UNPLANNED MAINTENANCE Maintenance
Expense Maintenance time materials to repair
failed equipment Lost Production
Revenue Production hours lost expressed in
equivalent product revenues Downtime
Labor Non-productive labor hours
5
Cost of QualityInternal Failures
PURCHASE ORDER CHANGES Customer Initiated PO
changes due to customer design or process
changes Engineering Initiated PO changes due to
engineering design or process changes Purchasing
Initiated PO changes due to material
availability, price, quality, or
errors Scrap/Rework Replacement Extra POs needed
to replace lost material EXPEDITE Transport In
(FedEx) Premium to supplier or freighter to
speed delivery Transport Out (FedEx) Premium
to freighter to speed delivery Lost
Discounts Inability to take trade volume
discounts due to short lead time SUPPLIER
PROBLEM REPAIR (Production time lost plus company
absorbed repair) Manufacturing Cost incurred by
Mfg to investigate/fix supplier problem
mtl Purchasing Cost incurred by Purchasing to
investigate/fix supplier problem
mtl Engineering Cost incurred by Eng to
investigate/fix supplier problem mtl Quality
Cost incurred by Quality to investigate/fix
supplier problem mtl ENGINEERING
REVISIONS Re-Eng/Re-Drafting Engineering effort
to create process or product revisions Tracking/A
dmin Effort to track incorporate revisions to
processes and designs Mfg Effort Effort to
incorporate revision to processes and
designs Productions Control Effort PC effort
required to incorporated changes, rerun of MRP,
etc.
6
Cost of QualityInternal Failures
INVENTORY EXCESS, OBSOLETE SAFETY
STOCK Excess Raw Mtl Raw mtl in excess of mtl
needed for mfg planned orders Excess
In-Process Mtl Work in process inventory in
excess of mtl needed for mfg planned
orders Excess Finished Goods Finished goods in
excess of mtl needed for expected sales Obsolete
Inventory Inventory removed from designs but
needed to support older products Inventory
Carrying Cost Interest Prorated interest
required to finance excess/obsolete
inventory Taxes Pro-rated taxes required for
year-end excess/obsolete inventory Insurance Pro-
rated insurance paid to cover excess/obsolete
inventory Facilities/Storage Pro-rated warehouse
cost required to store excess/obsolete invento
ry WORKMANS COMPENSATION Insurance
Premiums Premiums paid based on safety experience
above the low rate Lost Time Wages expenses
not covered by insurance including
temp. replacement Lost Revenue Revenues lost
due to lost time and replacement learning curve
Internal Failure Subtotal
7
Cost of QualityAppraisal
PRODUCT ACCEPTANCE Evaluation of adequacy of new
materials, processes, designs, and
tools PRODUCT TESTING Cost of 100 testing of
products (especially in electronics industry)
OPERATOR INSPECTION Inspection by production
operator in lieu of inspector QUALITY
DEPARTMENT INSPECTION Receiving Inspection
Test Verification that supplier material meets
spec In-Process inspection Verify that
fabricated or assembled parts meets spec SPC Use
of statistical data to access control
processes Final Inspection Verification that
final product meets spec Outside Inspect/Test
Services Contracted inspect/test functions not
available on-site Reliability Testing Life
testing activities. Also, lot acceptance for Mil
Std parts Calibration of Test Equip.
Appraisal Subtotal
8
Cost of QualityPrevention
ENGINEERING Product Design Mfg eng. joint
approval of designs before production
release Drawing Checks Pre-release review of
drawings for errors/stds/conventions Process
Documentation Mfg eng. joint approval of
process selection operating instructions Pr
ocess Capability Studies Validation/audit that
processes are able to produce product
to spec Mechanized Design Aids Use of
CAD/CAE/CAM/CMD to speed, standardize,
assure design Reverse Engineering Creating
documentation of product without OEM
docs/spec Tool Design Mfg eng. joint approval
of tool designs before production
release Product Reliability Testing Stress
life testing for robustness of design QUALITY
IMPROVEMENT Quality Systems Maint Efforts to
maintain quality systems, manuals, and
certification to ISO 9000, UL,
etc. Training Training in addition to OJT (on or
off-site) Quality Engineering Analysis to ID
capabilities, problem causes, make
continuous improvements Quality
Audits Process/procedures/system audits to asses
their effective use Certification Effort to
attain/maintain skills necessary to meet World
Class Quality Specific Customers Other Corre
ctive Action Program Effort systems needed to
manage a corrective mgmt program
9
Cost of QualityPrevention
SUPPLIER MANAGEMENT Performance
Tracking Tracking of quality, delivery, and price
effectiveness Specification Reviews Match
work/product to specs assuring need and
compliance Evaluation Certification Supplier
evaluations to certify their quality Supplier
Quality Seminars Company sponsored supplier
education MANUFACTURING Tool
Control Effort/systems for control, issues,
tracking, maint. of tools Tool
Audit Effort/systems to validate tools ability to
meet producability specs Jig Fixture
Control Effort/systems for control, issue,
tracking, and maintenance Preventive
Maintenance Maint. done on a planned schedule to
preclude equip. failure Process Stability Effort
needed to keep processes producing product to
spec Operator Education Education to use tools,
prints, materials, etc. to produce a quality
product Safety Equipment and Procedures Cost
of safety equip, training, procedures, their
maintenance Operator Certification Certification
in soldering, welding, etc. Calibration of QA
Equipment
10
Cost of QualityPrevention
TRAINING Team Building Costs of instructors,
materials, and employees time Cross-Training Cos
ts of instructors, materials, and employees
time Tools or Skills Enhancement Costs of
instructors, materials, and employees
time (SPC, Pareto, Design of of Exper.,
etc.) Prevention Subtotal Total
Cost of Quality Cost of
Sales COQ of COS