Product quality The collection of features and characteristics of a product that contribute to its ability to meet given requirements.

Early work in controlling product quality was on creating standards for producing acceptable products. By the mid-1950s, mature methods had evolved for controlling quality, including statistical quality control and statistical process control, utilizing sequential sampling techniques for tracking the mean and variance in process performance. During the 1960s, these methods and techniques were extended to the service industry. During 1960 1980, there was a major shift in world markets, with the position of the United States declining while Japan and Europe experienced substantial growth in international markets. Consumers became more conscious of the cost and quality of products and services. Firms began to focus on total production systems for achieving quality at minimum cost. This trend has continued, and today the goals of quality control are largely driven by consumer concerns and preferences. There are three views for describing the overall quality of a product. First is the view of the manufacturer, who is primarily concerned with the design, engineering, and manufacturing processes involved in fabricating the product. Quality is measured by the degree of conformance to predetermined specifications and standards, and deviations from these standards can lead to poor quality and low reliability. Efforts for quality improvement are aimed at eliminating defects (components and subsystems that are out of conformance), the need for scrap and rework, and hence overall reductions in production costs. Second is the view of the consumer or user. To consumers, a highquality product is one that well satisfies their preferences and expectations. This consideration can include a number of characteristics, some of which contribute little or nothing to the functionality of the

product but are significant in providing customer satisfaction. A third view relating to quality is to consider the product itself as a system and to incorporate those characteristics that pertain directly to the operation and functionality of the product. This approach should include overlap of the manufacturer and customer views. Quality control (QC) is the collection of methods and techniques for ensuring that a product or service is produced and delivered according to given requirements. This includes the development of specifications and standards, performance measures, and tracking procedures, and corrective actions to maintain control. The data collection and analysis functions for quality control involve statistical sampling, estimation of parameters, and construction of various control charts for monitoring the processes in making products. This area of quality control is formally known as statistical process control (SPC) and, along with acceptance sampling, represents the traditional perception of quality management. Statistical process control focuses primarily on the conformance element of quality, and to somewhat less extent on operating performance and durability. Concurrent engineering, quality function deployment, and total quality management (TQM) are modern management approaches for improving quality through effective planning and integration of design, manufacturing, and materials management functions throughout an organization. Quality improvement programs typically include goals for reducing warranty claims and associated costs because warranty data directly or indirectly impact most of the product quality dimensions.

TQM Total quality management is a popular "quality management" concept. However, it is about much more than just assuring product or service quality. TQM is a business philosophy - a way of doing business. It describes ways to managing people and business processes to ensure complete customer satisfaction at every stage. TQM is often associated with the phrase - "doing the right things right, first time". Like most quality management concepts, TQM views "quality" entirely from the point of view of "the customer". All businesses have many types of customer. A customer can be someone "internal" to the business (e.g. a production employee working at the end of the production line is the "customer" of the employees involved earlier in the production process). A customer can also be "external to the business. This is the kind of customer you will be familiar with. When you fly with an airline you are their customer. TQM recognises that all businesses require "processes" that enable customer requirements to be met. TQM focuses on the ways in which these processes can be managed - with two key objectives: 1 2 100% customer satisfaction Zero defects

The Importance of Customer - Supplier Relationships - "Quality Chains" TQM focuses strongly on the importance of the relationship between customers (internal and external) and supplier. These are known as the "quality chains and they can be broken at any point by one person or one piece of equipment not meeting the requirements of the customer. Failure to meet the requirements in any part of a quality chain has a way of multiplying, and failure in one part of the system creates problems elsewhere, leading to yet more failure and problems, and so the situation is exacerbated. The ability to meet customers (external and internal) requirements is vital. To achieve quality throughout a business, every person in the quality chain must be trained to ask the following questions about every customer-supplier chain: Customers Who are my customers? What are their real needs and expectations? How can I measure my ability to meet their needs and expectations? Do I have the capability to meet their needs and expectations? (If not, what must I do to improve this capability?) Do I continually meet their needs and expectations? (If not, what prevents this from happening when the capability exists?) How do I monitor changes in their needs and expectations? Suppliers: Who are my internal suppliers? What are my true needs and expectations? How do I communicate my needs and expectations to my suppliers? Do my suppliers have the capability to measure and meet these needs

and expectations? How do I inform them of changes in my needs and expectations? Main Principles of TQM The main principles that underlie TQM are summarised below: Prevention is better than cure. In the long run, it is cheaper to stop products defects than trying to find them The ultimate aim is no (zero) defects - or Zero defects exceptionally low defect levels if a product or service is complicated Better not to produce at all than produce something Getting things right first time defective Quality involves Quality is not just the concern of the production or operations department - it involves everyone, everyone including marketing, finance and human resources Businesses should always be looking for ways to Continuous improve processes to help quality improvement Those involved in production and operations have a Employee vital role to play in spotting improvement involvement opportunities for quality and in identifying quality problems Prevention Introducing TQM into a Business TQM is not an easy concept to introduce into businesses - particularly those that have not traditionally concerned themselved too much with understanding customer needs and business processes. In fact - many attempts to introduce TQM fail!

One of the reasons for the challenge of introducing TQM is that it has significant implications for the whole business. For example, it requires that management give employees a say in the production processes that they are involved in. In a culture of continuous improvement, workforce views are invaluable. The problem is - many businesses have barriers to involvement. For example, middle managers may feel that their authority is being challenged. So "empowerment" is a crucial part of TQM. The key to success is to identify the management culture before attempting to install TQM and to take steps to change towards the management style required for it. Since culture is not the first thing that managers think about, this step has often been missed or ignored with resultant failure of a TQM strategy. TQM also focuses the business on the activities of the business that are closest to the customer - e.g. the production department, the employees facing the customer. This can cause resentment amongst departments that previously considered themselves "above" the shop floor.

ISO 9000:2000 The International Organization for Standardization (ISO) was founded in 1946 to develop a common set of manufacturing, common trade, and communications standards. Based in Geneva, Switzerland, ISO is composed of more than 100 member nations that are represented by national organizations charged with creating standards (the US-based organization is called the American National Standards Institute). ISO 9000 was first published in 1987, revised in 1994, and updated in 2000; hence the name ISO 9000:2000, the latter number referring to the last revision. The main reasons for 2000 revision were to improve userfriendliness; to give more attention to the process approach, continual improvement, and resource management; and to improve integration of quality management systems with other management systems. The ISO 9000 family is composed of the 9000 series of two documents, ISO 9001:2000, Quality management systemsRequirements and ISO 9004:2000, Quality management systemsGuidelines for performance improvements, which outline specific requirements; ISO 19011, Guidelines for quality and/or environmental management systems auditing; and ISO 9000:2000, Quality management systems Fundamentals and vocabulary. ISO 9000:2000 is a set of general guidelines that organizations can adopt to improve their quality management systems; the guidelines are broad enough to apply to Fortune 500 companies as well as not-for-profit organizations. The guidelines are separated into eight quality management principles: (1) Customer Focus, (2) Leadership,

(3) Involvement of People, (4) Process Approach, (5) Systems Approach to Management, (6) Continual Improvement, (7) Factual Approach to Decision Making, and (8) Mutually Beneficial Supplier Relationships. How to Use the Concept? In order to fully utilize the ISO 9000 family of principles, an organization must: (1) Understand why it should use ISO 9000, (2) How to implement ISO 9000, and (3) How to obtain certification. Why ISO 9000? Many companies want to focus on continual process improvement in order to improve internal processes, decrease costs, and increase customer satisfaction and retention. ISO 9001 is a vehicle to educate management about systems thinking, the process approach, and process improvement tools and techniques. The international acceptance of these standards makes them even more appealing to many businesses and organizations. How to Implement ISO 9000? ISO 9000 implementation responsibilities rest on management, employees, and internal and external auditors. Management responsibilities can be summarized in ten basic points: Communicate importance of meeting customer requirements. Develop an integrated overall plan. Ensure that quality starts at design stage to prevent problems. Monitor process capability. Measure key product and service characteristics. Continually improve processes.

 Create constancy of purpose. Demonstrate leadership. Work on the system to support the employee. Commit to ongoing training. Promote continual improvement rather than management by numbers. Employee responsibilities include: Follow the most current work instruction. Identify problems and inaccuracies in work instructions and inform management. Make recommendations for process improvement. Identify and report to management all service or product nonconformity. Auditors responsibilities include: Ensuring complete conformity to ISO standards. Monitor and review quality management system activity at appropriate intervals. Suggest corrective or preventive action as needed. (Scott) How to Obtain Certification After management, employees, and internal auditors have adopted and ensured ISO quality standards, the organization can then contact a accredited registrar (an approved auditor) that can issue official certifications. Who requires ISO 9000 Credible suppliers

 Major customers Government agencies Retailers Benefits Sound quality system Single systems audit Eligibility for tenders Evidence of compliance Recognition of standard achieved Opportunity to improve existing processes A process for continual improvement

Cost of quality Quality, like finance, has various buckets or categories for the costs associated with the good and bad products that are created. Most often we hear about the Cost of Poor Quality, but the cost of poor quality only reflects a portion of the total quality costs. The major categories for Quality Costs and examples within each area are shown below:
1. External failure cost

- Environmental cost - Loss due to sales reduction - Warranties - Repairing goods - Compliants 2. Internal failure cost - Re-design - Re-testing - Shortages - Delays - Rework - Lack of flexibiliy 3. Appraisal costs - Field testing - Checking and testing purchased goods - In-process and final inspection testing - Product, process and service audits 4. Prevention costs - Capability evaluations - Error proofing - Quality planning

New product review Quality improvement projects Quality education and training Supplier evaluation

The internal and external failure costs are generally associated with the Cost of Poor Quality whereas the Appraisal and Prevention Costs constitute the costs related to ensuring the product is indeed to requirements. It is the overal goal of a quality management system to work within the appraisal and prevention cost areas since these areas provide greater leverage to ensure quality and reduce total quality costs. For example: If a metal tube fails to meet a blueprint dimension it would be more cost effective to dimensionally inspect (appraisal cost) the tube prior to it being shipped to the customer rather than the customer finding the nonconformance and thereby adding more cost to the manufacturer in warranty, shipping costs, and additional time for employees to work and investigate the defect (external failure costs). External failure costs External Failure costs represent a category in the total cost of quality where the quality costs are related to defects found after delivery of the product to the customer. External failure costs are generally the highest of the 4 cost of quality categories since the full value of work and processes had to be performed to get the product to the customer. These costs are incurred because the product shipped failed to conform to quality requirements and may include warranties, shipping charges, repairs, recalls, legal actions and lost sales.

External failure costs are notorious for being difficult to measure due to the hidden costs associated with defective products being received by the end user. So how does one measure the cost of lost sales or loss of potential customers? One method is by using customer survey that ask such questions regarding the behavior of returning product. Example, Using a customer survey one might determine that 9 out of 10 customers who purchase a defective product are likely to discard it and only 1 of 10 return it to the manufacturer for refund or replacement a multiplier can be applied to estimate customer returns. In this case multiplying actual customer returns by can provide a reasonable estimate of this element of external failure cost. This number can help determine the typical customers intention to on buying the product again after receiving a defective one and the number of dissatisfied customers that may provide a measure of lost sales. Internal failure costs Internal failure costs are costs that are incurred as a result of identifying defective products before they are shipped to customers. The labor, material, and (usually) overhead that created the defective product. The areas / nonmenclature are numerous and include; scrap, spoilage, defectives, etc. The cost to correct the defective material or errors in service products which are found prior to sending to the customer. Some examples of internal costs of quality are:

Lost or missing information: The cost to retrieve this expected information. The cost analyzing nonconforming goods or services to determine the root causes. Supplier scrap and rework: Scrap and rework costs due to nonconforming product received from suppliers. This includes the costs to the buyer of resolving the supplier quality problems. 100% Sorting inspection: The cost of completing 100% inspection to sort defective units from good units. Retest: The cost to retest products after rework or other revision. Changing processes: The cost of modifying the manufacturing or service processes to correct the deficiencies. Redesign of hardware: The cost to change designs of hardware to correct the issues. Redesign of software: The internal cost to changing software designs. Scrapping of obsolete product: The cost of disposing scrap. Scrap in support operations: Costs from defective items in indirect operations. Rework in internal support operations: Costs from correcting defective items in indirect operations. Downgrading: The cost difference between the normal selling price and the reduced price due to quality reasons. Variability of product characteristics: Rework losses that occur with conforming product (e.g.,overfill of packages due to variability of filling and measuring equipment). Unplanned downtime of equipment: Loss of capacity of equipment due to failures. Inventory shrinkage: Loss costs due to the difference between actual and recorded inventory quantity.

Non-value-added activities: Cost due to redundant operations, sorting inspections, and other non-value added activities. A valueadded activity increases the usefulness of a product to the customer; a non-value-added activity does not. Appraisal costs

Appraisal costs constitute all costs that go testing and inspection of products. The detection of defective parts and products should be caught as early as possible in the manufacturing process. Appraisal costs are sometimes called inspection costs and are incurred to identify defective products before the products are shipped to customers. The problem with appraial costs is in the fact that they are not true value added activitives since the generally inspection and testing are not requirements of the customer. The customer just expects the product to function as advertised with no requirement for the product to be tested. The fact that the product is tested and advertised as such may make the customer feel better about the product but the expectation is for the product to, just work and if the product was never tested then the customer would not care anyway. There are exceptions to this rule when customers require product testing as part of their purchase order / contract. So, why do we spend so many resources on testing and inspecting products? The answer is in the failure costs associated with allowing a defect to escape to the next process or customer. Another unfortunate aspect of performing appraisal activities is that it doesnt keep defects from happening again. Due to this managers see that maintaining an army of inspectors can be very costly and ineffective approach to quality control.

Todays quality initiatives are increasingly asking employees and suppliers to be responsible for their own quality control. Further innovations are being put into designing products to be manufactured in ways to eliminate the need for inspections or testing. Engineering reliability into a product is the most efficient process to reduct quality costs. Prevention costs Prevention Costs are any costs that are incurred in an effort to minimize appraisal and failure costs. This category is where most quality professionals want to live. They say an ounce of prevention is worth a pound of cure and they is what this category is all about. This includes the activities that contribute to creation of the overall quality plan and the numerous specialized plans. Examples include: Review of new products: The quality planing and inspection planning for new products and design of new products. Process planning: Inspection planning, Process capability studies, various other work associated with the manufacturing and service processes. Process control: Evaluation of in-process inspection procedures and testing to determine the current status of a process Quality audits: Evaluating adherence and execution of the overall quality plan.

Supplier quality selection and evaluation: Analyzing supplier quality activities prior to supplier selection, perform auditing of processes during the contract, education and training of suppliers. Quality Training: Preparation and implementation of quality training programs. Similar to appraisal costs some of this work may be executed by personell that are not in the quality assurance department. For accounting perposes its important to separate this by the type of work being performed and not the department of the employees performing the work. Activity based costing accounting lends itself to this.