Unit-3

LEADERSHIP AND QUALITY COSTS

Characteristics of quality leaders: There are 12 Characteristics that successful quality leaders demonstrate:

1) They give priority attention to external and internal customers and their needs 2) They empower, rather than control, subordinates 3) They emphasize improvement rather than maintenance 4) They emphasize prevention 5) They encourage collaboration rather than competition 6) They train and coach, rather than direct and supervise

7) They learn from problems 8) They continually try to improve communications 9) They continually demonstrate their commitment to quality. 10) They choose suppliers on the basis of quality, not price. 11) They establish organizational systems to support the quality efforts. 12) They encourage and recognize team effort.

Quality statements: In the addition to core values and concepts, the quality statement includes: The vision statement Mission statement Quality policy statement Once developed, they are only occasionally reviewed and updated. They are part of the strategic planning process.

Seven steps of strategic planning: 1) 2) 3) 4) 5) 6) 7) Customer needs Customer positioning Predict the future Gap analysis Closing the gap Alignment Implementation

Strategic planning can be performed by any organization. It can be highly effective, allowing organization to do the right thing at the right time, every time.

Introduction of quality cost: the value of quality must be based on its ability to contribute to profits. The goal of most organization is to make money; therefore, decisions are made based on evaluating alternatives and the effect of each alternative will have on the expense and income of the entity. Quality cost are defined as those costs associated with the nonachievement of product or service quality as defined by the requirements established by the organization and its contracts with the customer and society. Simply stated, quality cost is the cost of poor products or services.

Prevention cost: The experience gained from the identification and elimination of specific causes of failure and there costs is utilized to prevent the recurrence of the same or similar failures in other products or services. Prevention is achieved by examining the total of such experience and developing certain activities for incorporate into the basic management system that will make it difficult or impossible for the same errors or failures to occur again. no attempt is made to define appropriate departments, because each organization is structured differently.. Few kinds are as follows: 1) 2) 3) 4) 5) Marketing / customer/user Product/service/design development Purchasing operations( manufacturing or service) Quality administration

Appraisal costs: The first responsibility of the management system is assurance of the acceptability of product or services as delivered to the customers. this category has the responsibility for evaluating a product or service ar sequential stages, from design to first delivery and throughout the product process, to determine its acceptability for continuation in the production or life cycle. The frequency and spacing of these evaluations are based on a trade-off between the cost benefits of early discovery of nonconformities and the cost of the evaluation themselves. Unless perfect control can be achieved, some appraisal cost will always exist.

An organization would never want the customer to be the only inspector. Thus the appraisal costs od poor quality have been defined to include all the costs incurred in the planned conduct of product or service appraisal to determine compliance to requirements.
1) Purchasing appraisal cost

2) Operations ( manufacturing or services)

3) External appraisal cost 4) Review of tests and inspection data 5) Miscellaneous quality evaluations

Definition of cost of Quality: Its a term thats widely used and widely misunderstood. The cost of quality isnt the price of creating a quality product or service. Its the cost of NOT creating a quality product or service. Every time work is redone, the cost of quality increases. Obvious examples include: > The reworking of a manufactured item. > The retesting of an assembly > The rebuilding of a tool > The correction of a bank statement The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

Categorization of Quality Costs The cost of quality is generally classified into four categories: 1. External Failure Cost 2. Internal Failure Cost 3. Inspection (appraisal) Cost 4. Prevention Cost 1. External Failure Cost: Cost associated with defects found after the customer receives the product or service. Example: Processing customer complaints, customer returns, warranty claims, product recalls. 2. Internal Failure Cost: Cost associated with defects found before the customer receives the product or service. Example: Scrap, rework, re-inspection, re-testing, material review, material downgrades

3. Inspection (appraisal) Cost: Cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing). Example: Inspection, testing, process or service audits, calibration of measuring and test equipment. 4. Prevention Cost: Cost incurred to prevent (keep failure and appraisal cost to a minimum) poor quality. Example: New product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training. Detail classification is as follows :

Internal failure cost category : When ever quality appraisal are performed. The possibility exists for discovery of failure to meet requirements. When ever this happens, unscheduled and possibly unbudgeted expenses are automatically incurred. Corrective actions is directed towards elimination of the problem in the future may be classified as prevention. Product or service design failure costs ( internal)

Purchasing failure costs

Operations ( product or service) failure cost

External failure cost category:

This category includes all costs incurred due to actual or suspected nonconforming product or service after delivery to the customer. Determination of responsibility can cone about only through investigation of external failure easy inputs. Complaint investigation of customer or user service Returned goods Retrofit and recall costs Warranty claims Liability costs Penalties Customer or user goodwill Lost sales

Reducing costs: Achieving lower costs for getting or making products gives a company a great competitive advantage over their competition. Getting products - case study: Wal-Mart has formed alliances with their suppliers, such that they are able to purchase goods at a discount that their competitors cannot achieve. The result is that Wal-Mart is able to offer products at such low prices that have actually driven many competitors out of business. Making products - case study: Japanese automobile manufacturers Toyota and Honda have greatly lower worker pension and healthcare costs than the "Big-3" American manufacturers, General Motors (GM), Ford and Chrysler. This is true even for the Toyota and Honda facilities in the United States.

Manufacturing cost reduction : Companies want to reduce the cost of getting or making their products. A major portion of the cost of goods involves wasteful practices that result in scrapped parts and returned goods from dissatisfied customers. By continually improving the processes involved in making the product or delivering the service, a company can be more effective in reducing losses due to waste. This will allow the business to deliver products at lower prices while still achieving a good profit. Competitors may not be able to meet those prices. Eliminating errors is a major goal. An extension of TQM is the SixSigma approach that seeks to eliminate errors to 6 parts in a million (six sigma deviation). Getting lower cost, quality good from suppliers will also reduce costs.