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In this competitive environment, quality management plays an important role. According to Superville and Gupta (2001, p. 49), point out that the importance of quality by saying "quality is an important strategic dimension and a key of competitive weapon that cannot be ignored by any corporation". Quality management is very important in business management and productivity. Quality management is the way of controlling, ensuring and improving quality of product or services.
The objective of this report is critically evaluating the role of management accountants in this area of quality management.
2.1 Cost of Quality (COQ)
Total Quality Management (TQM) is the establishment from the quality cost's concept since year 1960'. Feigunbaum is the first to present the first model which is the P-A-F model out of two models. The general concept was written earliest by Dr. J.M. Juran's Quality Control Handbook relating to the ideas of quality costs on Chapter 1 from "The Economics of Quality".
A decade years ago, a broad explanation of quality costs was discussed but no common agreement was found (Machowski and Dale, 1998). According to Dale and Plunkett (1995), quality of costs was widely accepted and can be seen as costs incurred in the design, implementation, operation and maintenance of quality system management, the cost of resources committed to continuous improvement, the costs of system, products and service failure and all other required costs and non-value added activities necessary to achieve a quality or service.
The P-A-F method which was originally suggested by Juran (1951) and Feigenbaum (1956)were then classified quality costs into three categories which are prevention, appraisal and failure costs. The failure costs were then divided into external and internal failure cost soon by (Juran, JM and Gryna, F.M. Jr., 1980). By observing the costs, the efforts of the company during product design and manufacturing that prevent non-conformance to specifications are costs from prevention. The cost that incurred to determine the degree of conformance to quality requirements are determine as appraisal costs. When poor-quality products are discovered before they are delivered to the customer are known as the internal failure costs, another failure costs would be the external costs which incurred after the customer has receive a poor-quality product that are primarily related to customer service. The P-A-F model was considered was common used CQQ model in the United States and Great Britain which was stated by Plunket and Dale (1987).
Total Quality Costs 2.2 Cost of Quality Model
Prevention and Appraisal Costs
From the figure above, it is showing how a company's costs are likely to change with chaning quality levels (Parket, 1995). By observing the model, we can see that the cost of failure fall dramatically (curve 1) when the quality level is improved by more investment in prevention and appraisal process (curve 2). Optimum cost lever A will rise as improvement instituted, however resultant total quality cost (curve 3) may fall to the optimum.
2.3 Benefits of Cost of Quality
According to Roden and Dale (2000), advantages of COQ implementation does exist. Quality of data are more reliable and may be approve because they gathered and analyzed with precise accounting department. In addition, evaluation of capital investment alternatives was aids by the COQ system. Besides, justification and steer investments in prevention activities was benefited which lower quality costs. The benefits of using CQP systems helps improve return on investment, as well as sales because costs are reduced. Apart from it, the development of a more advanced performance measure in the areas of customer satisfaction, production and design were lead by the system.
Analysis of Case Study in applications
3.1 Background of organization
Case study 1
United Technologies Corporation (UTC) is an American multi-industry with significant business concentrations in aerospace products and services which include jet engines and helicopters. UTC formed in 1934. The headquarters of UTC are in Hartford, Connecticut. UTC incorporates three major aerospace business units which are Pratt & Whitney, Sikorsky and Hamilton Sundstrand.
Case study 2
Around 1,300 of the best scientists from all over the world are being employed by AT&T Labs which comprise of experts in advanced data networking, software engineering, systems integration & speech technology. One of the importance to AT&T is the research team which consists of experts in science and technologies prove vital to the success of the company. The development team design new products and services through integration of off-the-shelf-products, which includes serving the customers and AT&T with tools and systems to manage secure and reliable networks. The team are always trying to develop and deploy new technologies to program and smoothing the way AT&T interacts with customers. Numerous awards were awarded to the AT&T Labs' scientists from professional associations and leading academic institutions.
Performances shown improvement of 26% in CoQ measured against cost of goods produced were yielded by United Technologies Corporation, Essex Telecommunication Products Division, established measurement based on a P-A-F model and five years of implementation. Fruin (1986) examined in detail of special accomplishments as well as elements of the cost of quality calculation and their relationship to financial performance.
The P-A-F quality costing structure was being referenced and a plan was being proposed by Thompson and Nakamura (1987). The proposal is currently being utilize to collect and report CoQ data from several development projects at AT&T Bell Laboratories, Transmission Systems Division. Both of them suggested that in order to improve product development, an effective way will be managing CoQ in the R&D process. Development and operation of a system of quality costing at a manufacturer of coatings for industrial applications was discussed in the work of Purgslove and Dale (1995). P-A-F model was used in their CoQ measurement system implementation as well. The investments made in quality improvement was reported by Purgslove and Dale which stated that it was paid back within the first year.
Issues of COQ
4.1 Issues of application COQ
Difficulties during the implementation of COQ reporting system
Several difficulties were reported by (Rodchua, 2009; Bamford and Land, 2006 and Elridge et al, 2006) which identified that lack of data or difficulties in collecting data, including lack of cooperation from top management and deficiency in understanding of COQ principles are common difficulties being identified during the implementation of COQ. Other difficulties in collecting COQ data by an engineering firm was reported by Roden and Dale (2001) which pointed out that firm culture and employee attitudes towards COQ system may not be conducive. On top of that may be lack of information and accountability makes it difficult to collect COQ data. And finally, the inability to sort data according to various division was caused by the complexity in existing accounting system which also makes it difficult to measure COQ data.
In the mean time, the importance of employees as well as firm culture in the implementation of CQP reporting were stressed by Wan and Dale (2002). Their report supported earlier findings by Roden and Dale (2001) which stated that in order for the success of COQ implementation, employee responsiveness as well as culture of the firm played an important roles within the accomplishment . The main difficulty encountered by telecommunications organizations in the United Kingdom during the setting up of COQ reporting system was to identify new quality improvement opportunities, this was revealed in the study by Arvaiova, M, Aspinwall and M.E., Walker, S.D. (2009). Amusingly, some guidelines to ensure the success of COQ implementation was proposed by Bamford and Land (2006). The material of the guideline stated that for the success of COQ project, senior management commitment is important and must be in place before the implementation begins. Insistent on using existing systems instead of trying to invent new methods for COQ data collection. Link CQP to other measures to give more relevance and impact. And finally, continuously imrproving the CQP reporting system.