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Quality and its related cost are a challenge for many major companies operating in manufacturing or in service sector. Many models have used the parameter of quality cost in different terms. It could also be linked to the activity based cost (ABC). When we talk of quality management, it could vary from a casual inspection' to Total Quality Management (TQM) which is a complicated process .Also a new dimension in quality is the 'Six Sigma', each adhere to the best possible practises as pertaining to the process ,the ideal ideas, theories and tools which are important for the firm's development , change management, also crucial in the fact that the firm has to lay stress on performance improvements for the firm and the teams .Among these implementation of quality the change management according to Deming(2000) is very important n in an organisation. There is a cost applicable to the free resources of the manufacturing unit the raw materials and tools which are critical in the cost of quality (Wood 2007). This also brings the cost for practical application of the firm which involves the teaching and training among employees to lower the cost of quality applied in it.
The need for Cost of Quality calculation.
Each company today wants the best of quality at the lowest of costs. Thus it is important that the cost be optimised for the same. The cost of quality gets increased with failures and this is what the companies want to avoid when they talk of optimising the cost of quality. As rightly said by Juran(2005) majority of Quality problems are the fault of poor management rather than poor workmanship .Failures in the quality cost which increase the cost unnecessarily are due to duplicating the work due to failure of doing it right the first time. If the quality parameters are not met then the cost of failures and re-work could lead to major inefficiencies. Thus it becomes crucial for the companies practising the quality benchmarks to identify failures and re-work and thus decreased in the tenure of manufacturing.
This process of reducing the cost of quality is called the continuous improvement process. Another challenge in the process of reducing cost of quality is the urgent need of the current challenges of the firm in being responsive to the needs of client and serving them to the best possible limitation (Papadakis 2006). Thus they have the problem of serving their customers in the best efficient ways, thus the need of best quality to them and value for money.
When we talk of Failures and re-work these could increase the inefficiencies and this waste of intangible costs will be hindering to many an organisations. One important variable in the cost of quality is the Waste. This is any resource-consuming activity which ate the end of the process is unsuccessful to add any value to the customer. Thus when delivering quality and costing for it one has to see who your customers are.
Quality is an important parameter for the customers as they are the users of the company's services. Many firms lay stress on the external customers, and thus urge the amount of waste be reduced so that cost can be reduced and the support activities for the internal customers also be improved.
Many a firms like the ones in the public sector, maintain quality through a .this also adds to the firm's support activities for good governance. This in turn adds to the organisation to bring in best quality for the customer-facing services.
Crosby also brought in the concept of (DIRFT) that is do it right the first time. This was emphasized by him as the Quality cost increase when a activity has not been done right the first time. This could lead to redoing it so that failures can be covered up (Graham W. Parker - 1995). This leads to additional cost. Redelivering and re costing thus effect the firms efficiency. This is one failure that the firms do not want today in the recession times.
There are many indicators which tell you that the quality is not up to the mark. One could be the consumers complaint. Cost of quality will be maximum in the "Complaints Departments". As Deming rightly states the barriers among departments should be broken in the company. All should work towards quality. This is because the cost of quality can be contributed to different departments activities and process. This makes the cost of quality calculation better. Each department has its own benchmark for quality. Thus it can seen very clearly as to which is the problem area in the company.
When one department does not meet the benchmark and then increase cost of quality ,then the effort on the Contact (Service) Centres and then redoing the things correctly along with the task of to get them fixed is huge (H. James Harrington - 1987). Thus even the costing needs a proper quality planning.
One more factor in the cost of quality is the time factor. Cost is not only the monetary cost. It also entails the effort cost put in by the human resource, the time cost put in by the company etc. The time costs dealing with failures is more and the time spend in rectifying them to bring in a positive aspects of customer service is more .
Quality re-work and the Errors could very well be corrected, along with the mishaps being fixed but this should not be a part of the daily workload. Many an employees are not even knowing that they actually are dealing with failures. One line of manager which gets caught in the same is the middle managers whose main job in cost of quality management is "problem solving". The manager serving quality and responsible for costs have to be knowing that the problem solving is nothing but a failure activity. If a firm does not come across problems it will not need to spend time dealing with them.
The cost of failure is too much as of the cost of quality. But it is estimated that system causes 95% of failures, not the people.
Increasing the cost of quality by adding the Cost of Failure:
This is one are where the Cost of Quality (CoQ) Model is very useful. It explains how the cost of quality can be reduced by reducing the failures of quality management.. To do the same we will put all activities into four categories Core Work, Failure, Appraisal or Prevention. When we talk of the Cost of Quality it is the sum total of or the aggregation of the three costs Failure, Appraisal and Prevention costs. This model is very much prevalent in the continuous improvement processes .This is one of the basic of cost of quality. This but was traditionally used and the Back to Basic concept asks for using it yet aging in the 21st century.
The main parameters in this model of cost of quality however remain the reducing of waste and failure.
The core work in the process of quality is the total which will directly benefit the customer, and is expected to be done right the first time. This might include the crucial real, value-adding activities. When we see the aspect of the customer they would very well be able pay the company money to do this instead of tem doing it themselves.
Examples: For example when we look at activities like Delivering service to a customer or the concept of the manufacturing a product and activities like the processing an order
This is any type of error in production or any other related activity or services which have not been done right the first time. This could lead to rectification need. This is by far not good for the firm,
Examples: This could be Handling complaints, the deal with customer to be able to pay compensation problem solving, complaint handling, free service due to quality mistakes etc.
This is a check on the whole quality control process to see if it has been done rightly. Many a times this check is good as it may lead to prevention activities which might be crucial for the core work.
Examples :good example of the same could be Audits aimed at improvement, staff performance appraisals etc. some of the wrong examples in this case would be QC checks
This is a control or check on the activities so that the same can be done right the first time. These costs are positive cost to the process of quality costs.
Examples: These could be positive cost like that of Training, coaching, benchmarking, making employees understanding ,cross checks, explanations, check on work, benchmarking and setting standards etc.
When we talk of the Cost of Quality (CoQ) Model the main aim of this model is to streson the fact that that Prevention activities should consume more time, than that spent on Appraisal and Failures. It is true that Prevention activities add to the initial cost of quality but they also build quality right (Jack Campanella, American Society for Quality .1999). If we talk of the Appraisal and Failure these are too late for any rectification and thus they add cost.
This CoQ Model is more prevalent in the manufacturing organisations ever since 1980s.Thsi has not but found its high usage in the services and more prominently in the public sector. Many a times this model comes through much of scrutiny. Many a times it becomes a cultural problems raising problems with employee and bringing forward their failures.
This model also as the cost analysis goes exposes many a re-work and failure which might not be normally "visible" in manufacturing thus it tells you the defects in the products and productivity and tells how useful and cost effective can a tangible "product" be. If looked as a tool for . adding value for customers, its use can be better appreciated.
Many other reasons are there why this model is not such a big success .In firms where there is seen a very increased degree of regulation in which the employees are checked and inspected now and then ,thus CoQ model looses its relevance.
The usage of this model is with the best of intentions that is cost reduce which engulfs , protecting public money along with the firm's good governance. In this model when we talk of the Appraisal activities costs, they might not always be negative (Johannes Samwer - 2010.) One such cost which is positive is the Audits and inspections which are meant for the improvements of the firm and are thus good. Just to "tick the box", or "catch people out", are not exactly in the theme of continuous improvement.
Here in the Appraisal activities it is important to know that this cost reduction is not stressing on the Right First Time performance as this is coming into picture after the process has occurred..
One parameter in the Cost of Quality Model is the reduce of waste. This reducing is aimed at , reaching the Root Causes of problems. This will engulf the systemic reasons in case an errors occurs. This model is a systematic approach in the arena of problem solving. Thus it engulfs steps like Measure - Analyse - Improve - Control.
Very few firms have such a systematic approach in their firm and most of the managers and staff are not trained to apply the same(Marion J. Boyd, Professional Council 1995). There might be companies having competent skills for lists of ideas and bringing in true cost of quality solutions and not only stressing on identifying possible causes with the simple data analysis of the problem.
When we talk of the cost of quality model it talks of Continuous improvement which is dependent on the level of staff involvement when it comes to quality cost problems. Thus the firm has to let the staff have some free up time so that they can interact in the cost of quality or the problem solving problems. It is important to understand that the Managers are not just meant for "providing solutions" but also mean to tell the junior what to do about effectively controlling the cost of quality. In this problem solving they have to bring up a team that can analyse problems and bring in a good workable solution and make an effort to implementing it.
Advantage of the CoQ models :
Many a firms have taken advantage of the cost of quality models. The CoQ Model has a lot of relevance of the staff participation in understanding and lowering cost related to the Failure, Appraisal and Prevention. It is important that the staff understand these concepts and make them a part of their daily activities. This might also involve the Data gathering over a period of long time so that the waste of the processes is exposed. When on talks of implementing this model it does not mean that there should be an accuracy to 2 decimal places ,what one is looking at is the minus 5% mark.
When one takes in the CoQ assessment, in the process, or a firm ,it has been seen that when it comes to the service organisations, the model of CoQ account for the 40% of operating costs. In this component about half is Failure which means 20% of costs, Appraisal is about 15% an the Prevention is about 5%, or less. This model of CoQ will be useful in a manufacturing firm if a very high proportion the quality costs are on the processes and activities of manufacturing (Graham W. Parker - 1995). This could be one place where the waste is hidden .Along with this the people component is very important in the same.
Issue in the application of cost of quality models in the firm:
People is one factor that if not applicable to the effectiveness of any plan ,it can ruin it. Some employee wrongly feel sceptical about the concept of cost of quality. They feel that if one streamline processes and reduce waste ,the process is nothing but a resultant of fewer people I the firm and thus this might lead to fewer jobs. Some firms might do this as well but mostly it is a process of cost of quality wherein there is deploying staff in the task of value-adding or the task of delivering based on the firm's priorities that was done due to lack of time, or staff resource..
When we talk of today's global competitive and contestable world, it does need , continuously improving quality and that too at a low cost. This is by far a "growth" strategy for the survival of the business than a pink slip exercise for the employees.
It is but for the firms to bring in good change management along with a larger degree of staff involvement which will reduce waste in the quality process towards customer and thus bring in improvement important for the firm's success.
Training is a vital part in the Improvement Skills of employee which can help understand and develop the task of continuous improvement through innovative programmes. This can be done better by the efficient managers and leaders who make and implement the improvement strategy in the firm and also look for the improvement of key processes. Many a continuous improvement techniques can be sued in this cost of quality processes with the extensive experience of employees in this processes in the Private and Public Sectors. Implementing improvements is a difficult and non reachable task sometimes in the ever , changing political environments in the firm in which the people work..
TQM in CoQ
.TQM is a method of evaluation for the firms which are looking for the lowering of the quality cost and also improving the quality in manufacturing process. Thus the control factor and also the fact that practicality is vital in calculation of the cost is important. Here the non-conformance cost as explained by the Crosby 's quality model which pertains to the real situation is very important. The parameter of customer care cannot be forgotten in quality costs.. This is one factor which can make profits better form the customer satisfaction accruing to Crosby . Cost of quality models have been sued by many a firms to decrease the manufacturing costs and thus bring the desired results in the productivity over the years..
There are many a ways in which the Cost of Quality ("COQ") can be calculated .This could be the simple % of gross sales like it could be 45% or 50% of the total revenue of the firm. In many firms they have a proper procedure to calculate the cost of quality as per departments. Thus this cost of quality could be sub set of the costs where the cost which is ever changing is given the highest concern in the firm.
There are many types of problems related to a firm when a firm tries to calculate the cost of quality. Many a firms feel this is the job of the financial department and have no separated Cost of Quality ("COQ") system in their firm. As per Juran implementation of a well designed and well implemented Cost of Quality ("COQ") system is crucial for the firm. But first important is the change in the thinking process. Many a firms do have a cost of quality system just either for the eye wash or for the employees fear. Thus this Cost of Quality ("COQ") systems are not at all up to the standards and are inefficiently designed, and not taken seriously by the employee either.
This could lead the organization to bring in many a faults like the retarded improvement in processes, the revenuer fall due to the lag of quality. Many a times politics leads to a suppressed system of politics and thus the deprivation of the implementation of the cost of quality process (Atkinson Jr., J.H., Homer, G., Mundt, B., Troxel, R.B., Whichell, W 1991).As per Deming it is important for the quality caretakers to that the top management value the customer and thus the way to reach them that is quality improvement. It should stress on error avoidance and if done then urgent error rectification .this is today the need of the hour in any firm.
When the firm gets rid of the COQ process and the cost related to it for fast profits ,it will always lead to higher costs in the future profits thus it is best for the firm to make the COQ system work(Graham W. Parker - 1995).. Not only this ,the system should not be in the firm only for an eyewash. It should improve the inefficient implementation and bring in the desired outcomes of a well managed COQ system.
Conclusions and recommendations
Many a times the firms do have a good design for the Cost of Quality ("COQ") system but fail in implementing it. Mostly employees cannot understand the need of this added burden on them. Thus they are skeptical to this concept and extra work on processes which they follow in their routine. It thus becomes important for a firm to have a separate department for the COQ so that the increase in the cost can be curbed. It has to be profitability for the firm.
When the organization brings in the CoQ system it has to go through a lot of data for the same. If done efficiently then the idea of Cost of Quality ("COQ") aims get fulfilled .Many a quality risks are also involved in the implementation of the process of quality.
Cost of Quality ("COQ") and its related information when implemented should be clearly stated to the employees to understand the meaning of the term Cost of Quality ("COQ") .Thus the people in the firm find a crucial place in this process Anand, S., Hanson, K.(1995).
Another important task is the setting of standards. The evaluator has to have a base for the standards and quality process which have to be done under a set cost. For the same when an outcome is judged ,it has to be judged on the parameter of the set standards. This should not be demotivating for the employees but be a skills improvement process for them. The aim of reducing cost should not be only of the firm but a united objective of the firm and the employees in it. Only then can the cost of quality concept be implemented effectively.