cost management TI case

Topics: Costs, Total quality management, Quality control Pages: 7 (1738 words) Published: April 4, 2014
1. What factors led to the adoption of the COQ system? Why do you think the company chose to adopt a financial measure of quality? 1) Reasons of adoption of COQ system
Competition : In the late 70’s, international competition led to focus on quality improvement. Their customer HP publicized a study that product of HP’s best American suppliers to be inferior to HP’s worst Japanese suppliers. Quality control ii essential for TI’s long-term competitive success. Customer satisfaction : Improving quality is considered by many to be the best way to enhance customer satisfaction. Cost saving and improve productivity : Improving quality is the best way to reduce manufacturing costs and to increase productivity. → Bird-eye view : TI want to do their job right the first time. Their organizations treat strategic planning and quality improvement planning as an integrated activity. They want to find hidden quality costs and reduce hidden costs using COQ.

2) Reason of choosing a financial measure of quality
Cultural change : TI want to create a major cultural change from the bottom line by using COQ. A cultural change was needed from the old to the new. All employees are familiar with financial terms, so they chose a financial measure of quality Easy to recognize : The COQ measure was designed to highlight the cost of poor quality, the cost of doing things wrong. They can intuitively recognize poor quality and wrong thing by using financial terms. → TI want to company-wide cultural change. Financial terms are easy to understand from employee to CEO, so they use financial measure of quality in COQ. 2. Evaluate the COQ variables adopted by the Materials & Controls Division. Should they be changed? Why? 1) Evaluation of COQ variables

Prevention cost
Appraisal Cost
Internal Failure Cost
External Failure Cost
-Quality Engineering
-Receiving inspection
-Mfg. Engineering
-Design Engineering
-Quality Training
-TSL Laboratory
-Design Analysis
-Product Acceptance
-Mfg. Inspection
-Quality Scrap
-Net RMR Cost
-Liability Claims
Appeared in the above table are variables that are COQ variables which Texas Instruments currently adopted and practicing variables at their sites. All of these COQ variables can be easily recognized as useful and needed components for COQ purpose. However, these variables cover only operational COQ variables. It also means that it cares only about quality related costs that emphasizes much on short term cost reducing and profit increasing matters. In addition, these way of controlling quality is easily appeared at American companies. Then, this cannot measure COQ sharply. Japanese companies’ way of looking at the quality is different from Americans’. Japanese companies’ approach to COQ is more like directing action instead of as a goal. Japanese also allocate responsibility of quality to all level of employees. This align with the concept of “Top-to-Sharp”. In addition to operational COQ variables, operational variables cannot explain all COQ, such Japanese-like strategic approach can help measuring COQ more precise. 2) Suggested Strategic COQ variables.

KPI : COQ related KPI must be developed to push people toward participating in quality improvement issues.. Company-wide continuous process improvement : it should not limited to production department, should apply to all level of management for company-wide 3. What value are the four quality cost categories (prevention, appraisal, internal and external failure)? How can this information be used? There are four categories in the cost of quality as bellows. Prevention costs : Costs incurred to prevent non-conforming units from being produced. Appraisal costs : Costs incurred to ensure that materials and products that failed to meet quality standards were identified prior to shipment.

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