Cost of Quality

Topics: Quality management, Costs, Total quality management Pages: 12 (4012 words) Published: February 25, 2013
Managing Cost of Quality: Insight into Industry Practice
Andrea Schiffauerova *, Vince Thomson **
* École Polytechnique de Montréal, Department of Mathematics and Industrial Engineering, Montreal ** Department of Mechanical Engineering, McGill University, Montreal, Canada

Article Reference: Schiffauerova, A. and Thomson, V., “Managing cost of quality: Insight into industry practice”, The TQM Magazine, 2006 Abstract This paper reports on the study of the quality costing practices at four large successful multinational companies. All four companies use systematic quality initiatives; however, a formal cost of quality (CoQ) methodology was only employed at one of them. This is in agreement with the literature findings arguing that a CoQ approach is not utilized in most quality management programs. The article discusses and compares the quality programs of all four companies and explains the benefits of the eventual adoption of a CoQ approach in each case. The analysis provides a new insight into company practice, useful not only for academic research, but also for use by industry. Keywords: Cost of quality, CoQ, quality costing, industrial practice Introduction Improving quality is considered by many to be the best way to enhance customer satisfaction, to reduce manufacturing costs and to increase productivity. Any serious attempt to improve quality must take into account the costs associated with achieving quality, since nowadays it does not suffice to meet customer requirements, it must be done at the lowest possible cost as well. This can only happen by reducing the costs needed to achieve quality, and the reduction of these costs is only possible if they are identified and measured. The identification itself is not straightforward because there is no general agreement on a single broad definition of quality costs. However, according to Dale and Plunkett (1995), it is now widely accepted that quality costs are the costs incurred in the design, implementation, operation and maintenance of a quality management system, the cost of resources committed to continuous improvement, the costs of system, product and service failures, and all other necessary costs and non-value added activities required to achieve a quality product or service. Measuring and reporting these costs should be considered a critical issue for any manager who aims to achieve competitiveness in today’s markets. There are several methods that can be used to collect, categorize and measure quality costs. The traditional P-A-F method suggested by Juran (1951) and Feigenbaum (1956) classifies quality costs into prevention, appraisal and failure costs. Prevention costs are associated with actions taken to ensure that a process provides quality products and services, appraisal costs are associated with measuring the level of quality attained by the process, and failure costs are incurred to correct quality in products and services before (internal) or after (external) delivery to the customer. The cost categories of Crosby’s model (Crosby, 1979) are 1

similar to the P-A-F scheme. Crosby sees quality as “conformance to requirements”, and therefore, defines the cost of quality as the sum of price of conformance and price of nonconformance (Crosby, 1979). The price of conformance is the cost involved in making certain that things are done right the first time and the price of non-conformance is the money wasted when work fails to conform to customer requirements. Another formal quality costing approach is the process cost model, which was developed by Ross (1977) and first used for quality costing by Marsh (1989); it represents quality cost systems that focus on process rather than products or services. Several references propose CoQ models that include the additional category of intangible costs. These are costs that can be only estimated such as profits not earned because of lost customers and reduction in revenue owing to non-conformance. The importance of...

References: Crosby, P.B. (1979), Quality is Free, New York: McGraw-Hill Dale, B.G. and Plunkett, J.J. (1995), Quality Costing, 2nd edition, Chapman and Hall, London Dale, B.G. and Plunkett, J.J. (1999), Quality Costing,3rd edition, Gower Press, Aldershot Feigenbaum, A.V. (1956), “Total quality control”, Harvard Business Review, Vol.34, Hesford, M.G. and Dale, B.G. (1991), “Quality costing at British Aerospace Dynamics”, Proceedings of the Institution of Mechanical Engineers, Vol.205 (G5), p.53 Juran, J.M. (1951), Quality Control Handbook, 1st edition, McGraw-Hill, New York
Marsh, J. (1989), “Process modeling for quality improvement”, Proceedings of the Second International Conference on Total Quality Management, p.111 Plunkett, J.J. and Dale, B.G. (1987), “A review of the literature on quality-related costs”, International Journal of Quality and Reliability Management, Vol.4, No.1, p.40 Porter, L.J. and Rayner, P. (1992), “Quality costing for total quality management”, International Journal of Production Economics, Vol. 27, p.69 Purgslove, A.B. and Dale, B.G. (1996), “The influence of management information and quality management systems on the development of quality costing”, Total Quality Management, Vol.7, No.4, p.421 Robison, J. (1997), “Integrate quality cost concepts into team problem-solving efforts”, Quality Progress, March, p. 25 Ross, D.T. (1977), “Structured analysis (SA): A language for communicating ideas”, IEEE Transactions on Software Engineering, Vol.SE-3, No.1, p.16 Schiffauerova, A. and Thomson, V. (2006), “A review of research on cost of quality models and best practices”, International Journal of Quality and Reliability Management, Vol.23, No.4 Tsai, W.H. (1998), “Quality cost measurement under activity-based costing”, International Journal of Quality and Reliability Management, Vol.15, No.6, p.719 Whitehall, F.B. (1986), “Review of problems with a quality cost system”, International Journal of Quality and Reliability Management, Vol.3, No.3, p.43 Williams, A.R.T., van der Wiele, A. and Dale, B.G. (1999), “Quality costing: a management review”, International Journal of Management Reviews, Vol.1, No.4, p.441
Autobiographical Note Andrea Schiffauerova PhD student For her PhD, Ms. Schiffauerova is studying the structures of innovative networks, knowledge flows and the performance of the firms within industrial clusters. She has also participated in projects in cost of quality, technical information transfer, risk management, quality function deployment and engineering change. École Polytechnique de Montréal Department of Mathematics and Industrial Engineering C.P. 6079, Succ. Centre ville Montreal, QC, Canada, H3C 3A7 tel: 1-450-462-5778 Email:
Vince Thomson Werner Graupe Professor of Manufacturing Automation Dr. Thomson has been involved in manufacturing and information technology related research for the past 25 years at McGill University and the National Research Council (Canada). His research has ranged from shop floor control and production scheduling to the present interest in real-time control and process management in manufacturing. His process management research has focused on new product introduction, concurrent engineering and manufacturing support in terms of coordination, metrics, and process principles. McGill University Department of Mechanical Engineering 817 Sherbrooke Street West Montreal, QC, Canada, H3A 2K6 tel: 1-514-398-2597, fax: 1-514-398-7365 Email:
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