Original Date: 07/18/1994
Revision Date: 01/18/2007
Best Practice : Cost of Quality
The Cost of Quality System provides Mason & Hanger (M&H) management with the information needed to help minimize total quality cost, and consequently, helps direct management decisions. M&H engineering, supervisory, and management personnel have on-line access to the Cost of Quality System, and it is used as a primary report card to gauge the results and effectiveness of specific initiatives. The system is based on the American Society of Quality Control book Principles of Quality Costs, as well as an internal M&H quality control standard procedure. Quality costs are tracked in four categories - Prevention, Appraisal, Internal Failure, and External Failure. Examples of some of the prevention costs include training, design, audits, quality planning and supplier activities; appraisal cost activities include inspection, source inspection, and testing; internal failure cost activities include supplier corrective actions, material review board, scrap, and rework costs; and external failure cost activities include returned goods and customer complaints.
As a part of M&H's Quality Management System (QMS), the Cost of Quality System prepares graphical reports illustrating plant-wide quality costs, plant-wide defect trends, item quality costs (total or per unit), and comparisons of different production lines. The format of the graphs can be selected to depict total quality cost trends for prevention, appraisal, and failure costs; quality costs normalized by production direct labor hours, total cost, or per unit cost; pie charts of prevention, appraisal, and failure costs; or a similar series of charts for defects categorized and displayed as minor, major, and critical. Plant-wide costs related to quality can also be compared, sorted, or ranked by any of the data input fields. Trend data is calculated monthly and depicted on individual graphs, allowing adverse trends to be easily identified and corrective action to be initiated as appropriate.
The Cost of Quality System is a valuable tool extensively used by M&H's engineering and management to identify opportunities for reduction in quality costs. Use of the cost of quality reporting system has resulted in monthly costs associated with quality being reduced from $593K in late 1989 to $327K in mid-1994. During this same time frame, the costs related to quality per direct production labor hour dropped from $20/hour to $8/hour. These cost reductions were accomplished concurrently with a substantial increase in the overall product mix, which also required an increased amount of testing (a quality appraisal cost item) of the newer product lines.
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