6_calcultingandreportingbenefitsofqms

8/6/2019 6_CalcultingandReportingBenefitsofQMS

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Iowa State Universityof Science and Technology

Agriculture and Biosystems Engineering

Agriculture and IndustrialTechnology7/15/05

Calculating and ReportingBenefits of QMSCalculating and ReportingBenefits of QMS


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ObjectivesObjectives

Identify potential benchmark measuresof cost/benefit of quality management

system adoption by agriculture. Set scope of the project

Select summarizing fiscal indicator of

costs and benefits measures


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Dual Roles for ISO 9000/9004Dual Roles for ISO 9000/9004

QMS for fulfilling customer, regulatory,etc., requirements (ISO 9000)

Management should considerdevelopment of innovative financialmethods to support and encourageimprovement of the organizationalperformance (ISO 9004 Guidelinesfor performance improvements)


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Allocation of Costs: Process ApproachAllocation of Costs: Process Approach

Early methods of tracking quality costswas too limited focus on cost of non-

conformance i.e. external and internalfailure costs. (Juran)

Process-cost broadens economics ofquality by classifying cost of non-conformance and cost of conformanceI.e. costs incurred when a process isrunning without failure (Schottmiller)


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Process Approach: Added BenefitsProcess Approach: Added Benefits

Utilize cost of non-conformance (oftencalled Cost of Poor Quality) and cost of

conformance = greater cost savingopportunities may be available inreducing cost of conformance (Schottmiller)


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Process CostingProcess Costing

Allows the tracking and reduction ofcosts normally associated with

efficiency in addition to effectiveness(quality) (Schottmiller)

Process simplification in addition toreduction of errors become objectives(Schottmiller)

Relate the economics of quality to theamount of activity performed (ISO/TR 10014: Economicsof Quality)


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Process Costs i.e. Costs of InefficientProcesses ExamplesProcess Costs i.e. Costs of InefficientProcesses Examples

Variation of product characteristics fromoptimum

Unplanned downtime and/or loss ofprocessing/storage capacity

Inventory shrinkage

Variation of process characteristics from best

practices (cycle times from to start to finish ofactivities)

Other non-value added activities

NOTE: Improvement is also an objective


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Dont Ignore Quality FailuresDont Ignore Quality Failures

(Juran)

Cost of non-

conformity:

Internal failure costs

External failure costs

Cost of Poor Quality

Cost of lost

opportunities for

sales revenue

Cost of conformity:

process approach


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Internal Failure Costs ExamplesInternal Failure Costs Examples

Labor and material overhead spent ondefective product spoilage, defectives,scrap etc.

Correcting defectives in physical or serviceproducts i.e. reworking product

Sorting bad/good product

Reinspection, retest of product

Changing processes to correct deficiencies(CARs)

Downgrading product(Juran)


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External Failure Cost ExamplesExternal Failure Cost Examples

Costs involved in replacing/making repair forwarranty product

Investigation and adjustment costs tojustified

complaints of quality defective product Returned material Concession costs due to substandard product

accepted by customer Correcting errors on external supporting

processes Revenue losses in support operations

(Gyrna)


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Allocation of CostsAllocation of Costs

The company must decide what tomeasure depending upon

circumstances, objectives, etc.However,

The overall idea is to allocate costs and

not to absorb such costs into overhead(ISO/TR 10014)


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Deriving BenefitsDeriving Benefits

Reduction of failures due to QMS

Improvement of process efficiencies due toQMS

Pre and post measures of implementation

However, improvements should be done asidentified

Using quality tools such as flowcharting, value addanalysis, cycle time reduction, processsimplification, root cause investigation, etc.


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Cycle Time ReductionCycle Time Reduction

Stop watch timestudy common

Also work sampling

Better way to getdata w/o estimating

Department:____________________ Part Name:________________________ Date of Timestudy:_______________________Supervisor:_____________________ Part #:____________________________ Measurer:_____________________ _________

Operator:_______________________Operation:_________________________Operator Tools:_________________________

Step Element Description 1 2 3 4 5 6 7 8 9 10 TOTAL # Avg S/E Mins

Normal Minutes:

Foreign Elements: Performance Rating Data 10% PF0

D:

A EP VP Poor Fair Avg Gd VG Exc Sup Standard Minutes:S

1

ILL: -20 -15 -10 -5 0 5 10 15 20 Hrs/Piece:B EFFORT: -20 -15 -10 -5 0 5 10 15 20

Pcs./hour:

C Operator Average at Time of Study:

Machine Cycle:

D Comments:


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Value Add AnalysisValue Add Analysis

Definitions Value added activity:

only if the customer recognizes its value, its done right the first time,

It changes the product toward something the customerexpects

Necessary Evil (operational value added activity): not customer value added but required through law,

regulation, or contract required to support value added activities

technological barrier exists from eliminating activity Non value added activity:

not valued by customer, doesnt change product towards customer value not required by law, contract


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Root Cause AnalysisRoot Cause Analysis

hy-becausediagram: ask why

at least 5 times toreach root cause

Don't know what

is in tool chain

Tooling not returned

to crib afterjob

No tooling inventory

updatesLoad procedure

not consistant

No spare tooling

No trigger to

replenish toolingFixture loading

problem

Not paying

attention

No tooling available Tool wear

Tooling breaks,

machine crashes Operator error Going too fast

Takes time to

change inserts

Take up to tool

room to measure

Running tool past

tool life

Fixture quality;

design(binder descp.)

Lost time to tooling

@ workcenter

No standardized

tooling Not enough tools

Most correct

measurements

2

ant to hit higher

efficiency

Programs change

Engr. not aware of

std. tools $$$

Can't measure all

char. @ mach. 1 pre-setter (program descp.)

Anyone can

change programs

Same tool but diff.

descriptions

Tools disappearing

from chain

Tools used on

otherjobs

Try to change

program to match

print

Same tool but diff.

lengths

Too much

specialized tooling

No compatible tool

lists btwn. Prod.

And Engr.

Lengths changed

Lack of control over

tools descriptions

2

PC's changed

Tool setup diff. from

tool room

Manufacturer

specs. vary

Out of tolerance

Easy fix

Why-Because3

hart - 9/25/03

K 4 5 6 Tooling- 4 ed Tea 7

Effect Cause


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Improvements SummaryImprovements Summary

Point is to have active system ofimprovement per ISO guidelines and

would bring more value to project andstudy as a whole

Question is: will it confound themeasuring of the ISO impact study


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Potential Benchmark MeasuresPotential Benchmark Measures

The organization can use a variety offinancial decision methods (e.g. net

present value, payback time, internalrate of return) to decide whether toproceed or not with a cost benefitanalysis

(ISO/TR 10014:1998(E): Guidelines forManaging the Economics of Quality)


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Overall Fiscal ImpactOverall Fiscal Impact

Roll up measures into a financialindicator such as:

Benefits/cost ratio:present worth of total benefits

present worth of total costs

If ratio is greater than 1, project deemedworthwhile and vise versa

B/C=


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OR: Net present worth:

NP =present worth of total benefits

total worth of total costs

Simple number; positive worth indicatesprogram is viable

Both ignore time value of money; relativeto project not company as a whole

Overall Fiscal Impact cont.Overall Fiscal Impact cont.


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Data Collection and AnalysisData Collection and Analysis

Statistical analysis of QMS impact, design studybased on answering some questions:

1. Important to answer implementing QMS vs. notimplementing

Larger scope, need control group, differentindicators

2. Does QMS implementation pay for itself **

3. How do AIB vs. ISO systems compare

4. hat is QMS impact over time

Repeated measures

Regardless of above,

1. How to control location variation i.e. how werepresent locations picked for QMS implementation


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TimelineTimeline


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Timeline QuestionsTimeline Questions

hat is finish date

How long does data collection last

hat are the resources at hand


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ConclusionConclusion

Answer questions of scope, design,particular measures, summarizing fiscal

indicator(s), timeline Review relevant FC documents as

necessary


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Presentation through BalancedScorecard (BSC)Presentation through BalancedScorecard (BSC)

Articulate key indicators (thatmanagement considers important) to

categorize performance ( est) Balanced Scorecard is a business

management system for linkingstrategic goals to day to day operationsrequirements (Hoffert)


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Airspeed Only ! *Airspeed Only ! *

AIRSPEED

*Kaplan


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Multiple Perspectives of BSCMultiple Perspectives of BSC

How do we look to shareholders(Financial)

How do customers see us

(Customer) hat must we excel at

(Internal)

Can we continue to improve and createvalue

(Innovation and learning)

( aplan and Norton)


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Financial PerspectiveFinancial Perspective

Business strategies:

Growth

Sustain Harvest

here is yourbusiness

Three financial themes: Revenue growth and mix

Cost reduction/productivity improvement

Asset utilization/investment strategy


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Customer PerspectiveCustomer Perspective

Core Measures:

Market share

Customer retention

Customer acquisition

Customer satisfaction

Customer profitability

Beyond the Core: Product/service attributes

Customer relationships

Image and reputation


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Internal Business Process PerspectiveInternal Business Process Perspective

Three basic processes:

Innovation

Operations* Postsale service

*Measuring process quality approach ofQMS benefits


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Learning and Growth PerspectiveLearning and Growth Perspective

Three principles:

Employee capabilities

Information systems capabilities Motivation, empowerment, and alignment


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How Measures and Plans LinkHow Measures and Plans Link

Measures need targets

Actions/plans need to be defined for

achieving targets Competitor/comparative data used to

set targets

Performance against targets needsregular review (Hoffert)


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ExamplesExamples

Balanced Scorecard Da8

e _____

9

_____

9

_____

Quality Metrics March Actual Target StatusScrap ($) $6@ 420@ 847A 00

B

C D

Over-Consumption ($) ($18@ 955A 00D $19@ 583A 00

Productivity 0 A 85B

C D

Cycle Time (Days) 31A 4B

C D

$ amount of Returns issued TBD TBD

Financial MetricsEBIT ($) $1@ 561@ 000A 00 $1 @ 730@ 000A 00EVA ($) $202 @ 000A 00 $157 @ 000A 00Finished Goods Inventory $1A 32 $1 A 27

Work-in-Process ($) $6@ 482@ 333A 00 TBD

VAR / Employee ($/Employee) $7@ 311A 55 TBD

Employee SatisfactionEmployee Turnover Rate 1 A 3 No E oaFEmployee Absenteeism Rate 1 A 2 No E oaF

Recordable Accident Rate 15A 33 6 A 28

Days Away Case Rate 1 A 84 0 A 43

Customer SatisfactionOn-Time Delivery (%) 91 90

Customer Spoilage ($) $79@722

A00 0

# of Customer Complaints 5 0

CompanyObjectivesISO

Set-up Reduction5S

Six Sigma Projects

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Examples cont.Examples cont.

(Hoffart)


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How it All orksHow it All orks

Quality Policy Objectives

Metrics from Balanced Scorecard

Internal

-Return on Quality (ROQ) =

benefits/investment

Customer

Learning/Innovation

Financial

(Alam, Juran)


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SummarySummary

This is more thanjust the cost/benefit ofa QMS, it is the development of a Rich

Picture of the business performance

6_calcultingandreportingbenefitsofqms

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