icqi-lahore, 2-3 may 2011 4/27/2011 - piqc institute of...
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ICQI-Lahore, 2-3 May 2011 4/27/2011
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MUHAMAMD JAWAD BHATTIB.Pharm, MS-TQM
Quality Costs are a measure of costs specifically associated with the achievement or nonachievement of product or service quality.
Quality Costs represent the difference between the actual cost of a product or a service and whatthe reduced cost would be if there were no possibility of substandard service, failure of product,or defects in the manufacturing.
What is Cost of Quality?What is Cost of Quality?
Quality Costs are real and estimated at;
- 25% of costs in manufacturing organizations
- 35% of costs in service organizations
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Quality costs are the total of cost incurred by;
- investing in the prevention of nonconformance
- appraising a product for conformance to requirements
- failing to meet requirements
What is Cost of Quality?What is Cost of Quality?
COST OF QUALITYCOST OF QUALITY
COST OF GOOD QUALITYCOST OF GOOD QUALITY COST OF POOR QUALITYCOST OF POOR QUALITY
PREVENTIONCOST
PREVENTIONCOST
APPRAISALCOST
APPRAISALCOST
INTERNALFAILURE COST
INTERNALFAILURE COST
EXTERNALFAILURE COST
EXTERNALFAILURE COST
What is Cost of Quality?What is Cost of Quality?
COST OF GOOD QUALITYCOST OF GOOD QUALITY
Costs of Good Quality includes Prevention & Appraisal Costs
PREVENTION COSTSPREVENTION COSTS
Cost of all activities specifically designed to prevent poor quality in products or services. Theseinclude cost incurred due to;
- Quality planning
- Supplier evaluation
- Product review
- Error proofing
- Capability evaluations
- Training
- Quality improvement projects
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What is Cost of Quality?What is Cost of Quality?
COST OF GOOD QUALITYCOST OF GOOD QUALITY
Costs of Good Quality includes Prevention & Appraisal Costs
APPRAISAL COSTSAPPRAISAL COSTS
Costs associated with measuring, evaluating or auditing products or services to assureconformance to quality standards and performance requirements. These include costs of;
- Incoming inspection
- In-process inspections
- Product, process, service audits
- Calibration of measuring equipment
- Final product testing
- Process control measurements
What is Cost of Quality?What is Cost of Quality?
COST OF POOR QUALITYCOST OF POOR QUALITY
Costs of Poor Quality includes Internal Failure & External Failure Costs
INTERNAL FAILURE COSTSINTERNAL FAILURE COSTS
Failure costs occur prior to delivery or shipment of the product or the furnishing of a service tothe customers. These include costs due to;
- Rework
- Delays
- Shortages
- Scrap
- Failure analysis
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What is Cost of Quality?What is Cost of Quality?
COST OF POOR QUALITYCOST OF POOR QUALITY
Costs of Poor Quality includes Internal Failure & External Failure Costs
EXTERNAL FAILURE COSTSEXTERNAL FAILURE COSTS
Failure costs occurring after delivery or shipment of the product or during or after furnishing of aservice to the customers. These include costs due to;
- Complaint handling
- Recall Costs
- Warranty claims
- Penalties
- Lost sales
Many of the costs of quality are hidden and difficult to identify by formal measurement systems.The iceberg model is very often used to illustrate this matter: Only a minority of the costs of poorand good quality are obvious - appear above the surface of the water. But there is a hugepotential for reducing costs under the water. Identifying and improving these costs willsignificantly reduce the costs of doing business
ICEBERG MODEL OF COST OF QUALITYICEBERG MODEL OF COST OF QUALITY
TrueFailureCosts
Commonlymeasured failure
costs
Hidden failure costs
ScrapReworkWarranty
Excessive overtimeUnused capacityExcess inventoryPlanning delaysComplaint handlingLost ordersDelivery problems
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Why do we need to measure COQ?Why do we need to measure COQ?
Cost of Quality measurement is required in following situations;
- High operating costs
- Slow rate of improvement
- Low or no profitability
- business processes continue to get worse
- quality problems
- Management is running out of ideas on where to cut costs any further
Cost of Quality measurement has following benefits;
- COQ is an element of productivity improvement
- COQ identifies quality problems
- COQ is critical in profitability assessment
- COQ increase quality without increasing cost
- COQ facilitates quality improvement efforts
- COQ reduces operating costs
Benefits of COQ MeasurementBenefits of COQ Measurement
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Cost of Quality ProgramCost of Quality Program
The Cost of Quality Program is a companywide program with an objective to;
- quantify the size of quality problem
- Identify major opportunities for reduction in cost of poor quality
- Identify opportunities for reducing customer dissatisfaction
- Align quality goals with organizational goals
Prevention Costs
Appraisal Costs
Failure Costs- Internal- External
Prevention Costs
Appraisal Costs
Failure Costs- Internal- External
Benefit
The central theme of COQ Program is that investments in prevention activities drive even largersavings in quality related failures and appraisal efforts
Before COQ Program After COQ Program
Cost of Quality ProgramCost of Quality Program
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Introduction of ProjectIntroduction of Project
Identification, collection and measurement of Cost of Poor Quality to reduce failure cost and
increase profitability
Project objectivesProject objectives
Introduction of ProjectIntroduction of Project
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
- Pharmaceutical manufacturing company based at Pakistan
- Team of technical staff supervises production
- Investment in Quality Assurance activities
- Annual sales of about 40 million PKR
- Tablet production facility
- Regular company GMP audits
- Wants to increase profit
Company backgroundCompany background
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Introduction of ProjectIntroduction of Project
Research methodologyResearch methodology
PROCESS IDENTIFICATIONPROCESS IDENTIFICATION
DATA COLLECTIONDATA COLLECTION
DATA ANALYSISDATA ANALYSIS
COST OF POOR QUALITYCOST OF POOR QUALITY
Identification of Failure events
Identification of time & resources required toresolve the Failure events
Identification of RPN for eachFailure event
Determination of cost incurreddue to failure events
An action based methodology was
adopted on the basis of Process Cost
Approach
COPQ Analysis ProjectCOPQ Analysis Project
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
Raw Material HandlingRaw Material Handling
Tablet ProductionTablet Production
Finished Goods HandlingFinished Goods Handling
Process IdentificationProcess Identification
ProcessesProcesses
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COPQ Analysis ProjectCOPQ Analysis Project
Raw Material Handling ProcessRaw Material Handling Process
PurchaserequisitionPurchase
requisition
Purchaseorder
Purchaseorder
DeliveryDelivery
Receivingmaterial
Receivingmaterial QuarantineQuarantine
Intimation toQC
Intimation toQC
SamplingSampling
AnalysisAnalysis GRN No.GRN No.
Store inwarehouse
Store inwarehouse
COPQ Analysis ProjectCOPQ Analysis Project
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
Raw Material Handling ProcessRaw Material Handling Process
PurchaserequisitionPurchase
requisition
Purchaseorder
Purchaseorder
DeliveryDelivery
Receivingmaterial
Receivingmaterial QuarantineQuarantine
Intimation toQC
Intimation toQC
SamplingSampling
AnalysisAnalysis GRN No.GRN No.
Store inwarehouse
Store inwarehouse
Delay in shipmentDelay in shipment
Weighing equipment not readyDelay due to Insurance officerWeighing equipment not readyDelay due to Insurance officer
Delay in samplingDelay in sampling
Damaged foilThickness of foil not per specsWrong stickersDamaged materialLess quantityGrade differencesDelay in release reportMaterial not per specs
Damaged foilThickness of foil not per specsWrong stickersDamaged materialLess quantityGrade differencesDelay in release reportMaterial not per specs
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COPQ Analysis ProjectCOPQ Analysis Project
Tablet Manufacturing ProcessTablet Manufacturing Process
Materialrequisition
Materialrequisition
DispensingDispensing
Dry mixingDry mixing
WettingWetting DryingDrying
AnalysisAnalysis
CompressionCompression
AnalysisAnalysis CoatingCoating
Store in FGstore
Store in FGstore
BlisteringBlistering
PackagingPackaging
COPQ Analysis ProjectCOPQ Analysis Project
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
Tablet Manufacturing ProcessTablet Manufacturing Process
Materialrequisition
Materialrequisition
DispensingDispensing
Dry mixingDry mixing
WettingWetting DryingDrying
AnalysisAnalysis
CompressionCompression
AnalysisAnalysis CoatingCoating
Store in FGstore
Store in FGstore
BlisteringBlistering
PackagingPackagingMachine out of orderMachine out of order
Delay in requisitionDelay in line clearanceDelay in requisitionDelay in line clearance
QC late responseQC late response
Wrong material receivedWeighing balance not calibratedDelay from material store
Wrong material receivedWeighing balance not calibratedDelay from material store
Machine out of orderMachine out of order
QC late responseQC late response
Machine out of orderPVC color changeBlurred printing on foil
Machine out of orderPVC color changeBlurred printing on foil
Wrong material receivedMachine out of orderPacking errorsDamaged materialMisprinting on cartonWrong labeling
Wrong material receivedMachine out of orderPacking errorsDamaged materialMisprinting on cartonWrong labeling
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COPQ Analysis ProjectCOPQ Analysis Project
Finished Goods Handling ProcessFinished Goods Handling Process
MaterialtransferMaterialtransfer
Materialdispatching
Materialdispatching
MarketreturnsMarketreturns
COPQ Analysis ProjectCOPQ Analysis Project
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
Finished Goods Handling ProcessFinished Goods Handling Process
MaterialtransferMaterialtransfer
Materialdispatching
Materialdispatching
MarketreturnsMarketreturns
Delay in availability of productsfrom production departmentDelay in availability of productsfrom production department
Material damageMaterial damage
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COPQ Analysis ProjectCOPQ Analysis Project
Data analysisData analysis
Process Description Potential Failure Modes Potential Failures Occurrence Detection RPN
Delay in availability from production Downtime
Material damageRework
Wastage
Market returns WastageRework
Failure Mode and Effect AnalysisFailure Mode and Effect Analysis
Material transfer
Material dispatching
Material dispatching
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
COPQ Analysis ProjectCOPQ Analysis Project
Data analysisData analysis
0
500000
1000000
1500000
2000000
2500000
Raw material handlingprocess
Tablet productionprocess
Finished goods handlingprocess
FAILURE COSTS OF PROCESSES
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COPQ Analysis ProjectCOPQ Analysis Project
Data analysisData analysis
| 1-MEHRAN BLOCK ALLAMA IQBAL TOWN LAHOREContact: 03224610067, Email: [email protected]
COPQ Analysis ProjectCOPQ Analysis Project
ResultResult
The organization was operating with an annual Cost of Poor Quality of 4.2 million PKR. In thiscase the COPQ is 10.5 % of annual sales. Finished goods handling process is the major contributorto failure cost. It was learnt from further analysis that the failure cost incurred due to MarketReturns is far bigger than other failures and requires immediate action.
