1、1Quality and time Lesson 102Introduction of lesson 10examines the relationship between cost,quality,and time,and explains how quality and time can be used as strategic competitiveness tools.introduces the cost-of-quality report,and links it with benchmarking to outline the relationship between quali
2、ty and corporate strategy.discuss the theory of constraints3Lesson 10 Topics outline1.Quality as a competitiveness tool2.Costs of quality 3.Analyzing and improving quality4.Costs and benefits of quality improvement5.Costs of design quality 6.Evaluating quality performance7.Time and competitiveness 8
3、.Time drivers and costs of time9.Theory of constraints 4Topic 1:Quality as a competitiveness toolLearning Objective Explain how quality is used as a competitiveness tool.Required readingChapter 19,pages 532-5345Quality as a Competitive ToolCompanies have learned that market share can be eroded by po
4、or quality products or service.Quality is defined as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during useTopic 1:Quality as a competitiveness tool6Quality as a Competitive ToolFocusi
5、ng on the quality of a product will generally build expertise in producing it,lower the costs of making it,create customer satisfaction for customers using it,and generate higher future revenues for the company selling itTopic 1:Quality as a competitiveness tool7Terms associated with qualityThe term
6、 quality refers to many factors,including degrees of fitness for use,levels of customer satisfaction,and degree of meeting design and engineering specifications.Topic 1:Quality as a competitiveness tool8Terms associated with qualityGrade relates to differences in degree,worth,or ranking between prod
7、ucts or services that have the same functional use,for example,the difference between a dot matrix printer and a laser printer.Quality of design is the degree to which a companys design specifications for a product or service meet customers expectations for the grade level chosen.Quality of conforma
8、nce is the degree to which the product meets its design specifications and is free of defects that might affect appearance or performance.Topic 1:Quality as a competitiveness tool9Quality and FailureTopic 1:Quality as a competitiveness toolActualPerformanceDesignSpecificationsCustomerSatisfactionCon
9、formanceQualityFailureDesignQualityFailure10Topic 3:Analyzing and improving qualityLearning ObjectiveOutline the three methods companies use to identify internal quality problems.Required readingChapter 19,pages 538-540,from“The Internal-Business-Process Perspective:Analyzing Quality Problems and Im
10、proving Quality”up to“Relevant Costs and Benefits of Evaluating Quality Improvement”11The Internal Business Process PerspectiveWhen a company has quality problems,it must identify and analyze the problems in order to improve their quality.There are three methods that can help them identify the sourc
11、e of the problems.1.Control Charts2.Pareto Diagrams3.Cause-and-Effect DiagramsTopic 3:Analyzing and improving quality12Control ChartsStatistical Quality Control(SQC)is a formal means of distinguishing between random and nonrandom variations in an operating processControl Charts are a part of SQC.Con
12、trol Charts are a graph of a series of successive observations of a particular step,procedure,or operation taken at regular intervals of time.Topic 3:Analyzing and improving quality13Control ChartsEach observation is plotted relative to specified ranges that represent the limits within which observa
13、tions are expected to fall.Only those observations outside the control limits are ordinarily regarded as nonrandom and worth investigatingTopic 3:Analyzing and improving quality14Quality Control Charts IllustratedTopic 3:Analyzing and improving qualityAccording to the 2-sigma rule,a point that falls
14、 out of the 2-sigma range would occur in a normal distribution only 5%of the time and should be investigated.15Pareto DiagramsObservations outside control limits serve as inputs for Pareto DiagramPareto Diagram a chart that indicates how frequently each type of defect occurs,ordered from the most fr
15、equent to the least frequentTopic 3:Analyzing and improving quality16Pareto Diagram IllustrationTopic 3:Analyzing and improving quality17Cause-and-Effect DiagramsProblems identified by the Pareto Diagram are analyzed using cause-and-effect diagramsCause-and-Effect Diagrams Identifies potential cause
16、s of defects using a diagram that resembles the bone structure of a fish.Also called Fishbone Diagrams.Topic 3:Analyzing and improving quality18Cause-and-effect DiagramsMethods andDesign FactorsHuman FactorsMachine-related FactorsMaterials andComponents FactorsMultiple suppliersFlawed part designInc
17、orrectmanufacturingsequencePoor maintenance Poor trainingNew operator InadequatesupervisionPoorly machined partsIncorrect speed Inadequate Measurement toolsVariation in purchasedcomponentsIncorrect component specificationMishandling of purchased partsTopic 3:Analyzing and improving quality19Topic 2:
18、Costs of qualityLearning Objective Evaluate a cost-of-quality program by calculating categories of cost and analyzing nonfinancial measures.Required reading Chapter 19,pages 535-538,from“The Financial Perspective:Costs of Quality”up to“The Internal-Business-Process Perspective:Analyzing Quality Prob
19、lems and Improving Quality”20Cost of qualityQuality comes at a cost.The costs of quality are the costs that exist because poor quality may or does exist.Improving quality may be costly,but failing to improve quality may be equally costlyCost of quality is a comprehensive,plant-or companywide financi
20、al measure of quality performance.Most quality costs are associated with the quality-of-conformance factor.Topic 2:Cost of Quality 21Cost of qualityIn order to maximize the quality while minimizing the cost of that quality,it is important for companies to determine what those quality costs are and t
21、o be sure they are spending the money in the right way at the right time.Topic 2:Cost of Quality 22Cost of qualityQuality costs are associated with two subcategories of quality-related activities:Control activities _control costsPerformed by an organization to prevent or detect poor quality Failure
22、activities _failure costsCosts of failing to control&improve qualityPerformed by an organization or its customers in response to poor quality.Topic 2:Cost of Quality 23Categories of cost of quality ofconformanceExpenditures on quality are grouped into four categories and presented in a cost-of-quali
23、ty report.Prevention Appraisal Internal failure External failureTopic 2:Cost of Quality costs incurred as a result of producing products that do not meet quality standards costs incurred to prevent the production of such products.Control costsFailure costs24Prevention costThe costs of designing,impl
24、ementing,and maintaining an active quality assurance and control system.The prevention cost includes the costs of Design engineering and process engineering supplier evaluations,preventative equipment maintenance Quality control system Quality planning Quality trainingTopic 2:Cost of Quality 25Appra
25、isal costcosts incurred to detect units that do not meet specifications.The costs of ensuring that materials and products meet quality conformance standards.The appraisal cost includes the costs of Inspecting raw materials and purchased partsin-process and finished products online product manufactur
26、ing,and process inspection Product testingTopic 2:Cost of Quality 26Internal failure cost Costs incurred on defective products before they are shipped to customers.The internal failure cost includes the costs of Scrap&Spoilage Rework Machine repairs Manufacturing/process engineering on internal fail
27、ures Downtime due to defects Discounts on sales of substandard parts and materialsTopic 2:Cost of Quality 27External failure cost Costs incurred on defective products after they are shipped to customers.The external failure cost includes the costs of customer supportHandling customer complains and c
28、laims rework/warranty,and replacement Recall costs manufacturing/process engineering on external failures,Freight and repairs of returned merchandise Product liability claims/lawsuits costs of lost reputationLost salesCustomer ill-willTopic 2:Cost of Quality 28Preparing a COQ reportStep 1:Determine
29、direct and indirect quality costsStep 2:Categorize quality costs It is most useful to present these quality costs in terms of a sales percentage so that the impact of quality cost on the profitability of the company is linked and apparent.Step 3:Analyze nonfinancial informationTopic 2:Cost of Qualit
30、y 29Activity costing approach used for quality costs1.Identify the chosen product for which the level of quality costs are sought.2.Identify the products direct costs of quality such as inspectors and workers in repair areas.3.Select the cost allocation base to use for allocating indirect costs of q
31、uality to the product.4.Identify the indirect costs of quality associated with each allocation base.5.Compute the rate per unit of each allocation cost base used to allocate indirect costs of quality.6.Compute the indirect costs of quality allocated to the product.7.Compute the total costs of qualit
32、y by adding all direct and indirect costs of quality assigned to the product Topic 2:Cost of Quality 30Activity-Based COQ Analysis IllustrationTopic 2:Cost of Quality Exhibit 19-231Interpret a quality cost reportThe costs are usually compared to a budget or to the costs for the previous period.Once
33、costs of quality are categorized,companies often find that spending a little more on prevention and appraisal results in significant savings in failure costs.Topic 2:Cost of Quality 32Quality Cost GraphCosts100%of output without defectsCosts of controlCosts of failureTotal quality cost0Topic 2:Cost
34、of Quality 33Contemporary Quality Cost GraphCost0Percent Defects100%Failure CostsControl CostsTotal Quality CostsTopic 2:Cost of Quality 34Opportunity CostTopic 2:Cost of Quality Exhibit 19-235Topic 4:Costs and benefits of quality improvementLearning ObjectiveAnalyze relevant costs and benefits of q
35、uality improvements.Required readingChapter 19,pages 540-541,”Relevant Costs and Benefits of Evaluating Quality Improvement”36Identify relevant costsIn evaluating alternative solutions to dealing with quality problems,the company should utilize relevant cost analysis.This is done in a similar manner
36、 as covered in Chapter 11(Decision Making and Relevant Information)The key question is how total costs and total revenues will change under each alternative solution.Topic 4:Costs and benefits of quality improvement37Costs and benefits of quality improvementSome relevant costs and benefits when atte
37、mpting to increase quality might include:Estimated incremental costs of each alternative Cost savings from less rework,customer support,and repairs Increased contribution margin from higher sales as a result of building a reputation for quality and performance.Topic 4:Costs and benefits of quality i
38、mprovement38Costs and benefits of quality improvementTopic 4:Costs and benefits of quality improvementDifference in favor of redesigning framesExhibit 19-639Comparative analysisManagers make strategic choices based on the results of the analysis;these choices then require a further sensitivity analy
39、sis.Managers must consider the following effects of nonfinancial information and underlying economic conditions,which may change levels of sales and production costs.Opportunity costs The COQ report Trends of quality costs over time Ethical issuesTopic 4:Costs and benefits of quality improvement40Co
40、mparative analysisOpportunity costs the lost contribution margin on the alternative process.Poorly designed processes production,marketing,distribution,and customer service result in lost opportunity costs.The COQ report Determines the impact of interdependencies across the four categories of qualit
41、y-related costsTopic 4:Costs and benefits of quality improvement41Ethical issuesChanging an internal process may decrease defects but increase the use of a non-renewable resource.Other issues in this area might be the safety of employees in the manufacturing process and the safety of customers in th
42、e use of the product.Topic 4:Costs and benefits of quality improvement42Topic 6:Evaluating qualityperformanceLearning ObjectiveEvaluate quality performance using financial and nonfinancial measures.Required readingChapter 19,pages 542-543,“Evaluating Quality Performance”43Trend Analysis Quality Cost
43、s Actual Sales%of Sales2000$440,000$2,200,000 20.0%2001 423,000 2,350,000 18.02002 412,500 2,750,000 15.02003 392,000 2,800,000 14.0 2004 280,000 2,800,000 10.0The trends are evaluated to determine whether progress is being made.Assume the following data:Topic 6:Evaluating quality performance44Multi
44、ple-Period Trend Graph:Total Quality Costs51015200 1 2 3 4 5%ofSalesYearTopic 6:Evaluating quality performance45Multiple-Trend Analysis for Individual Quality Costs Internal ExternalPrevention Appraisal Failure Failure Total2000 2.0%12.0%6.0%10.0%20%2001 3.02.44.0 8.6 182002 3.03.03.0 6.0 152003 4.0
45、 3.02,5 4.5 142004 4.1 2.4 2.0 1.5 10 Assume the following quality cost data:1Expressed as a%of salesRedesigning the production process can increase prevention costs but cause a reduction in internal and external failure costs.Topic 6:Evaluating quality performance46Multiple-Period Trend Graphic:Ind
46、ividual Quality Cost CategoriesPercentage of Sales1098765432100 1 2 3 4 YearExternal failureInternal failurePreventionAppraisalMany alternatives will have multi-period effects.Topic 6:Evaluating quality performance47Advantages of cost of quality measures They are consistent with the attention-direct
47、ing role of management accounting by focusing attention on the costs of poor quality.Total COQ provides a measure of quality performance for evaluating trade-offs among prevention costs,appraisal costs,internal failure costs,and external failure costs.COQ measures assist in problem solving by compar
48、ing costs and benefits of different quality-improvement programs and setting priorities for cost reductions.Topic 6:Evaluating quality performance48Limitations of Quality Cost Information Simply measuring quality cost problems does not solve quality problems.Results usually lag behind quality improv
49、ement programs.The most important quality cost,lost sales,is often omitted from quality cost reports.Topic 2:Cost of Quality 49Cost of Quality ExclusionsOpportunity Costs as a result from poor quality:1.Contribution Margin and Income foregone from lost sales2.Lost Production3.Lower Prices Excluded d
50、ue to estimation difficulties and being unrecorded as to the financial accounting recordsTopic 2:Cost of Quality 50Nonfinancial measure of quality The financial costs represent only a portion of the total cost of quality.Prevention,appraisal,and internal failure costs also have nonfinancial measures
