1. In the Name of Allah
Most Gracious, Most Merciful.

2. CONTENTS
1. Business Environment
Quality &
Productivity
2. Q. C. D. S. Society of
Pakistan
3. What is Cost of Quality (CoQ)
4. Why CoQ
5. How Analyze CoQ
6. DMAIC Approach
7. Changing the Corporate Culture

3. Please think for a moment……

4. Can you identify some changes
happened at your workplace

5. Business Environment
(Fierce Competition)

6. Can you name a few organizations,
which do not exist any more.
Why Organizations
Prosper?

7. The main challenges for the
organization?
1. Quality
2. Cost
3. Delivery / Productivity
4. Safety
5. Culture

8. Cost of
Quality

9. It’s not the tip
of the iceberg
It’s what you can’t see…
that’s the problem….
The Hidden Factory!!!

11. Primary focus :
To reduce
Cost of Quality.

12. WHY ARE QUALITY COSTS
IMPORTANT?
HARVRD PROFESSOR MICHAEL E. PORTER

13. WHAT IS COST OF QUALITY?
Expenditure in Defect
Appraisals activities
+
COST Losses due to
OF Internal & External
failure
QUALITY
+
Expenditure in Defect
Prevention activities

14. CATEGORIES OF COST OF QUALITY
Cost of Non-conformance
Cost of Conformance (Cost of Poor Quality)
PREVENTION COST INTERNAL FAILURE COST
The cost of any action taken to The costs arising within the
investigate, prevent or reduce organization due to non-
the risk of a non-conformity conformities or defects
APPRAISAL COST EXTERNAL FAILURE COST
The costs associated with The costs arising after delivery
measuring, checking, or of product or service to the
evaluating products or services customer due to non-
to assure conformance to conformities or defects
quality requirements

15. EXAMPLE OF QUALITY COSTS
PREVENTION COST INTERNAL FAILURE COST
- Training cost
- Rejection cost
-Supplier Training / Evaluations
- Rework/Repair cost
- Quality Audits cost - Loss due to down grading
- Preventive Maintenance cost - Re-testing costs,
- SPC implementation cost
etc.
- quality improvement projects,
etc.
APPRAISAL COST EXTERNAL FAILURE COST
- Inspection & test cost - Warrantee Expenses
- Calibration cost - Claims
- Laboratory expenses - Returns/Replacements
- Equipment cost - Complaints handling,
etc. etc.

16. GOAL OF CoQ SYSTEM
MOST COSTLY LESS COSTLY LEAST COSTLY
The customer finds The manufacturer or The company’s quality
defect in the delivered service organization system is designed for
parts or service finds and corrects the defect prevention and
defects internally continuous quality
improvement

17. GOAL OF CoQ SYSTEM
Litigation Loss
Failure Cost (Rs.)
Field Failure
Field Repair
Ship Point
Final Inspection
Subsystem/assembly
Component
Prevention
Process

18. GOAL OF CoQ SYSTEM
TO FACILITATE QUALITY EFFORTS
THAT WILL LEAD TO
OPERATING COST REDUCTION OPPORTUNITIES
STRATEGY
•Direct attack on Failure Costs to minimize them
•Investment in Prevention activities
•Reduction in Appraisal Costs

19. HOW TO START A QUALITY COST
PROGRAM?

20. MANAGEMENT AWARENESS
Cost of
Quality Concept
CoQ Program
Objective of
Implementation Plan CoQ Program
results and improvements existing financial data and the
expected from the CoQ program general level of quality costs in the
organization

21. Six Sigma Infrastructure

22. PROJECT TEAM
FINANCE/ACCOUNT QUALITY
COORDINATOR INCHARGE
Six Sigma BBs /
GBs
DEPARTMENTAL
REPRESENTATIVE

23. IDENTIFICATION OF QUALITY COST ELEMENTS
Prepare a Checklist of
Quality Cost elements
Identify the Quality Cost
elements in each function
Review the data available
Identify the data to be
collected
(Xs) Leading Process --> Product --> Lagging (Ys)
XZY errors DPU/Yield
Temperature Manufacturing
Offset Scrap
Viscosity Cost of Quality
Pressure Rework, RMA

24. Voice of the Customer
Analyze
Measure Improve
Define Control
Institutionalization
The DMAIC Model

25. Compilation of quality
cost data
REPORTING OF QUALITY
COSTS
Function-wise quality
cost reporting
0.2 0.16
0.15
0.2
0.14 Company-wide quality
0.1
0.12
cost reporting
0.1 0.11
Millions
0.1
0.1
0.1 0.05
0.0
0.0
-
Jan 08 Feb 08 Mar 08 Apr 08 May 08 June 08 July 08

26. JURAN SAID…
“All quality
improvement
occurs on a
project-by-project
basis and in no
other way.”

27. Thanks
Let’s Achieve Excellence