Total Quality Management

Assignment

Section: B

Submitted to: Sir Mohsin Rashid

 Texas Instruments: Cost of Quality (A)

Q.No.1:

What factors led to the adoption of the COQ system? Why do you think the
company chose to adopt a financial measure of quality?

Factors that led to the adoption of the Cost of Quality (COQ) system and financial
measure of quality at Texas Instruments company (TI) including

i. Improve customer satisfaction.

ii. The need to implement a quality reporting system to supplement TI’s extensive
system of financial indicators.

iii. The need to save the costs of redesign, re-work, scrap, re-testing, maintenance,
repair, and warranty work.

iv. A greater commitment to quality control was needed to maintain TI’s competitive
success.

v. Increased competition as companies from Japan, Italy and Brazil had improved
their products while lowering costs.

vi. The need to assign dollar values ($) to important quality costs including
prevention and appraisal costs, and internal and external failure costs.

vii. Achieve higher productivity and cost reduction.

viii. Act as a tool to encourage priority setting and stimulate quality improvement
activities.

Q.No.2:

What are the strengths and weaknesses of the COQ concept? Compare COQ
measurement to direct measures of quality such as yields, defect rates and
statistical process controls.

Strengths of the COQ concept:

I. The COQ concept helps middle managers to see the consequences of poor quality
on overall income.

II. The COQ concept forces priority setting and is a good attention getter

III. The COQ concept gives a few numbers that focus several things together and
thus help: “To improve the whole, not a few pieces at a time.”

IV. The information generated by the COQ system can help managers identify
opportunities to reduce costs.

Weaknesses of the COQ concept:

I. The COQ concept does not accurately measure scrap costs and their impact on
internal failure costs.

II. The COQ concept does not capture indirect quality costs or losses considered
inherent to the manufacturing process.

III. Costs tracked by a COQ system alone are only 50% of actual quality costs,
resulting in inadequate attention being focused on major sources of quality costs.

IV. The COQ concept is a not reliable as a single method to consider for continuous
quality improvement.

Cost of Quality (COQ) measurement describes expenditures (or costs) that arise
because poor quality has occurred or to prevent poor quality from occurring in the
future. The COQ measure is designed to tie in accounting numbers to highlight the
cost of poor quality- or the cost of doing things wrong.

When comparing COQ measurement to direct quality measures such as yields, defect
rates and statistical process controls (SPCs), we can say that they are quality tools that
managers and other operating personnel can be trained to use to monitor quality and
investigate the causes of poor performance to drive continuous improvement in the
COQ system. These tools compliment the COQ system but do not provide any
indication of the cost of poor quality on their own.

Q.No.3:

Evaluate the COQ variables adopted by the Materials & Control Division.
Should they be changed? Why?

The cost variables adopted by the Motor Controls PCC consist of the following:
 Internal Failure External Failure
Prevention Costs Appraisal Costs
Costs Costs
● Quality Engineering ● TSL Laboratory ● Quality Scrap ● Net RMR Cost
● Receiving ● Design Analysis ● Rework ● Marketing
Inspection ● Product ● Manufacturing/ ● Manufacturing/
● Equipment Repair/ Acceptance Process Process
Maintenance ● Manufacturing Engineering Engineering
● Manufacturing Inspection ● Repair
Engineering ● Travel
● Design Engineering ● Liability
● Quality Training Claims

Based on the above, the following changes can be made on the COQ variables
adopted by Motor Controls PCC:

1) Internal failure costs can be changed by adding a new cost variable, Price-
downgrading, or the costs of discounting poor-quality products.
2) External failure costs can be changed by adding a new cost variable, Lost
Sales, or the costs incurred because customers are dissatisfied with poor-
quality products and do not make additional purchases. Another cost variable
that could be added is Warranty Claims, or the costs of complying with
product warranties.
3) Prevention costs can be changed by computerizing the entire COQ system and
adding a new cost variable, Information, or the costs of acquiring and
maintaining (typically on computers) all the data related to quality, and the
development and analysis of reports on quality performance.

Q.No.4:

What value are the four quality categories (Prevention, Appraisal, Internal and
External Failure)? How can this information be used?
Looking at Exhibit 10 below, we can see that there was a reduction in the total COQ
between 1982 and 1987, from 10.7% to 7.8%. We can also see that reductions
occurred in each category of quality costs.
Prevention costs remained relatively stable when comparing 1982 and 1987, at 2.3%.

Appraisal costs witnessed a small reduction of 0.4% between 1982 and 1987, from
2.2% to 1.8%.

Of all the four quality categories, we can see that Internal Failure costs were the
highest, which means the company spent considerable amount of resources on
correcting errors before delivery of the product to the customer. Internal Failure costs
witnessed a 2% reduction between 1982 and 1987, from 5.3% to 3.3%.

On the other hand, External Failure costs were the lowest costs incurred by the
company, which means that the costs of correcting errors after delivery of the product
to the customer were relatively small. External Failure costs saw a 0.5% reduction
between 1982 and 1987, from 0.9% to 0.4%.

Q.No.5:

What changes to the COQ system should Werner Schuele, the Vice President of
People & Asset Effectiveness, recommend?

A good COQ system should be designed such that it is readily compatible with the
metrics of other continuous improvement (CI) efforts. The COQ system adopted by
this company could improve by incorporating one of two quality philosophies:
Benchmarking or Six Sigma.

Benchmarking

Benchmarking refers to finding the best-in-class product or process, measuring the

performance of your product or process against it, and making recommendations for
improvement based on the results. Benchmarking is a tool to evaluate and create a
quality control system that mirrors or exceeds those of competitors. It is defined as a
process of improving performance by continuously identifying, understanding, and
adapting exceptional practices and processes found both in and out of an organization.
Benchmarking tools will help the company learn from its competitors, especially in
light of the increased competition in its industry.
Six Sigma

Another recommendation would be the systematic use of Six Sigma DMAIC tools
and methodology, or “Breakthrough strategy”. Six Sigma is a project-oriented
methodology (or system) that provides businesses with the tools and expertise to
improve their processes. The main idea behind Six Sigma is that if the number of
“defects” in a process can be measured, then it can be systematically determined how
to eliminate them and get as close to zero defects as possible. In Six Sigma “as close
to zero defects as possible” translates into a statistically based numerical goal of 3.4
defects per million opportunities (DPMO), which is the near elimination of defects
from a process, product, or service. This is a goal far beyond the quality level at
which most companies have traditionally operated. Through the reduction of variation
in all processes (i.e. achieving the Six Sigma goal), the overall performance of the
company will be improved and significant overall cost savings will be realized.
 Texas Instruments: Cost of Quality (A)

Q.No.1:

WHY DID INDUSTRIAL SYSTEM DIVISION’S (ISD) FIRST ATTEMPT TO

IMPLEMENT A COQ SYSTEM FAIL?

Industrial System Division’s (ISD) first attempt to implement a COQ system fail
because the managers interpreted the directions differently, leading to incompatible
measures. Excess inventory. For example, was directed to be one component of
quality costs. Some managers included the entire value of the excess inventory in their
calculations, while others included only the additional carrying or financing costs
arising from the excess inventory.

Then, a negative tone soon emerged when managers were asked to explain their
performance. The confrontational air of the meetings strengthened the view that
quality personnel were acting as policemen. Managers didn’t believe the numbers and
monthly reviews reinforced their defensive attitude. Reviewing quality costs each
month produced a tactical rather than a strategic mode of behavior.

In addition, the variables measured by the system needed do not reflect the key areas
for quality improvement. They should prioritize to the important things. The company
carry out nine variables were eventually selected for measurements such as Turnover
Costs, Project Costs, Retuned Material Report (RMR), Product Inspection, Production
Planning, Production Rework, Reliability, Burn-In and Test. The variables were
selected when the company began the development of a quality cost measurement
system for the division in 1983.

Q.No.2:

COMPARE ISD’D COQ SYSTEM TO M&C SYSTEM.WHY DO YOU THINK

THEY ARE TO DIFFERENT?

ISD’s full form is Industrial Systems Divisions and on the other hand is M&C’s
system’s full form is Manufacturing Cycle Time. Both are actually a system
processes. Each of their activity and systems is different with their own works. Let’s
talk about something ISD’s system.
ISD (Industrial Systems Division) could be a driving producer of imaginative and
competitive water powered mechanical values, manifolds, control frameworks and
person movement arrangements. It give arrangements, frameworks and
administrations that development the execution of the customer’s inclinations. From
the case study, we can actually see, The Industrial Systems Division of Texas
Instruments (TI) manufactured programmable controllers for the industrial automation
and factory control fields. Programmable controller technology had been applied to
virtually all United States industries and was a foundation of industrial automation in
the country. The same technology was also experiencing increased growth in the
European market.

On the other hand, Manufacturing Cycle time fabricating cycle time alludes to the

time required or went through to change over crude materials into wrapped
up products. It is additionally known as throughput time. Actually, it is the length of
time from the begin of generation to the conveyance of the ultimate items.

To optimize work flow, assets, and work time, supervisors degree the terms of
numerous distinctive forms and normal times per things. In a nutshell, talk
time breaks even with the time between beginning to work on one unit
and beginning another. Cycle time breaks even with the normal time it takes to wrap
up one unit.

There are differences of the ISD’s COQ systems and M&C’s systems.

● Industrial System Division:

i. Value Analysis: It clarify the variable beneath the examination, inside and
outside disappointment exercises, which comprise of non-esteem
included exercises.

ii. Client Value: Company provide client with a large quality of item that meet
client desire in perspective of quality of plan and quality of conformance.

iii. Quality Related Exertion: Distinguish quality related exertion and

insufficiencies and attempt to make strides it.

● Manufacturing Cycle Time:

i. Value Analysis: Classify value added and non-value added activities particularly.

Value: Something a customer is willing to pay to receive.

Value added activity:

● Adds value to a business process or product and for which customer is willing to
pay.

● Help is converting a product from a state of raw material to a finished product in

the least possible time, at minimum costs.

Non Value Added Activity:

● An activity where there is an opportunity for cost reduction without reducing the
products service potential to the customer.

● Prove to be a burden on the organization and affects its efficiency.

i. Client Value: Client will pay less since the company cut taken a cost based on
the end of non-value included exercises but client still get the value.

ii. Quality related exertion: Dispose of the non-value included activities such as
reworking processes.

Q.No.3:

WHY WAS COQ MEASUREMENT BECOMING LESS USEFUL TO ISD

MANAGEMENT?

Based on the case study, the COQ measurement become less useful to ISD
management because the ‘quality culture’ have changed. Before this, the management
only focus on result that happened past several months, now they should focus on the
production lines with the statistical process control. The management must pay
attention are on cycle time in the factory, on-time delivery and customer demands.
The management should improve it cycle time based on the customer demands and
deliver products on time.

Texas Instruments have nine variables (Cost of Quality Variables), all of this
variables were selected for measurement and management of business-wide quality
costs. Unfortunately, the COQ measurement becoming less useful to ISD
management and this could be the cost of poor quality, or in other words, the costs
associated with providing poor quality products or services. The potential costs of
poor quality go well beyond the actual cost of the product or service that has failed to
meet customer expectations. Quality related activities the costs may be divided into
the cost of prevention costs, valuation costs, also internal and external failures.

Based on the division’s controller, Sil Pena’s comments, “We should make sure that
we are spending our money on prevention and appraisal activities such as training and
inspection, rather than on failure costs such as warranties and returned products.”
From this statement, shows that Texas Instrument seem to be not concerned about the
prevention costs and appraisal costs. Referred to the Exhibit 4, there were not much
changes in prevention costs from year 1983 to year 1987. Prevention costs are
incurred to prevent or avoid quality problems. These costs are associated with the
design, implementation, and maintenance of the quality management system. Where
appraisal costs, cost that associated with measuring and monitoring activities related
to quality. These costs are associated with the suppliers’ and customers’ evaluation of
purchased materials, processes, products, and services to ensure that they conform to
specifications. We can see that these costs were reduced in year 1987.

Internal failure costs reduced in year 1987, internal failure costs are incurred to
remedy defects discovered before the product or service is delivered to their customer.
These costs occur when the results of work fail to reach design quality standards and
are detected before transferred to the customer. External failure costs are incurred to
remedy defects discovered by customers. These costs occur when they found out the
products or services fail to reach design quality standards are not detected until after
transfer to the customer. These costs raised from year 1983 to year 1987.

Q.No.4:

WHAT IS THE RELATIONSHIP BETWEEN COQ AND THE DIRECT

MEASURES OF QUALITY NOW BEING USED?

- Cost of quality is designed to highlight cost of poor quality and the cost of
doing things wrong. There are four categories of COQ:
i. Prevention Cost
ii. Appraisal Cost
iii. Internal Failure Cost
iv. External Failure Cost
The information from the COQ will allow the organization to determine the
potential savings to be gained by implementing process improvement
The quality tools are now statistical process control, the Taguchi method,
Ishikawa charts and nine variables.
● Taguchi method: An approach to engineering that emphasizes the roles of
research and development, product design and development in reducing the
occurrences of defects and failures in manufactured goods
● Ishikawa charts: A fishbone diagram, also called a cause and effect diagram or
Ishikawa diagram is a visualization tool for categorizing the potential causes
of a problem in order to identify its root causes. This diagram is useful in
product development and troubleshooting processes to focus conversation.
- The information from the COQ will allow the organization to determine the
potential savings to be gained by implementing process improvement
- The quality tools are now statistical process control, the Taguchi method,
Ishikawa charts and nine variables.
● Taguchi method: An approach to engineering that emphasizes the roles of
research and development, product design and development in reducing the
occurrences of defects and failures in manufactured goods
● Ishikawa charts: A fishbone diagram, also called a cause and effect diagram or
Ishikawa diagram is a visualization tool for categorizing the potential causes
of a problem in order to identify its root causes. This diagram is useful in
product development and troubleshooting processes to focus conversation.

Q.No.5:
SHOULD ISD REINSTATE COQ MEASUREMENT? IF SO, WHAT FORM
SHOULD IT TAKE?
Yes, ISD should reinstate the COQ measurement since it gives useful information and
important for them to improve their quality of product and culture. Reinstating COQ
measurement also help them to use COQ more effectively and better understanding to
avoid failure happen again during first attempt in implementing it.

The reinstating form should be prioritized on prevention since it is the highest

percentage in 1987, the testing cost for new product should be reduced through better
product planning and design before the product is made. Next, quality engineering
with new suppliers by trying not to find more new suppliers for unnecessary purposes
and try to stick with available suppliers for the company.

Other cost also needs to be taken in consideration, such as external failure when
technical services cost occurs because of the defective product received by customer
need to be reduced and avoided through testing the product before the delivery to
make sure only good products sent to them.

Internal failure that arise from high personnel turnover, reduced by strict recruiting
requirement to ensure only highly desirable and motivated people hired. Then,
monitor and evaluate the performance of suppliers that provides materials and
performance of workers to prevent manufacturing rework.

Last but not least, appraisal cost that include in sampling of product such as
inspection and product testing need to be done as same as the purpose of testing it.
Thus, they will not overstate the cost with the benefits received through the appraisal
cost.