Cost of Poor Quality

& Employee
Involvement
BPF2123 Quality Management System
Chapter Outline
Cost of Poor Quality
1. Defining Quality Costs
2. Types of Quality Costs
Prevention Costs
Appraisal Costs
Failure Costs
Intangible Costs

Employee Involvement
1. Teams and Motivation
2. Employee Surveys
3. Empowerment
4. Recognition and Reward
Lesson Outcomes
Understanding of how quality costs can be
used in decision making
Identify the interrelationships between and
among the different types of quality costs
Explain the utilization of employee
involvement to achieve process
improvement
Cost of Poor Quality
What are quality costs?
The cost that would disappear if every activity was
performed without defects every time.

Benefits if products / processes

are defect free : Lead to:
1. Lower total cost
1. Faster cycle times
2. More competitive
2. Decreased production costs
pricing
3. Lower warranty costs 3. Higher company
4. Less wasted material revenue
5. Reduced scrap / rework costs
Defining Quality Costs
A quality cost is considered to be any cost that a
company incurs in order to ensure that the
quality of the product or service is perfect.

Quality costs are the portion of the operating

costs brought about by providing a product or
service that does not conform to performance
standards.

Quality costs are also the costs associated with

the prevention of poor quality.
Iceberg of Quality Costs
Examples of Quality Costs
Redesigning a faulty component that never worked
right
Reworking a shock absorber after it was completely
manufactured
Retesting a computer chip that was tested incorrectly
Repurchasing because of nonconforming materials
Replacing a shirt the dry cleaner lost
Returning a meal to the kitchen because the meat
was overcooked
Retrieving lost baggage
Responding to a customers complaint
Types of Quality Costs
PREVENTION COSTS
Those cost that occur when a company is performing
activities designed to prevent poor quality in products or
service.
Examples:

Design reviews
Education and training
Supplier selection and capability reviews
Process capability reviews
Prevention efforts try to determine the root causes of
problems and eliminate them at the source so
reoccurrences do not happen.
Types of Quality Costs (cont.)

APPRAISAL COSTS
The cost associated with measuring, evaluating or
auditing products / services to make sure that they
conform to specifications or requirements.

Examples:
Incoming, WIP and final inspection or testing
Material reviews
Calibration of measuring or testing equipment

Appraisalactivities are necessary in an environment

where product, process or service problems are found.
Types of Quality Costs (cont.)
FAILURE COSTS
Occur when the completed product or service does not conform
to customer requirements. 2 types exist :

Internal

Those cost associated with product nonconformities or

service failures found before the product is shipped or the
service is provided to the customer.
Examples : scrap, rework, retesting, remaking

External
The cost that occur when a nonconforming product or service
reaches the customer.
Examples : customer returns and complaints, warranty claims,
product recalls greatest impact on the corporate pocketbook
Types of Quality Costs (cont.)

INTANGIBLE COSTS
The hidden costs associated with providing a
nonconforming product or service to a customer, involve
the companys image.

Examples:
Cost of missing an important deadline (schedule
delays)

Difficult to identify and quantify

Can be three or four times as great as the tangible costs
of quality
Must not be overlooked or disregarded
Quality Costs
Total Quality Costs =
Prevention costs + Appraisal costs + Failure costs +
Intangible costs

Once quantified, quality costs enhance decision making

if they are used to determine which projects will allow for
the greatest return on investment and which projects are
most effective at lowering failure and appraisal quality
costs.

Qualitycosts information should be used to guide

improvement.
Employee Involvement
Is an approach to improving quality and productivity
Knowledge of motivation helps to understand the utilization of
employee involvement to achieve process improvement.
Most popular motivational theories was developed by Abraham
Maslow

Given the opportunity

to go as far as their
abilities
Pride and self-worth

Be part of the group

Safe place to work, job

security
Proper lighting, air
conditioning
Motivation
Concepts to achieve a motivated work force are as
follows (can be used at all managerial levels of the
organization):
1. Know thyself
2. Know your employees
3. Establish a positive attitude
4. Share the goals
5. Monitor progress
6. Develop interesting work job rotation, job
enlargement, job enrichment
7. Communicate effectively
8. Celebrate success
Employee Surveys
Ithelp managers assess the current state of employee
relations, identify trends, measure the effectiveness of
program implementation, identify needed improvements
and increase effectiveness.
Steps in conducting employee surveys:
1. Create multifunctional team
2. Develop the survey instrument
3. Administer the survey
4. Results are compiled and analyzed
Report is shared with the entire organization
A mechanism for input of reactions and suggestions
5. Determine areas for improvement
Empowerment
Operational Definition:
Empowerment is an environment in which people have the
ability, the confidence and the commitment to take the
responsibility and ownership to improve the process and initiate
the necessary steps to satisfy customer requirements within well-
defined boundaries in order to achieve organizational values and
goals

Employee empowerment requires that the individual is held

responsible for accomplishing a whole task.
To create empowered environment:
1. Everyone must understand the need for change
2. The system needs to change to the new paradigm
3. The organization must enable its employees providing
information, education and skill
Teams
Employee involvement is optimized by the use of teams
A team is defined as a group of people working together
to achieve common objectives or goals
Why Teams Work

1. Each member of the team has special abilities that

can be used to solve problems
2. Interaction within the team produces results that
exceed the contributions of each member
3. Team members develop a rapport with each other
that allows them to do a better job
4. Teams provide the vehicle for improved
communication
Teams (cont.)
Types of Teams
Process improvement team activity is limited to the work unit
Cross-functional team eg.: QCC (Quality Control Circle)
Natural work teams
Self-directed / self-managed work teams

Characteristics of Successful Teams

Training
Clear objectives
Well-defined decision procedures
Trust
Appropriate leadership
Balanced participation
Cohesiveness
Recognition and Reward
Recognition is a form of employee motivation in which the
organization publicly acknowledges the positive
contributions an individual or team has made to the
success of the organization.
Eg. : verbal and written praise, plaques, certificates

Reward is something tangible such as theater tickets,

dinner, cash award, vacation trip to promote desirable
behavior

R&R go together to form a system for letting people know

they are valuable members of the organization.
Gain sharing is also an excellent motivational tool that
improves quality, productivity and of course the bottom line.
Benefits of Employee
Involvement
Employee involvement improves quality and increase
productivity, because:
Make better decisions using their expert knowledge of
the process
More likely to implement and support decisions they
had a part in making
Able to spot and pinpoint areas for improvement
Able to take immediate corrective action
Increases morale by creating a feeling of belonging to
the organization
Able to accept change because they control the working
environment.