1lp of lceberg

CCnC / CCC
1rad|t|ona| Cost of oor ua||ty
roblems wlLh CCC MeasuremenL
W Lack of obvlous and rellable meLhod of
measuremenL
W ALLlLude CuallLy professlonal Lhlnk lL ls
lrrelevanL or desLrucLlve
W llnanclal accounLlng sysLem does noL have
caLegory llke CCC
W Lack of ManagemenL lnLeresL
W 8ellef LhaL CCC ls paperwork
W no knowledge on how Lo Lrack cosL
An overslmpllfled deflnlLlon of CCC
W 1he cosLs assoclaLed wlLh avoldlng flndlng
maklng and repalrlng defecLs and errors
(assumlng LhaL all defecLs and errors are
deLecLed)
W CosLofquallLy represenLs Lhe dlfference
beLween Lhe acLual cosLs and whaL Lhe
reduced cosL would be lf Lhere were no
subsLandard servlce levels fallures or defecLs
CCC
W CosLs LhaL could dlsappear lf all processes
were errorfree and lf all producLs and servlces
were defecLfree
ComponenLs of CCC
rrorfree costs
W CosLs unrelaLed Lo plannlng of conLrolllng of
correcLlng of or lmprovlng of quallLy 1hese
are Lhe dldlLrlghLLheflrsLLlme (nlcknamed
dlrLfooL") cosLs
CC
W cosLs LhaL could dlsappear lf all processes
were errorfree and lf all producLs and servlces
were defecLfree CCC can be subcaLegorlzed
as
costs of coofotmooce
costs of ooocoofotmooce
costs of coofotmooce
W 1he cosLs relaLed Lo prevenLlon and predlcLlve
appralsal Lo meeL requlremenLs
costs of ooocoofotmooce
W 1he cosLs relaLed Lo lnLernal or exLernal
fallure lncludlng deLecLlve appralsal work
from noL meeLlng requlremenLs 1he
dlsLlncLlon beLween lnLernal versus exLernal ls
LhaL lnLernal fallure cosLs are deLecLed prlor Lo
Lhe shlpmenL or recelpL of servlce by Lhe
cusLomer ln conLrasL exLernal fallure cosLs
resulL usually from dlscovery by a cusLomer
CLher
W 1here are oLher quallLyrelaLed cosLs deplcLed
ln Lhe ouLer levels LhaL are somewhaL more
dlfflculL Lo measure buL may be relevanL ln
declslon analysls 1hese addlLlonal concenLrlc
rlngs of cosLs are supply chalnrelaLed
ostponed prof|ts (current)
W roflLs LhaL could noL be formally recognlzed
durlng a speclflc flnanclal accounLlng perlod
because Lhe goods and servlces dld noL saLlsfy
all of Lhe cusLomers requlremenLs 1he
lmpacL ls deferred cash lnflow
ost prof|ts (permanent)
W 1he sales and proflL opporLunlLy permanenLly
losL when a cusLomer elecLs Lo swlLch Lo a
compeLlLor or subsLlLuLe or no longer
purchase due Lo a bad experlence
Customer |ncurred costs
W All of a cusLomer's CCC (plus posLponed and losL
proflLs from Lhe cusLomers cusLomers) caused by
Lhe suppllers nonconformance
W Lxamples lnclude Lhe cusLomers own rework lLs
equlpmenL repalr or lLs Larnlshed name due Lo
reduced servlce levels Some people may argue
LhaL an addlLlonal level of socloeconomlc cosLs
exlsLs where Lhe publlc and communlLy are
affecLed such as when an oll splll or polluLlon
occur
AcLlvlLy 8ased
CosL ManagemenL (A8CM)
A beauLlful world wlLhouL CCC
W Llfe would be nlce ln an errorfree world and
an organlzaLlon's overall cosLs would be
subsLanLlally lower relaLlve Lo where Lhey are
Loday 8uL all organlzaLlons wlll always make
mlsLakes and errors 1hey wlll always
experlence some level of errors Powever Lhe
goal ls Lo manage mlsLakes and Lhelr lmpacL
Jhy CCC?
W CosLquallLy serves Lo communlcaLe facLbased
daLaln Lerms of moneyLo enable focuslng
and prlorlLlzlng Lo manage mlsLakes
A uanger
W A danger exlsLs lf only a fracLlon of Lhe quallLy
relaLed cosLs are measured and Lhelr amounL
ls represenLed as Lhe LoLal quallLy cosLs
W CrganlzaLlons LhaL hlde Lhelr compleLe CCC
from Lhemselves conLlnue Lo rlsk decelvlng
Lhemselves wlLh an llluslon LhaL Lhey have
effecLlve managemenL
enef|ts from Inc|ud|ng 1ota| pend|tures
When Measur|ng ua||ty
1 keduces debate
2 Increases emp|oyee focus
3 Integrates w|th the same data used |n the
boardroom
Dslng CCC for 8enchmarklng
W Jhen an organlzaLlon has good cosLlng Lhen
lL can use calculaLed cosLs such as Lhe cosL
per processed lnvolce as a basls for
comparlson
W ln shorL Lhe olt cost pet eocb otpt of wotk
ls compteJ and Lhen Lhls daLa ls usable for
beocbmotkloq eltbet lotetoolly ot wltb otbet
otqoolzotloos
1yplcal Lxamples of CosL of CuallLy
ComponenLs
Lxample of Appralsal CosL
W 1esLlng producLs or checklng documenLs before
provldlng Lhem Lo cusLomers
W 8evlewlng documenLs and correcLlng errors
before malllng
W lnspecLlng equlpmenL or supplles
W roofreadlng reporLs or correspondence
W AudlLlng cusLomer bllls prlor Lo sendlng lnvolces
W 8eLoollng due Lo poor deslgn
Lxamples of lnLernal lallure CosL
W 8eplaclng parL / equlpmenL before age
W 8eplaclng parL / equlpmenL LhaL do noL meeL speclflcaLlons
W Dnscheduled malnLenance acLlvlLles
W 8eplaclng componenLs damaged when belng moved from
one sLaLlon Lo anoLher
W Jorklng overLlme Lo make up for sllppage
W Any klnd of 8ework cosL
W CorrecLlng daLabase errors
W SLocklng exLra parLs Lo replace defecLlve componenLs
W Scrapplng producLs LhaL do noL meeL speclflcaLlon
W Lnglneerlng change noLlces Lo correcL errors ln
speclflcaLlons or drawlngs
Lxamples of LxLernal lallure CosL
W lnvesLlgaLlng complalnLs
W CffseLLlng cusLomer dlssaLlsfacLlon wlLh a recovery sLraLegy
W JarranLy CosL
W LaLe uellvery CosL
W CollecLlng bad debLs
W CorrecLlng bllllng errors
W rocesslng complalnLs
W LxpedlLlng laLe shlpmenLs by purchaslng more expenslve means of
LransporLaLlon
W 8eplaclng or repalrlng damaged or losL goods
W aylng lnLeresL or loslng dlscounLs for laLe paymenLs Lo vendors
W rovldlng credlLs and allowances Lo cllenLs for lack of performance
or laLe dellverles
uant|fy|ng Mach|nery Ava||ab|||ty
oss
W CrganlzaLlons ofLen lnlLlally focus only on
reduclng scheduled downLlme lnsLead Lhey
should focus on quanLlfylng Lhe flnanclal
lmpacL of unscheduled losses
lour ma[or sLeps ln measurlng Lhe
cosLs of poor quallLy
1 ldenLlfy acLlvlLles resulLlng from poor quallLy
2 ueclde how Lo esLlmaLe cosLs
3 CollecL daLa and esLlmaLe cosLs
4 Analyze resulLs and declde on Lhe nexL sLeps
3 ldenLlfy lmprovemenL ro[ecLs based on CosL analysls
6 1raln 1eam on lmprovemenL MeLhodology
7 Asslgn pro[ecLs Lo Leam
8 repare ro[ecL CharLer
9 Dse uMAlC Lo for lmprovemenL ro[ecL
10 MonlLor ro[ecLs
11 LvaluaLe resulLs and Lake nexL pro[ecLs
colclotloq
W AccounLlng caLegorles
W 1lme reporLlng
W CLher sources
W DnlL cosL
W CosL of poor quallLy (cosL of LoLal resources ln a
caLegory) x (percenLage of resources ln caLegory
used for acLlvlLles relaLed Lo poor quallLy)
W A flowcharL showlng varlous rework loops
assoclaLed wlLh a deflclency can ofLen help
ldenLlfy all lmporLanL resources used
CollecL daLa and esLlmaLe cosLs
W lormulaLe quesLlons Lo be answered
W know how daLa wlll be used and analyzed
W ueLermlne where daLa wlll be collecLed
W ueclde who wlll collecL lL
W DndersLand daLa collecLors' needs
W ueslgn a slmple daLa collecLlon form
W repare clear lnsLrucLlons
W 1esL forms and procedures
W 1raln daLa collecLors
W AudlL resulLs
W A rule of Lhumb ls LhaL Lhe nearer Lhe fallure ls
Lo Lhe enduser Lhe more expenslve lL ls Lo
correcL