Thursday, November 1, 2012

Motivating Workers Through Quality Costs

After spending a considerable amount of time at an organization with very strict policies in regards to safety and quality, I was better able to understand how costs can be used not only to gauge quality, but it is also a powerful tool to motivate employees.    Costs are everywhere in the process.  There are costs for labor, prevention, costs for equipment failures, costs for raw materials, etc.  This list could go down to the floor, or it could be as simple as two or three costs. I found a direct correlation with these costs and customer quality. I observed that if mistakes were made that directly affected the price that the final product costs to produce, the managers were notified and the problems were pinpointed and corrected.  These costs were a good way to set a standard of quality and monitor the entire system.  If the costs to produce the product and get it out the door outreached the standard cost set up by the management when they signed the contract, this was a considered a quality failure.  
After observing this strict management tactic, it made it more to clear to me that everyone involved in this small-mid-sized company was already aware of the costs and the values of the final product.  If scrap was run, the individual who ran the material was penalized.  On the contrary, if the worker buys into the cost of quality philosophy and builds his/her awareness, he was rewarded with gainsharing based upon quality production rates.  By setting up this golden line of quality throughout the facility, it motivated the employees and gave them the responsibility as both the labor worker as well as a quality inspector.  A great way to reduce labor related wastes.  Being both accountable for customer quality, as well as  consistant production levels allowed these employees to set obtainable goals for themselves.  It made their job more realevent to the big picture.
For the company that I spent my time at, this tactic opened my eyes to the importance of quality, not only to the customer, but to the workers of the organization.  In conclusion, it is important to find these golden standards of quality by getting out to the floor, estimating costs, and interacting with production workers.  Setting this golden standard for cost of quality is ideal for any organization trying to unite its workforce, eliminate wastes, and provide the customer a quality product each and every time.

Cost of Quality

            When companies manufacture consumer products, they are creating more than just a product. The product is a representation of the company as a whole. It is a companies’ reputation. That being said, it is obvious as to why a company would implement a process to ensure a quality product is produced. This is when the concept of Cost of Quality comes into play. The cost of quality metric compares the costs of making sure a product is sufficient to the costs incurred for a poor product. CoQ says that it is beneficial for a company to spend a short time ensuring the quality of a product; rather than produce a poor product that causes internal and external costs that will result in a larger cost.
            It is clear that creating a quality product greatly benefits a company. However, on rare occurrences, companies may actually spend too much time focusing on quality. I am reminded of a quality issue that I encountered during my co-op in which too much time was spent on quality. It was during my time studies that this specific problem arose. In a production cell with two stations and a final quality station, the touch times at each station were the same. However, the quality station was double the time of the previous two which resulted in a significant bottleneck. My boss informed me that the quality station could not be changed because it was a specific checklist sent from the customer. I brought up the fact that if the line could be balanced, the unit production would have increased by roughly 30% per shift. He simply said, “If the customer wants to pay for the long checklist, let them”. This is a perfect example of how a company can spend too much time on quality.
 While there may have been a reason the customer wanted a detailed checklist, the checklist was not made with a fast-paced environment in mind. In the environment the checklist was used, a written explanation for the checklist was a very inefficient method. A wiser, faster solution, which would not affect the quality of the product would have been to have an image checklist.
-MD 11/1/12

The cost of quality through online reviews

In an economy as tough as ours, it is important that companies produce nothing but quality products. Not just to ensure the safety of the users, but to keep the customers coming back.  This "slump" in our economy has brought on a certain level of frugal spending by us, the consumers. Therefore, if we buy a product or item from a certain company, and it fails to operate correctly, we get upset and immediately want a refund.  In addition to that, we often times take our business elsewhere.  Thanks to the internet, we can also post blogs and reviews about the product, so others can see what we experienced, and prevent them from having the same discomfort that we did.  This in turn, can often times cause other possible consumers to be awry of purchasing the same product. This can be a huge hit for companies who rely heavily on the internet for purchasing.
 Because so many companies, like amazon for example, rely on the internet for their sales, the reviews are right on the site for all to see. These are the intangible, hidden costs that can have a huge impact on a company and their sales.  I for one, have used these online reviews for not only posting about products or services I have purchased, but to do research on items I am thinking about buying. With the exceptional quality that most companies have these days, the majority of the time the reviews are positive. But, occasionally things fail and people write their poor reviews on the product.  How much impact this has is unknown, but generally speaking, most reviews are positive.  This is a time where it is impossible to put a number value on any losses that may be incurred by the company. 

Intangible Costs

In class, when discussing quality costs, we broke it down into the following types of costs; preventative, internal failure, external failure, audit, and intangible.  I will focus mainly on the intangible costs, or the costs that are very grey because they are hard to quantify.  Intangible costs can be caused by lack of consumer confidence because of a major failure in a product or service.  The lack of confidence will reduce the number of buyers as well as temporarily ruin a reputation (as BP and Toyota have recovered fairly well from the oil spill and brake issue, respectively), but what is the average time for a company to recover?  Does it take longer for a smaller company to recover their image than a larger company?  To answer these, one would have to do case studies over many of these companies focusing on the balance sheets made public by these companies.  They’d have to look at the revenue before and after the incident, and plot it graphically.  Another way to look at it would be through stocks.  Stocks would be a great indicator of consumer trust with a company, and play into intangible costs.  The biggest limitation with these options is that they are only available for publicly traded companies.  Another problem is that the intangible costs can only be analyzed post incident, assuming the company recovers fully.  The easiest way to overcome this problem of intangible costs would be to avoid it poor quality to start, focusing more on continuously improving the process.


Quality: How Far is Too Far?

Producing a “Quality Product” is an idea that can be debated for hours.  A company can spend endless amounts of money to ensure a quality product; knowing what extents to go to ensure that quality is the million dollar question though.  To me, quality is something that needs to be looked at on a case-by-case basis; one cannot assume every product requires the same level of quality.

For example, imagine you are a company producing medical beds for hospitals.  Parts of the bed, like the legs, need particular care in terms of quality.  They must have a tight tolerance in terms of length, so a patient won’t roll out because of a slant.  They also need to be strong enough to hold even the heaviest of patients.  A failure in that regard could be fatal.  Extensive testing quality checking is vital to ensure that these parts are of the highest quality possible.

Now consider a logger chopping firewood.  What exactly is a quality piece of wood? From experience, I can say that for the most part if it burns, it is a quality piece of firewood.  The money and effort spent on quality should be exponentially less than that of the hospital beds.  Is it necessary to have an employee measure the length and circumference of every piece of firewood down to the thousandth of an inch? Absolutely not.

What I’m getting at is, the customer/intended use of the product is what really gauges the level of quality system needed by the producer.  People commonly talk of the negatives of under-monitoring the quality of a product.  What isn’t often mentioned is that over-spending on quality is expensive and can sink a company.  Finding that happy medium is what’s important if a successful, long-lasting business is desired.

Importance of Safety Over Quality

Though talking to other engineers that I have known it seems to me that engineers focus more on satisfying the customer more than the safety of the customer. This idea to meet deadlines and to deliver a product faster, better, and with better quality neglects but safety seems to be not included in the part of quality. Is this a result of laziness or just a result that money and time limits are more important than the well being of the user?
Shouldn't safety be an important part of the whole process of a quality product? Isn't it amazing that companies have to do recalls for certain products. It seems to me that the product didn't seem to take customers safety into effect. The company instead focused on the quality but not the safety of the product. It seems that safety should be the number one concern in design of the product. If safe along with quality the company doesn't lose on internal and external costs.  Not only that the company losses legally.
The risk of not having a safe product seems to not outweigh the reward. Even though the product is out fast has good quality if the product has any safety risk the company could lose more money then would be made. First, a company could have to recall the product that was created and fix the design flaw. Second if the product harms a customer the company could have a lawsuit filed against them. Through having to fix the problem and deal with all the internal and external cost alone the company will lose money. These problems along with the possible money lost in the lawsuit don’t add up for the little money that could be saved from making a product with great quality and safety. An alternate option to would be to add a warning label to identify the hazard that could happen with the product. These are important things that cost companies lots of money.  The well being of the customer seems to be put behind in design and manufacturing of a product most of the time. Instead, shouldn't the well being and safety of the customer be put first instead of just quality of the product? 

Wednesday, October 31, 2012

Importance of Cost of Quality

Importance of Containing Quality Cost
            I wanted to provide a blog that is a quick overview explaining the cost of quality’s importance in small businesses. Also, I found that small businesses have to look at more than the standard four categories that bigger companies focus on:
            Cost of Quality is an important business practice. By knowing your Quality Costs it can help business’s find and correct problems and the costs to attain quality. Quality is nearly 20-40 percent of a company’s sale. The basic model of quality costs are divided into four categories, but it is equally important to include hidden costs that may affect quality. A small business should frequently revisit and restructure their quality control process to uncover opportunities for improvement.
            Internal Failure Costs are associated with product failures and defects discovered before the product leaves the company floor. These defects in products occur when the process does not meet a certain specification or requirement.
            External Failure Costs are incurred during customer use and can include defective products, warranty charges, customer complaints, replacement products, recalls, and repairs. External costs are the most apparent. It is important for small businesses to quantify their external costs.
            Appraisal Costs are those associated with actions designed to find quality problems with measuring, evaluating, inspecting, testing and auditing products and product materials to ensure they adhere to the quality standards and performance requirements of a business.
            Prevention Costs are the most important quality cost investment. Prevention costs keep product failure costs to a minimum. Eliminating defects before production begins reduces the costs of quality and can help companies increase profits.  
            Hidden Costs account for the cost of quality in small businesses. It is imperative for small businesses to understand the hidden quality costs such as loss of sales and customer service. Many businesses include warranties in their quality costs, but they often underestimate the full financial impact if the product fails after the warranty expires. Many times the customer incurs the cost of replacing a failed product, the experience may discourage the customer from purchasing from that company again, resulting in loss of sales.

Tuesday, October 30, 2012

Costs of Quality

When describing the costs associated with providing a quality product or service there a few terms that can be used; these are cost of quality, poor-quality cost, and cost of poor quality.  The cost of quality is the cost of waste which is the price of non-conformance.  In other words it is the money that you waste by not doing it right the first time.  According to Dr. Donna C.S. Summers’ book “Quality Fifth Edition” there are four categories of costs.  These costs are internal failure costs, external failure costs, appraisal costs, and prevention costs.

Internal failure costs are those associated with defects found before the customer receives the product or service.  Internal failures are also considered the costs associated with product non-conformities or service failures found before the product is shipped or the service is provided to the customer.

External failure costs are those associated with defects found after the customer receives the product or service.  External failures are also considered the costs that occur when a nonconforming product or service reaches the customer.

Appraisal costs are those incurred to determine the degree of conformance to quality requirements.  Appraisal costs are also considered the costs associated with measuring, evaluating, or auditing products or services to make sure that they conform to specifications or requirements.

Prevention costs are those incurred to keep failure and appraisal costs to a minimum.  Prevention costs are also considered the money that you invest to enable you to do it right the first time.  Those costs that occur when a company is performing activities designed to prevent poor quality in products or services.


Quality Costs

I believe that there has been a recent shift to the importance of quality. Many companies are focusing their efforts and money towards the quality department. The shift to quality means that companies need to have a better understanding of the associated costs. When I think about the cost of quality I break it down into two parts: the costs to prevent quality issues from happening and the costs acquired when things don’t meet quality standards. Things like the cost of return shipping, warranty claims, retesting, redesign and rework would go into the first category; while, things like preventive measures, quality planning, supplier evaluation, and product review/testing costs would go into the second.
Through the exercise done in class, it was made apparent that the cost of return shipping and rework is quite hefty. I would suggest lowering the costs acquired when products don’t meet quality standards and increase the funds that go toward quality planning, appraisal and preventative measures. By increasing the efforts to prevent non-quality products, there will be less of chance that quality issues will be encountered by the customer decreasing the costs for failures. The extra funds available by not having to pay out for failures can be used to further enhance preventative and appraisal efforts.
 If companies are serious about maintaining customers and having a great reputation while lowering their overall costs, they will explore and invest in their quality departments. Having a positive mindset and implementing a method similar to my suggestion above, they can increase quality and use the dollars they would have spent on failures to further the company and the quality department.


The Lengths Gone to Reach Quality

      I have worked with several different companies and it has seemed like at each of them, both the quality and satisfaction of the customers has been important, but the levels that each went to to reach the quality and satisfaction were different.  Some would even add waste; for example, in order to make an "upgrade" easier, (for both the customer and the company) a single upgrade package was used.  It had extra components for each of the different versions of the products rather than either designing a "difficult to use" universal upgrade, or trusting that that the customers would correctly ask for the right version of the upgrade kits. It didn't make too much sense to me because I figured that there should have been a better way, and that the solution used was essentially "giving up" on finding or reaching the ideal scenario.  With this, I'm torn about whether it really was a "cost of quality" as they suggested, or if it was just a case where dumping all the components into one package was just to make it easier for the company to manage.  What are your thoughts?
     Stepping aside from that issue; I always like to consider the phrase "the customer is always right" when thinking about the cost of quality. I know that you want to satisfy your customer as much as possible, but there are cases where the customer would attempt to take advantage of the "courtesy" or policies of a business.  Take for example a fast food restaurant, if they forget to give you an item, and you ask them to "replace" it, they generally will take care of it without question.  I understand that this case is on a small scale in terms of costs, so here's another larger example; Target accepts all returns, every time, no matter what.  This is a great policy for worried customers, but it would also seem (forgive the coming play on words), to put a "target" on Target from shoplifters, so where do you draw the line between 100% quality service and satisfaction versus protecting yourself from loosing profits?  Can you really define that line?  Is having that distinct point even necessary?  These are just some of the thoughts and questions that pop into my head, if you have any thoughts or other similar questions, please comment to start an open debate!