Lean Six Sigma Manufacturing Systems

ISE 354

Dr. Sameh Ahmed Salah

October University for Modern Science and Technology
Faculty of Engineering
Industrial Engineering
COSTS OF QUALITY
 COSTS OF QUALITY
Categories of Quality Costs

1. The first category consists of costs necessary for achieving

high quality, which are called quality control costs. These are
of two types: prevention costs and appraisal costs.
2. The second category consists of the cost consequences of
poor quality, which are called quality failure costs. These
include external failure costs and internal failure costs.
 COSTS OF QUALITY
Quality costs
 COSTS OF QUALITY
Quality costs

A. Prevention costs are all costs incurred in the process of

preventing poor quality from occurring.
1. Quality planning costs, such as the costs of developing and
implementing a quality plan.
2. Costs of product and process design, from collecting customer
information to designing processes that achieve conformance
to specifications.
3. Employee training in quality measurement.
4. Costs of records of information and data related to quality.
 COSTS OF QUALITY
Quality costs

B. Appraisal costs are incurred in the process of uncovering

defects. They include:
1. cost of quality inspections, product testing, and performing
audits to make sure that quality standards are being met.
2. Costs of worker time spent measuring quality.
3. Cost of equipment used for quality appraisal.
 COSTS OF QUALITY
Quality costs

C. Internal failure costs are associated with discovering poor

product quality before the product reaches the customer site:
1. rework, which is the cost of correcting the defective item.
Scrap costs include all the material, labor, and machine cost
spent in producing the defective product.
2. Other types of internal failure costs include the cost of machine
downtime due to failures in the process and the costs of
discounting defective items for salvage value.
 COSTS OF QUALITY
Quality costs

D. External failure costs:

are associated with quality problems that occur at the customer
site. These costs can be particularly damaging because
customer faith and loyalty can be difficult to regain:
1. They include everything from customer complaints, product
returns, and repairs, to warranty claims, recalls, and even
litigation costs resulting from product liability issues.
2. A final component of this cost is lost sales and lost customers.
EXAMPLES OF QUALITY COSTS
Prevention costs Appraisal Costs

Quality engineering Inspection of raw materials

Quality training programs Testing of raw materials
Quality planning Packaging inspection
Quality reporting Supervising appraisal activities
Supplier evaluation and selection Product acceptance
Quality audits Process acceptance
Quality circles Inspection of equipment
Field trials Test equipment
Design reviews Outside endorsements
EXAMPLES OF QUALITY COSTS

Internal failure costs External failure costs

Scrap Cost of recalls
Rework Lost sales
Downtime (defect related) Returns/allowances
Re-inspection Warranties
Retesting Repairs
Design changes Product liability
Customer dissatisfaction
Lost market share
Complaint adjustment
HIDDEN COSTS OF POOR QUALITY

Reprocessing
Customer returns
Rejects
Warranty expenses

Lost sales Loss of goodwill

Overtime to correct errors
Process downtime
Extra inventory Delays

Premium freight costs Extra process capacity

Extra inventory
 COSTS OF QUALITY
Quality costs
OPPORTUNITY TO REDUCE REAL COSTS
Understand quality costs enables us to:

• Understand hidden costs.

• Reduce and eliminate unnecessary cost.

• Prevent problems from happening.

• Quality costs are real and estimated at:

* 25% of costs in manufacturing.

* 35% of costs in service industry.

 Preventing Poor Quality Pays

Prevention Costs

Benefit
Appraisal Costs

$ Repair Costs Prevention Costs

Failure Costs Appraisal Costs

Internal• Repair Costs
External• Failure Costs

Before Quality After Quality

Cost Alignment Cost Alignment
 COSTS OF QUALITY
Quality costs

Cost
REPORTING QUALITY COSTS
Prevention costs: Quality Costs % of Sales
Quality training $35,000
Reliability engineering 80,000 $115,000 4.11%
Appraisal costs:
Materials inspection $20,000
Product acceptance 10,000
Process acceptance 38,000 68,000 2.43%
Internal failure costs:
Scrap $50,000
Rework 35,000 85,000 3.04 %
External failure costs:
Customer complaints $25,000
Warranty 25,000
Repair 15,000 65,000 2.32%
Total quality costs $333,000 11.90%
======= =====
REPORTING QUALITY COSTS
Prevention costs Appraisal costs
Internal failure costs External failure costs

19.5%

25.5%

34.5%

20.5%
AQL QUALITY COST GRAPH

Cost of Failures
Cost

Cost of Control

0 100%
Optional (AQL)
Percent Defects
 ZERO-DEFECT GRAPH
Total
Cost Quality
Cost

0 Percent Defects 100%

MULTIPLE-PERIOD QUALITY COSTS

Assume the following data:

Quality Costs Actual Sales % of Sales

2001 $440,000 $2,200,000 20.0

2002 423,000 2,350,000 18.0

2003 412,500 2,750,000 15.0

2004 392,000 2,800,000 14.0

2005 280,000 2,800,000 05.0

MULTIPLE-PERIOD TREND GRAPH:
TOTAL QUALITY COSTS
% of
Sales

20

15

10

0 1 2 3 4 5
Year
MULTIPLE-PERIOD TOTAL QUALITY COSTS

Total Quality Costs as a % of Sales

25
Column 2
20
%of Sales
15

10

0
2001 2002 2003 2004 2005
 COSTS OF QUALITY
Benefits of Quality costs analysis

1. The TQM goal is to reach minimum quality costs at the desired

outgoing quality level by zero defect strategy.
2. Quality costs data is used by the management to make
decisions that will impact the quality costs.
3. Quality costs provide comparative measurements for
evaluating quality programs.
4. Quality costs determine how the available resources.
 COSTS OF QUALITY
Benefits of Quality costs analysis

5. Quality costs can also be used to evaluate and assure

performance in relation to the goals and objectives of the

organization.

6. Understand quality costs enables you to Understand hidden

costs.

7. Reduce and eliminate unnecessary cost.

8. Prevent problems from happening.

QUALITY FUNCTION DEPLOYMENT
 QUALITY FUNCTION DEPLOYMENT
Definition of Quality Function Deployment

• Quality Function Deployment is a customer-oriented approach

to product and service innovation.
• It guides managers through the creation, and realization of
new products and services.
• The QFD process encourages to gain an in-depth
understanding of the requirements of the customers needs and
wants thus enabling you to prioritize the features/benefits of
the product/service to these requirements.
 QUALITY FUNCTION DEPLOYMENT
Basic concepts of Quality Function Deployment

• The QFD process starts by:

listing customer requirements, in the customer language,
and systematically translates these requirements into
appropriate ‘design’ characteristics and measures.
• The methodology includes the use of “a set of planning and
communication routines that focuses and co-ordinates skills
within an organization.
• QFD helps you identify objectives that reflect the needs of real
customers.
 QUALITY FUNCTION DEPLOYMENT
Basic concepts of Quality Function Deployment

• QFD Identifying objectives from a customer point of view and

ensures that customer value is created in the phases of the
innovation process.
• QFD embodies an evolutionary approach to product/service
innovation: by carefully evaluating, from market and customer
perspectives.
• QFD is a method for continuous improvement, emphasizing
the impact of innovation on organizational learning.
 QUALITY FUNCTION DEPLOYMENT
Objectives of Quality Function Deployment

• Focus on the customer.

• Reduce time-to-market.
• Reduce cost.
• Manage information.
• Improve marketing and development collaboration.
• Improve organizational learning.
 QUALITY FUNCTION DEPLOYMENT
Types of Requirements of the Customer
• To satisfy customers, we must understand how meeting their
requirements and effects satisfaction. There are three types of
customer requirements to consider
 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD

1. QFD is designed to be a multidisciplinary team activity. The

following conditions, steps, and suggestions will increase the
success of the QFD project:
2. Management assignment.
3. Organizing for QFD.
4. QFD Project start-up.
 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD
5. QFD team meeting :
Key questions:
- which products are we going to improve?
- Do we focus on a specific characteristic of the product?
- For what market or segment are we aiming .
- Who is our customers?
- What are the planning and time frames of the project?
- How does the QFD study fit into product planning?
- Which competing products will be used as a reference for
product evaluation?
 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD
6. Planning the QFD-project.
7. Establish a routine for team meetings.
8. Building the House of Quality:
• Step 1: List the Customer Requirements.
• Step 2: Rate / Rank each attribute.
• Step 3: Benchmark the performance of the current product.
• Step 4: Identify and rank improvement objectives.
• Step 5: Generate the list of design parameters.
• Step 6: The QFD interaction matrix:
 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD

6. Building the House of Quality:

• Step 7: Benchmark the technical performance of the product.
• Step 8: Determine the technical target for the new product .
• Step 9: Identify supporting and conflicting design parameters.
 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD

• Step 6: The QFD interaction matrix:

 QUALITY FUNCTION DEPLOYMENT
Preparing for QFD
 INTRODUCTION
DEFINITIONS AND BASIC CONCEPTS
Statistical Techniques

statistical techniques are used in quality control and inspection:

• Histograms and Pareto Analysis
• Statistical Inference
• Hypothesis Testing
• Decision Errors
• Statistical Process Control
• Control Charts
• Acceptance Sampling
• Process Capability Analysis Any
• Reliability Questions
• Regression & Correlation
• Design of Experiments·