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Cost of Quality Free essay! Download now

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Cost of Quality

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Downloads to date: N/A | Words: 5000 | Submitted: 16-Oct-2009
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Description

Nowadays, globalization of the market is conducted to a high level of competition; companies endure this by developing differentiated products and services.
In that context, companies compete on differentiation of the offer and try to optimize their margin. That’s why flexibility and reduction costs are one of the most recurrent needs expressed. To be competitive and in order to differentiate itself, the company has to offer quality products. It means that the firm has to take into account the cost of the quality (COQ). The COQ isn't the price of creating a quality product or service but the cost of NOT creating a quality product or service. It means every time work is redone, the cost of quality increases.
The aim of this report is to provide information about companies’ COQ policies, studying little and big companies, through several research methods. We try to understand how important COQ is and if there are differences between companies’ policies.

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These costs differ with the company type, operating conditions and the business type. Diallo et al (1995) and Carr and Tyson (1992) attest Wolf and Bechert's model: Cog is minimized at 100 ٪ conformance rate.
Finally, Wolf and Bechert’s model are also discussed by Lindland and Wasserman (1996-1997). In fact, they propose that TQC is minimized at 100 ٪ conformance without a good reason as to why this might occur. They provide that it doesn’t exist a correct COQ model and that quality costs are dynamic and firm specific, since customer expectations are constantly changing.
Nevertheless, there a common point between all these theories: they use the same COQ model. Indeed, this writings permitted to distinguished the quality costs categories: prevention, appraisal and failure costs. (P-A-F)
Today, the PAF is the most used model for determining the COQ and our report is mainly based on it. To understand this model, it is necessary to define the quality concept. Within this context, prevention costs are those resulting from quality activities used to avoid deviation and errors. The activities costs are avoid any poor quality in service or product. We understand that it refers to any activities performed to confirm the right development of future activities. It includes quality planning, the cost of new product review, process capability evaluation, supplier capability survey, quality improvement projects, quality education and training and quality improvement team meeting. These are “good” things to do. Appraisal costs can be defined as the costs associated with measuring evaluating or auditing product or service to assure conformance to quality standard and performance requirements. This includes the cost of incoming and source, inspection/test of purchased material; in-process and final inspection/cost; product, process, or service audits; calibration of measuring and test equipment; and the cost of associated supplies and materials. Finally, failure costs are those resulting from product or service not conforming to requirements or customer needs. Failure costs can be divided into internal and external failure costs categories. Internal failure costs are costs occurring prior to delivery or shipment of the product, or the furnishing of the service, to the customer. Examples are the cost of scrap, rework, re-inspection, retesting, material review and down grading.
External failure costs are costs occurring after delivery or shipment of the product and during or after furnishing of a service, to the customer. Examples are the cost of processing customer complaints, customer returns, warranty claims, product recalls.

The sum of the above costs gives the total quality costs. It represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibilities of substandard service, failure of product, or defects in their manufacture.

The figure 2 illustrates this concept.



Figure 2

Plunkett and Dale (1987) propose a categorization of all PAF models found in the literature into five groups , discuss them in the light of their research experience and conclude that many of the published model are inaccurate and misleading
COQ model advantages are a major key point to identify. Indeed, according to Douglas C.Wood’s theory, COQ is defined as a tool for; evaluate the overall efficiency of the quality programmes and qualitative improvements, detect problem areas and action priorities. It also permit furnishes a platform for calculation of return on investment.
Another important key point concerns the problems encountered by the COQ model. The article Cost of Quality in Dubai: analytic case study, by Hicham Abdelsalam and Medhat M.Gad (26 November 2007) provides some information and details about it. Indeed, we understand thanks to this article that COQ model, because of poor design or poor implementation of cost of quality system, often suffers from one or more of the following problems:
• COQ data collection is weak,
• The efforts aim at collecting data and implementing changes as easy as possible instead of concentrating on the COQ
• The Cost of Quality input data are often incomplete. The Cost of Quality definitions are often vague, or hard to understand, conducting to many various interpretation and implementation over time
• Management does not use the Cost of Quality data in effectively. Manager often take decisions without understanding the effect of COQ.
• When Cost of Quality is not utilized during project approval decisions, as management makes changes Cost of Quality tend to shift from one category to another, with little net effect.
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