COST OF QUALITY
Instructions: You will conduct a review of the literature in the subject area of Quality Management. Specifically, you are to identify the origins of the concept of the Cost of Quality and to chart its development up to the present day.
Following your review, you are to critically evaluate the relevance of The Cost of Quality to modern operations management.
You will be expected to illustrate your discussion with examples from the trade press and other authoritative sources.
Assessment Breakdown
1. Begin your discussion by defining the concept of the Cost of Quality.
(15% of word count)
2. Prepare a literature review, charting the development of the concept of The Cost of Quality from its inception until the present day.
Ensure that you include references to at least 10 peer-reviewed articles, including the 2012 paper by Fons that has been supplied. You may also find relevant reviews in the trade press and from other authoritative sources.(45% of word count)
3. Critically review the assertion that “The Cost of Quality is as relevant today as it has ever been”. Ensure that your discussion presents both sides of the argument and is appropriately referenced.
Two articles have been provided to assist you, but these should not be the only sources that you cite.
(40% of word count)
Assessment Submission
Your assignment must be word processed and presented in a report format with simple sub-headings. The word count should be 2500 words±10% (tables, diagrams and appendices are excluded from the count).
The Assignment report should have a Front Sheet showing your name, your student number, the module name, the module number, the assignment title, the module tutor’s name, the date and the word count.
Assessment Guidance
Within your assignment your tutor will be looking for content that addresses the key elements of the assignment brief.
Solution.
COST OF QUALITY
Introduction
According to the ISO 9004, the most appropriate manner through which the performance of an organization can be assessed is through measuring its financial performance. This allows one to determine if such an organization has achieved their planned objectives. Reporting the effectiveness and activities of the quality system in terms of its financial performance has been increasingly considered a vital approach that links the quality system’s continued improvement to the organization’s performance improvement. This also forms an important part of the Six Sigma drive towards quality. This paper is going to review the concept of Cost of Quality, starting with a brief overview of its definition, then a review of its development, and lastly an analysis of its significances to operation management.
Definition Cost of Quality
Philip Crosby, a quality expert, established that quality is free (Kiani, et al., 2009). As such, the costs incurred by the organization have all to do with the actions involving failure to do things in the correct manner the first time. As such, Crosby maintained that quality is measured using the cost of quality, and defined the cost of quality as the expense incurred due to conformance. In other terms, if an organization would be able to solve or prevent all their quality problems, then, they would not incur costs of quality. The efforts directed towards management of quality within the organization is highly important in not only ensuring increased sales of the products or increased market share and consumer loyalty but also in reducing the cost of rectifying the quality mistakes that may be arise later (Castillo-Villar, et al., 2012). The costs of quality rangers from the most obvious costs within the company such as rework and scrap, to less obvious pones including the cost of replacement of defective material to that of reordering.
Cost of quality is divided into four elements including prevention costs, internal failure costs, appraisal costs, and external failure costs (Jaju, et al., 2009). Prevention costs refer to all the costs incurred as a result of activities that are designed specifically for the sake of preventing poor quality in terms of the services rendered or products deliver. On the other hand, internal failure costs refer to the costs that are incurred as a result of services or products that fail to meet the customer needs or requirements prior to shipment or delivery (Tye, et al., 2011). Appraisal costs involve costs of measuring, auditing, or evaluating services of products with the intention of ensuring conformance to performance requirements and quality standards. Lastly, external failure costs are costs that are incurred as a result of the failure of services or products to conform to the customer needs or requirements after the shipment or delivery of the product or rendering of a service (Jaju, et al., 2009).
Development of The Concept of Cost of Quality
The concept of cost of quality could trace its roots back to the works of Shewhart in 1931 and to a lesser extent to the works of Crocket (1935) and Miner (1933) (Tye, et al., 2011). Nevertheless, it was upon Joseph Juran’s (1951) works and those of other experts such as Harold Freeman (1960) and Armand Feigenbaum (1957) that this concept was formalized. In his book, Juran referred to the cost of quality as the cost incurred as a result of poor quality (Kiani, et al., 2009). Juran considered costs measured within a defined period in an organization as one of the most effective control tools that can be employed by the management towards facilitating performance increase and increased profitability. Quality processes can only be justified by return on quality (ROQ) as such a measure has a great impact on the maturity of companies. According to research, the costs incurred by companies as a result of poor quality contributes greatly to the total costs incurred by the business. Chopra and Gard (2011) established that most organizations fail to recognize their quality costs as a result of the failure to keep in check their reliable statistics. As such, these organizations are forced to expend large amounts of resources towards identifying the mistakes and correcting them. Interestingly, the cost of eliminating a mistake in the delivery phase is far much larger that the costs that could be incurred during the initial stages of the development of a product or preparation of a service (Chopra & Gard, 2011). It has been established that effective management of quality reduces the costs of product as it allows for timely identification and correcting of errors before they escalate into more sophisticated versions that may require more resources.
The Quality Cost Committee of the American Society of Quality (ASQ) was established back in 1961 and its main function was to facilitate the formalization of the concept of quality and promotion of its application. The publication by Crosby (1979), “Quality is Free” formed a foundation upon which the concept was popularized across the organizational setting (Rosenfeld, 2009). The four categories of cost of quality including prevention, internal failure, appraisal, and external failure have been well embraced across the accounting and quality professions. Nevertheless, the independent calculation of quality costs is still a major challenge among most companies as such costs are included into other overheads within the company. Cheah, Shah, Shahbudin, and Taib (2011) established that most of companies have increasingly embraced calculation of the costs of quality. The authors established that most managers track quality costs and in cases where such costs are not readily visible, it becomes a major problem for the managers to apply such information in making of decisions. Abdelsalam and Gad (2009) also established that there was a great difference between the decisions that were made by the managers who accessed quality cost information as compared to those who did not have access to the same data in the study they conducted.
As much as it is generally agreed that quality is a major success factor that determines business competitiveness, most companies still find their approaches towards promoting quality ineffective. In their research, Chopra and Garg (2011) mentioned that most of the quality systems that have been put in place by organizations have an insignificant impact on competitiveness improvement and real performance improvements. Important to note is the fact that Cost of Quality programs do not have an impact on quality improvement by themselves. Instead, these programs provide feedback and input to quality systems that hold the responsibility for improvement of quality. As such, in as much as a Cost of Quality system’s accuracy can be independently evaluated, its effectiveness inextricably depends on how well the information is provides is utilized by the system of quality management in quality improvement (Cheah, et al., 2011). Evaluation of a Cost of Quality program’s and the quality system’s ought to be measured in view of the improvements that are achieved as a result of their use or implementation. Conceptually, as the quality program of an organization matures, their ought to be changes in terms of costs distribution across the four concepts of cost of quality. Mature programs tend to spend more on costs of prevention while immature programs spend more on the failure and appraisal costs (Chopra & Gard, 2011). The development of the concept of cost of quality is undoubtedly advanced, such that most organizations have increasingly identified the importance of mitigating quality costs through embracing preventative measures that ensure that the quality of the products and services they offer is at per with the requirements. It is only through such preventive measures that the cost of quality can be minimized or eliminated, alongside its implications on the general performance of the organization.
Relevance of The Cost of Quality to Modern Operations Management
The quality of the services of products offered by a business is highly important in determining its success. As earlier mentioned, most organizations face a major challenge in measuring and acknowledging the magnitude of quality costs. One of the factors that has greatly contributed towards the increased need for quality management is the increased competitiveness of markets, with different organizations using quality as a point of difference for their products to attract different consumers (Elbireer, et al., 2010). On the other hand, consumers are more demanding, knowledgeable, able to share information, and prepared to identify and reject poor quality. A business that is able to establish a reputation for good quality products or services is able to gain a competitive advantage over others. In operations management, businesses yearn to meet the needs of the consumers by providing them products and services that are considerate of their expectations. Quality costs ensure that the quality of products is upheld and that the expectations and needs of the consumers in terms of the appearance, performance, delivery and availability, durability and reliability, value for money or price of the products are met (Tsai & Hsu, 2010). Facilitating proper quality consideration during the product development stage ensures that only the products that pass the test for quality, which means that they meet the needs of the consumers, are released into the market.
There are different costs of poor quality, all of which have devastating consequences on the business. One such effect is the loss of customers due to the dissatisfaction with the quality of products or services offered (Chopra & Gard, 2011). Such customers lost as a result of poor quality may further complicate the reputation of the organization through the word of mouth, by sharing their experiences of the products with other potential consumers. The cost of remaking or reworking the product is also of a major concern to the operations management within an organization as it directly affects the organization’s profit margin. Other costs include the costs of refunds or replacements, and the costs of wasted materials, all of which are highly important in determining the profitability of the organization (Elbireer, et al., 2010). Poor quality places organizations at a competitive disadvantage as it means that its competitors are providing products of better quality.
Quality management is intertwined with production management as it involves the controlling of production activities with the intention of ensuring that the services and products offered by an organization meet specifications and true to their purpose. There are two major approaches towards quality management, which include quality control and quality assurance (Robertson, et al., 2009). Quality control is the process that involves inspecting products with the aim of ensuring that they attain the quality standards that are required. On the other hand, quality assurance refers to any processes that are directed at ensuring that the quality of production meets the customers’ requirements (Abdelsalam & Gad, 2009). It is important to note that by embracing these approaches, organizations are able to minimize non-achievement cost of quality, though they may incur achievement cost of quality.
Nike Inc. is one of the companies that have increasingly embraced quality management approaches that have contributed greatly to a reduction in the cost of quality. At Nike, the design process’ quality is judged in accordance with the number of errors that are committed and the effectiveness of the process to achieve the market requirements (Robertson, et al., 2009). As such, Nike has directed its efforts towards developing of product designs that are environmental friendly, and towards managing waste through elimination of such waste in the production process. According to Nike, waste is any material or product that is procured in the supply chain but does not make up the end product (Robertson, et al., 2009). This definition includes all wastes ranging from non-product, product, to manufacturing waste. Nike creates waste at every phase of its production process. Reduction of such waste allows the company to achieve both decreased environmental degradation and cost savings. Nike encourages teamwork in the process of manufacturing. The company’s designers collaborate in making design choices that are sustainable and smart at the beginning of the creative process, allowing them to solve problems and breakthroughs (Robertson, et al., 2009). By ensuring that their products are designed in the right manner the first time, reworking is avoided. By reducing the amount of defective work, the company cuts on the cost of quality.
Conclusion
It is evident that the cost of quality is a concept
of great importance to the operation management function of any organization.
By ensuring that the quality of products and services is improved,
organizations are able to effectively reduce the cost that they would otherwise
incur as a result of poor quality. Establishing proper quality improvement
approaches during the initial stages of product development is important in
ensuring that any possible errors are identified in a timely manner and
effectively addressed to ensure reduced cost of quality. Organizations ought to
facilitate quality control and quality assurance measures that would ensure
that quality is upheld from the beginning of any production or service delivery
process.
References
Abdelsalam, H. M. & Gad, M. M., 2009. Cost of quality in Dubai: An analytical case study of residential construction projects. International Journal of Project Management, 27(5), p. 501–511.
Castillo-Villar, K. K., Smith, N. R. & Simonton, J. L., 2012. A model for supply chain design considering the cost of quality. Applied mathematical Modelling, 36(12), p. 5920–5935.
Cheah, S.-J., Shahbudin, A. & Taib, F., 2011. Tracking hidden quality costs in a manufacturing company: an action research. International Journal of Quality & Reliability Management, 28(4), pp. 405 – 425.
Chopra, A. & Gard, D., 2011. Behavior patterns of quality cost categories. The TQM Journal, 23(5), pp. 510 – 515.
Elbireer, A., Gable, A. R. & Jackson, J. B., 2010. Cost of Quality at a Clinical Laboratory in a Resource-Limited Country. Laboratory Medicine, pp. 429-433.
Jaju, S. B., Mohanty, R. P. & Lakhe, R. R., 2009. Towards managing quality cost: A case study. Total Quality Management and Business Excellence, 20(10), pp. 1075-1094.
Kiani, B., Shreouyehzad, H., Bafti, F. K. & Fouladgar, H., 2009. System dynamics approach to analysing the cost factors effects on cost of quality. International Journal of Quality & Reliability Management, 26(7), pp. 685-698.
Robertson, R., Brown, D., Pierre, G. l. L. B. & Sanchez-Puerta, M. L. eds., 2009. Globalization, Wages, and the Quality of Jobs: Five Country Studies. Washington, DC: The World Bank.
Rosenfeld, Y., 2009. Cost of quality versus cost of non‐quality in construction: the crucial balance. Construction Management and Economics, 27(2), pp. 107-117.
Tsai, W.-H. & Hsu, W., 2010. A novel hybrid model based on DEMATEL and ANP for selecting cost of quality model development. Total Quality Management & Business Excellence, 21(4), pp. 439-456.
Tye, L. H., Halim, H. A. & Ramayah, T., 2011. An exploratory study on cost of quality implementation in Malaysia: The case of Penang manufacturing firms. Total Quality Management & Business Excellence, 22(12), pp. 1299-1315.
