Dear Friends,

I will feel obliged if some of you may provide some input as to how i may proceed to track down the cost of poor quality at my work place. I am working at one of the biggest locations producing Zinc & Lead Metals. Though some vague ideas are there like to work out COPQ one has to identify the cost of reprocessing, redoing, rechecking or recycling etc. I am in fact looking for a structured approach whereby these elements may be captured in a simplified manner. If some of you might have done some project in this regard Pl share it.

Regards

K P Kapoor

Dear Kanwal,

Finding out Quality costs  is a bit tedious process as it needs data on many activities but never the less highly useful and in most  cases results are eye openers for the organisation.

I suggest you reference of a very good British standard on process costs  BS 6143-1:1992. As per this  we prepare process cost model for two types of process costs - cost of conformance (COC) and cost of nonconformance(CONC). both these offer opportunities for cost reduction. How we begin is we take the work area for which costs are to be reduced , list down all the key activities under this and then identify COC and CONC for each activity. This becomes the cost model. Then you collect data on each, set targets for each, monitor, reduce the costs etc. 

 

Dear Madhavi,

I will revert back to you once i am ready with my home work on lines as suggested by you. Meanwhile Thanks for your input.

Regards.

Kanwal

Dear kanwal,

Though my  knowledge on the subject is very limited, i would like to put forth my creative thinking in to the aspect of discussion with a few ideas.While these ideas may not be standardised, they are simple and valuable i hope.

Step1: Determine the production level and the conformance level. the ratio of Conformance level/ production level determines the current efficiency. this can be treated as process Efficiency.(Always less than 100% unless the system is at 100% conformance level)

Step2: Evaluate the Costs of production at the Process Effficiency level. That is the production cost (80% of product is conforming and 20% Non conforming. here only 80 pieces are produced at the cost of 100 pieces. This implies 25% as the cost of poor quality to begin with.)

Step3: At theoretical Zero defect level Conformance level= Production level. ie. No wastage or rework. Evaluate the Zero Defect level production costs. ie. in this case the out put is maximum as the defects are zero and the the process efficiency is maximmum.(this is the theoritical minimum cost of production).

Step 4: The difference of costs between step 2 and step 3 is the cost of poor quality to begin with(here it is 25% to begin with at 20% non conformance level)

Step5: Now evaluate the cost of rework for the non conformance level. ie. the cost of reproducing 20% of the nonconforming items assuming that at this stage the efficeincy is 100% and there would be no rejection after this stage. If the unit cost of production at this stage is more than that of the unit cost at step 2, then it is better to dispose off waste as scrap rathere than reprocess or rework. Otherwise it can be taken up systematically by means of Cost Benefit analysis. Assuming the efficiency in this stage to be 100%(Zero level Non conformance), the cost of poor quality Aggregrates to 45% Plus time losses which cannot be revoked plus the competitive edge lost in the market.

Step6: Now make a process map of the production from the start line to the finish line sequentially before it is dispatched as 100% conforminng.

Step7: Determine the critical areas of rejection from the past data and research and knowledge.

Step 8: Determine the area of major nonconfromance and evaluate the degree of nonconformance at this level. using pareto analysis, try to identify these major areas and determine the RCA and work upon it to improve the process capability and system efficiency and evaluate the diffference over a period of time. this enables to understand the stage wise cost of poor quality.

this study would enable to understand not only the key areas of poor quality but also enables to improve the system efficiency and also process efficiency.

Though my knowledge on the subject is very low, i only made an humble attempt to share my views and opinions. i would be gladd to receive a feedback on this with ur suggestions.

with regardds, srinivas

 

 

Hi Friends,

                 What is my suggesstion please select a chunk of your produced goods (In range) and then analysis on that. this will help you to determine further. If you work with all the things at a time you may find difficulty to determine your goal.

Dear Srinivas,

Your modesty is really very much appreciable. You have very nicely explained the whole issue. Thanks a lot. One thing with which i find difficulty to get convinced is your saying "If the unit cost of production at this stage is more than that of unit cost at step 2, then it is better to dispose off waste as scrap rather than reprocess or rework" To my mind whether one should reprocess or not, depends on revenue generation ability of the item concerned. If it can fetch more than what one is spending against reprocessing then logically, decision needs to be in favour of reprocessing. Pl. respond whether i am right in my thought process or there is need for me to correct it.

Once again thanks & regards.

K P Kapoor

Dear Kanwal,

i appreciate ur ingenious nature in intricately studying the subject matter i posted and making an absolutely relevant question about an assertive statement i mentioned in the note. while i respect your intution in going for reprocessing if the revenue generation is higher irrespective of the costs of reprocessing, i would like to stand over my statement on the following lines. While i made a response without paying too much thinking on the subject, now i thank u for the opportunity to think on ur lines as well. anyways let my try this out this way.

step1: 100 pieces are produced. 80 are conforming. 20 nonconforming. suppose Cost of 1 piece is Rs.1.00.

Step 2: At Zero defect level Cost of production= Rs.100.00 with Unit cost=1.00

With 20 non conforming pieces, Cost of production = 1.25 per piece or Rs.125.00 per lot.

Step3: Cost of poor Quality = (Rs.125.00 - Rs.100.00) +(Rs. 20.00) Rs.20.00 the cost of nonconformance which would have been realised had the conformance been 100%.

here it is notable to understand that:

nonconformance aggravated the cost of conforming product by 25%

Non conformance itself resulted in a loss of Rs.20.00 Which is 20% hidden loss.

here the actual cost of the item is Rs.1.45 already

Step 4: The big question of Reprocessing Decision:

At this stage it is very critical to see to that that the process capability is really 100%.

ie. one should be sure that No more than Rs.1.00 is spent on rework. This means an 100%

conformance at this stage, lest the cycle repeats infinitesimally in the reverse process as in the case of credit creation by banks using Cash reserve ratio. At this stage if process capability is 100% then the cost would be Rs.20 for 20 pieces.(here i assume the cost of production as Rs.1 for reprocessing also because am loosing time and labour and marketing edge and i assume that within the same time frame i think i could produce 20 new pieces).

Assuming we have exhausted the material and manufactured 100 pieces by this stage 2

then the cost of 1 piece would be=Rs.1.65 or Rs. 165.00 per lot of Hundred pieces. That is we are already 65% over and above the actual costs.

let us now consider that we find that at step 4 we have 4 non conforming items.(ie. 80% process capability). Then i would leave it for u to evaluate the further cost of poor quality and aggravation in cost of production along with the hidden losses. its a bit fussy as of now to calculate but not difficult. i can do that even for u if u want me to do this serriously.

Coming to the decision criteria of how long to proceed with rework or when to scrap it, i think we need to do the following:

we need to find an optimum balance between profits regeneration capability Vs cost of poor quality.

ie. when the cost of poor quality exceed the profit regeneration capability we need to go for scrap lest we can continue with reworking.

However except in case of precious metals like gold, platinum or such things, rework is usually not resorted. (my knowledge is limited as of now)

But one question i have is how many ppl are making businesses with more 100% profit potential. ie. if the cost of production is Rs.1, they sell the product at Rs. 2.

Secondly, How far can we allow ourselves to perform with an incapable process efficiency system spending time on rework.

thirdly Cant we make money by selling scrap and obtain some profit over its true value. ie when we sell non conformance pieces as scrap in a form that obtains its true value with munimum modifications, then we would be actually making our production costs less than Rs.1.00 in some cases

can u understand why reputed electronic companies replace items instead of rectifying problems.

Similarly, mobile companies don't go suing every customer who has not paid the bills because the cost of suing a customer and recovering the money are too far higher than the cost of bearing up the bil by companies themselves.

While in my post i mentioned before, i was discussing only the cost of poor quality vs cost of production, u added strength to this discussion by adding the revenue regeneration capability of the nonconfromance items. seems like am getting into learning the subject more thoroughly.

i would be glad to receive more information and feedback on the subject from ur end. can u please send me ur email id or telephone number so that we can discuss subject more seriously. am really interested in these subjects though my knowledge is limited.

With regards

srinivas

Dear Kanwal, i would like to take up this project if u could provide me further inputs on the subject. u can mail me at [email protected] or call me on 0422- 6458921. The subject seems to be quite interesting and i want to work out my brains on this aspect. i would be more than happy to receive further feedback and inputs on the subject.

Thanking you,

With warm Regards

Srinivas