Transcript Quality As A Competitive Weapon

Chapter 19
Cost Management: Quality, Time,
and the Theory of Constraints
Copyright © 2003 Pearson Education Canada Inc.
Slide 19-188
Quality As A Competitive Weapon
Actual
Performance
Design
Specifications
Conformance
Quality
Customer
Satisfaction
Quality
of Design
• Costs of quality (COQ) are costs incurred to rectify
the production of of low-quality product
• Four categories of COQ
• Prevention costs (design and process engineering)
• Appraisal costs (inspection costs)
• Internal failure costs (spoilage and rework)
• External failure costs (warranty repair work)
Copyright © 2003 Pearson Education Canada Inc.
Pages 703 - 705
Slide 19-189
Methods to Analyze Quality Problems
• Statistical quality control (SQC) or
statistical process control (SPC)
employ control charts to monitor
successive observations at regular
intervals of time
• Pareto diagrams indicates the
frequency of failures (defects)
• Cause-and-Effect diagrams
identifies potential causes of
failures or defects such as human
error or component failure
Copyright © 2003 Pearson Education Canada Inc.
Pages 707 - 709
Slide 19-190
Nonfinancial Measures of Quality
• Even if a product is defect free and meets
conformance quality, it still must satisfy customer
needs
• Consider total customer satisfaction including:
• features that provide fair value
• delivery when promised
• delivery a defect-free product
• avoid early failure
• ensure that product will not fail excessively in use
• Focus attention on costs of poor quality
• Use financial measures to evaluate savings plans
• Use nonfinancial measures to monitor success
Copyright © 2003 Pearson Education Canada Inc.
Pages 713 - 714
Slide 19-191
Evaluating Quality Performance
Advantages of Cost of Quality (COQ) Measurements
• focuses attention on how costly poor quality can be
• allows for comparison of different programs and
setting priorities
• provides a common basis for measuring quality
Advantages of nonfinancial measures of quality
• easy to quantify and understand
• direct attention at the precise problem
• provide intermediate feedback on achievements
• provide useful long-run indicators of performance
Copyright © 2003 Pearson Education Canada Inc.
Page 714
Slide 19-192
Time As A Competitive Weapon
• Time is a key variable in competition
• Doing things faster helps increase revenues and
decrease costs
• Think of time in terms of:
• Customer response time (order receipt to delivery)
• On-Time Performance: delivered on promised date
• A time driver is any factor where change in the factor
causes a change in the speed of the activity
• Uncertainty about when the customer will order
• Limited capacity and bottlenecks
Copyright © 2003 Pearson Education Canada Inc.
Pages 714 - 716
Slide 19-193
Theory of Constraints
•
Theory of Constraints (TOC) describes methods of
maximizing operating income when faced with a
bottleneck
Measurements
1. Throughput contribution: Sales – direct materials
2. Investments (inventory): Material inventory, work-inprocess, finished goods, R&D, and cost of equipment
and buildings
3. Operating costs: all operating costs
•
Objective of TOC is to increase throughput
contribution while decreasing investments and
operating costs
Copyright © 2003 Pearson Education Canada Inc.
Pages 719 - 720
Slide 19-194
Theory of Constraints (Continued)
Management of Bottleneck Resources
1. Recognize that the bottleneck resource determines
throughput contribution
2. Search and find the bottleneck resource
3. Keep the bottleneck operation busy and subordinate
all nonbottleneck resources to the bottleneck
resource
4. Take action to increase bottleneck efficiency and
capacity
• Examples of TOC Actions: eliminate idle time at the
bottleneck, eliminate production of nonessential
products, reduce setup time at bottleneck
Copyright © 2003 Pearson Education Canada Inc.
Pages 720 - 722
Slide 19-195