Use Cost of Quality Analysis to Improve the Bottom Line

This webinar will cover the most important aspects of AIAG's CQI-22, Cost of Poor Quality guide, along with asymptomatic wastes that are not related to poor quality and do little if anything to announce their presence. These wastes can easily be more costly than poor quality, and they are often present 100 percent of the time because they are built into the job. The enormous productivity gains at the Ford Motor Company during the first part of the 20th century came primarily from attention to the latter wastes although quality also was paramount to ensure customer satisfaction.

Why Should You Attend

AIAG's CQI-22 says that the cost of poor quality wastes 25% to 35% of typical operating budgets, and also adds that these costs include opportunity costs. This does not include the cost of asymptomatic wastes that are not related to poor quality, and these issues have been proven repeatedly to waste 50% or more of labour, as well as materials and energy. It is easy to imagine how the removal of all these wastes would be reflected in terms of higher profits, lower prices, and higher wages simultaneously, and the Ford Motor Company realized this bottom-line results more than 100 years ago.

The automotive industry is particularly sensitive to supplier prices and wants to ensure that it is not paying for waste. While ISO 9001:2015 does not require explicit attention to the cost of poor quality, its counterpart IATF 16949:2016 (which is ISO 9001 plus automotive requirements) says the cost of poor quality shall be input to management review. It also requires attention to the efficiency and effectiveness of processes, which are affected by the six other Toyota production system wastes as well as wastes not even cited by the TPS. This webinar will cover all these issues to equip attendees to realize substantial bottom line business results in their organizations.

Areas Covered in the Session 
» COQ analysis in the language of money includes the substantial cost of poor quality (25 to 35% of typical operating budgets). It is also a mandatory input to the management review meeting per IATF 16949:2016 (the automotive counterpart of ISO 9001:2015).
» Waste (Muda) goes far beyond the cost of poor quality, and the basic principle was explained by Benjamin Franklin long ago. A dollar of savings is as good as perhaps ten dollars in increased sales in terms of bottom line performance and is usually easier to get. All stakeholders (customers, investors, and workers) pay for the substantial waste that is built into most jobs.
» The "Rule of 10s" says the cost of poor quality multiplies enormously if nonconforming work escapes from its point of production to reach an internal or, even worse, an external, customer. In addition, CQI-22 points out that only about 15% of poor quality is in fact detected at the point of manufacture. Shigeo Shingo's Zero Quality Control and the AIAG's Effective Problem Solving process (CQI-20) both address the issues of (1) prevention of poor quality or, if this fails, (2) detection and interception of poor quality before it reaches the next process.
» Poor quality is however only one of the Toyota Production System's Seven Wastes, and the only one that announces its presence. The others are usually (1) asymptomatic, (2) built into the job, and (3) more costly than poor quality even though they are invisible to the cost accounting system because they do not generate recordable expenses or accounting variances. Many of these wastes are however recognizable on sight when people, and especially front-line workers, know what to look for.
1. Opportunity costs are the invisible costs of what we don't do rights, such as using a machine or other improvement that increases productivity, as opposed to the visible costs of what we do wrong (such as generate poor quality).
 » Costs of poor quality include the costs of (1) prevention, (2) detection, (3) internal failure, such as rework and scrap, and (4) external failure when the poor quality reaches an external customer. Methods of estimation include, per CQI-22,
1. Whole account method
2. Whole person method
3. Unit pricing
4. Labor claiming method
5. Deviation from ideal
 » Remember however that many forms of waste other than poor-quality are invisible to cost accounting systems. Henry Ford's four key performance indicators empower all stakeholders, and especially frontline workers, to identify many of these wastes on sight.
1. Waste of the time of things, e.g. cycle time to which inventory, a TPS waste, is proportional
2. Waste of the time of people, e.g. motion inefficiency
3. Waste of materials
4. Waste of energy
» Follow up on poor quality and other wastes with effective corrective and preventive action (CAPA).

Who Will Benefit 
 » Manufacturing and quality professionals and practitioners; people with responsibility for continual improvement and lean manufacturing