Quality as a competitive tools
The American Society for Quality Control defines quality as the total features and characteristics of product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use. Kualitas adalah ukuran relatif keunggulan dari suatu produk. Produk berkualitas adalah produk yang memenuhi harapan konsumen.
• A quality focus reduces costs and increases customer satisfaction • Focusing on the quality of a product will generally build expertise in producing it, lower the costs of making it, create customer satisfaction for customers using it, and generate higher future revenues for the company selling it.
• Quality costs (including the opportunity cost of lost sales because of poor quality) can be as much as 10% to 20% of sales revenues of many organizations. • Quality-improvement programs can result in substantial cost savings and higher revenues and market share from increased customer satisfaction.
Two basic aspects of quality: • Design quality refers to how closely the characteristics of a product or service meet the needs and wants of customers. • Conformance quality refers to the performance of a product or service relative to its design and product specifications.
• Kualitas desain mengacu pada seberapa dekat karakteristik suatu produk atau jasa memenuhi kebutuhan dan keinginan pelanggan. • Kesesuaian kualitas mengacu pada kinerja suatu produk atau jasa relatif terhadap desain dan spesifikasi produk.
Quality and Failure
Actual Performance
Design Specifications
Conformance Quality Failure
Customer Satisfaction
Design Quality Failure
Konsep kualitas Kualitas desain merupakan fungsi spesifikasi dari produk, sedangkan kualitas kesesuaian merupakan suatu ukuran dari suatu produk untuk memenuhi persyaratan atau spesifikasi kualitas yang telah ditetapkan.
Misalkan kualitas kertas HVS 70 gram ditetapkan sebagai berikut : warna putih, berat per senti meter persegi, ukuran dan ketahanan penyerapan tinta. Semakin banyak spesifikasi produk yang dimasukkan ke dalam mutu, semakin memerlukan biaya produksi yang tinggi.
• Biaya kualitas merupakan biaya yang terjadi karena atau kemungkinan adanya kualitas produk yang rendah. • Biaya kualitas berkaitan dengan penciptaan, pengidentifikasian, perbaikan dan pencegahan produk rusak/cacat.
Costs of quality refer to the costs incurred to prevent, or the costs arising as a result of, the production of a low-quality product. Costs of quality are classified into: 1. Prevention costs 2. Appraisal costs 3. Internal failure costs 4. External failure costs
Biaya kualitas dapat dibagi ke dalam : 1. Biaya pencegahan : biaya yang dikeluarkan untuk mencegah terjadinya cacat dalam produk atau jasa yang dihasilkan perusahaan. 2. Biaya penilaian : biaya yang dikeluarkan untuk menentukan apakah produk atau jasa yang dihasilkan sesuai dengan persyaratan kualitas yang telah ditetapkan.
3. Biaya kegagalan internal : biaya yang dikeluarkan karena adanya ketidaksesuaian spesifikasi dari produk yang dihasilkan dengan spesifikasi kualitas yang telah ditetapkan dan diketahui sebelum dikirim ke konsumen.
4. Biaya kegagalan eksternal : biaya yang dikeluarkan karena adanya ketidaksesuaian spesfikasi produk yang dihasilkan dengan spesifikasi kualitas yang telah ditetapkan dan diketahui setelah sampai keluar perusahaan/konsumen.
The prevention costs category: • • • • • •
design engineering; process engineering; supplier evaluations; preventive equipment maintenance; quality training; and testing of new materials.
The Appraisal costs category: • Inspection • Online product manufacturing and process inspection • Product testing
• An internal failure is detected before a product is shipped to a customer, whereas an external failure is detected after a product is shipped to a customer.
The Internal Failure costs category: • • • • •
Spoilage Rework Scrap Machine repairs Manufacturing/process engineering on internal failures
The External Failure costs category: • Customer support • Manufacturing/process engineering on external failures • Warranty repair costs • Liability claims
Examples of nonfinancial measures of customer satisfaction relating to quality include the following: 1. the number of defective units shipped to customers as a percentage of total units of product shipped; 2. the number of customer complaints; 3. delivery delays (the difference between the scheduled delivery date and date requested by customer); 4. on-time delivery rate (percentage of shipments made on or before the promised delivery date); 5. customer satisfaction level with product features (to measure design quality); 6. market share; and 7. percentage of units that fail soon after delivery.
Cost Of Quality Using Activity-Based Costing 1. 2. 3. 4. 5. 6. 7.
Identify the Product that is the chosen cost object Identify the Direct Costs of Quality of the Product Select the activities and Cost-Allocation Bases to Use for Allocating Indirect Costs of Quality to the Product Identify the Indirect Costs of Quality Associated with each Cost-Allocation Base Compute the Rate per Unit of Each Cost-Allocation Base Compute the Indirect Costs of Quality Allocated to the Product Compute the Total Costs of Quality by Adding All Direct and Indirect Costs of Quality Assigned to the Product
Opportunity Costs as a result from poor quality: 1.Contribution Margin and Income forgone from lost sales 2.Lost Production 3.Lower Prices
Analysis of Activity-Based Costs of Quality Costs of quality report Opportunity cost analysis
P 692 • Photon’s photocopying machines earned an operating income of $ 24 million on revenues of $ 300 million (from sales of 20,000 copiers) in 2008.
Cost of quality and value chain category
Cost allocation rate per hour
Quantity of Cost allocation base(hour)
Total costs ($)
% of revenues
Prevention costs Design engineering Process engineering
$ 80 $ 60
40,000 45,000
3,200,000 2,700,000 5,900,000
1.1% 0.9% 2.0%
Appraisal costs Inspection
$ 40
240,000
9,600,000
3.2%
Internal failure costs Rework
$100
100,000
10,000,000
3.3%
External failure costs Customer support Transportation Warranty repair
$ 50 $ 240 $110
12,000 3,000 120,000
600,000 720,000 13,200,000 14,520,000
0.2% 0.2% 4.4% 4.8%
40,020,000
13.3%
Total costs of quality
• Photon’s Market Research department estimates lost sales of 2,000 photocopying machines in 2008 because of external failures. • The forgone Contribution Margin and Operating Income of $ 12,000,000
• Total costs of quality equal $ 52.02 million or 17.3% of current revenues. • Opportunity costs account for 23.1% of total cost of quality.
Cost of quality category
Total estimated Contribution Margin loss
External failure costs Estimated forgone contribution margin and income on lost $ 12,000,000 sales Total External failure $ 12,000,000 costs
% of revenues
4% 4%
Three methods that companies use to identify quality problems are: (a) a control chart which is a graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time; (b) a Pareto diagram, which is a chart that indicates how frequently each type of failure (defect) occurs, ordered from the most frequent to the least frequent; and (c) a cause-and-effect diagram, which helps identify potential causes of failure.
Relevant Costs and Benefits of Evaluating Quality Improvement The team of engineers working to solve this problem offers two solutions: (1) Further inspect the frames immediately on delivery or (2) Redesign and strengthen the frames and their shipping containers to better withstand mishandling during transportation.
Estimated effect of QualityImprovement Actions on Costs of Quality
Relevant Items
Additional inspection and testing costs
Futher Inspecting Incoming Frames ($)
Redesigning Frames ($)
(400,000)
Additional process engineering costs
(300,000)
Additional design engineering costs
(160,000)
Savings in rework costs
960,000
1,280,000
Savings in customer support costs
40,000
56,000
Savings in transportation costs
90,000
126,000
Savings in warranty repair costs
900,000
1,260,000
Total CM from additional sales
1,500,000
1,800,000
Net cost saving and additional CM
3,090,000
4,062,000
Estimated incremental costs Estimated cost savings and additional contribution margin Estimated benefits
The inspection The redesign alternative alternative $ 400,000 $ 460,000
$ 3,490,000
$ 4,522,000
$ 3,090,000
$ 4,062,000
The net benefits from the redesign alternative are expected to be $ 972,000 greater • Estimated incremental costs: $ 400,000 for the inspection alternative and $ 460,000 for the redesign alternative. • Cost saving from less rework, customer support and repairs. • Increased contribution margin from higher sales as a result of building a reputation for quality and performance.
Nonfinancial measures of Internal Business Process Quality: 1. Percentage of defective products 2. Average time taken to repair photocopying machines at customer sites 3. Percentage of reworked products 4. Number of different types of defects analyzed using control charts, Pareto diagrams, and causeand-effect diagrams 5. Number of design and process changes made to improve design quality or reduce costs of quality.
Time as A Competitive Tool
Manufacturing Cycle Efficiency: Value-added manufacturing time Manufacturing cycle time
Manufacturing Cycle Efficiency: Processing Time Throughtput Time Throughtput Time: jumlah waktu yang diperlukan untuk mengolah bahan baku menjadi produk jadi. Throughtput Time = Processing Time + Inspection Time + Moving Time + Waiting/Strorage Time
Problem for self study: Sloan is considering investing in a new scheduling-and-tracking system costing $ 160,000. Sloan expects each percentage point increase in on-time performance to increase revenue by $ 20,000 per year. Sloan’s contribution margin percentage is 45%.
On-time delivery performance Variable cost per carton lost or damaged Fixed cost per carton lost or damaged Number of carton lost or damaged per year
Current performance 85%
Expected future performance 95%
$ 60
$ 60
$ 40
$ 40
3,000 cartons
1,000 cartons
• Additional annual revenues from a 10% improvement in on-time performance equal $ 200,000 additional CM $ 90,000. Decrease in cost of cartons lost or damaged per year equal $ 120,000, total additional benefits is $ 210,000
