Session 16 (BenchMarking& Cost of Quality)
Session 16 (BenchMarking& Cost of Quality)
Session 16 (BenchMarking& Cost of Quality)
7 & 8)
Benchmarking (Ch -7)and Performance Management Through Cost of Quality (Ch -8)
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Benchmarking
Benchmarking the search of industry best practices that lead to superior performance. Best practices approaches that produce exceptional results, are usually innovative in terms of the use of technology or human resources, and are recognized by customers or industry experts. Hierarchy of Best Practices
World Class Any Orgz. USA, etc.. Industry -wide Competitor
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Internally
Toyota for processes, Intel for design, Motorola for training, Scandinavian Airlines for service, and Honda for rapid product development. Benchmarking
The sharing of information between companies, so that both can improve.
Purposes of Benchmarking
I II III IV V VI VII Learning from successes Borrowing ideas Best-in-firm Beating industry standards Best-in-class National leadership Best-in-World
Types of Benchmarking
1. Internal benchmarking Orgz. Need not always look outside to find out the best practices. They could study the best performing division in house. E. G against the measures such as cycle time error rate quality cost; customer feedback etc. E. G. -- Error in dvn. Is 1ppb(parts per billion) & other 1%. Obj improve it.
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3. Process benchmarking Strategy ---- expressed in terms of mission & vision statements E.G. Take the case of 2 Insurance Orgzs. A. Ist Orgz vision as becoming the easiest in the industry to do business with. Emphasizing Speed of writing policies & an outstanding level of cust. Service. Benchmarking Customer Service Processes
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Benchmarking
Selecting best practices to use as a standard for performance
Determine what to benchmark Form a benchmark team Identify benchmarking partners Collect and analyze benchmarking information Take action to match or exceed the benchmark
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Prevention Costs
Quality planning costs
costs of developing and implementing quality management program
Training costs
costs of developing and putting on quality training programs for employees and management
Product-design costs
costs of designing products with quality characteristics
Information costs
costs of acquiring and maintaining data related to quality, and development of reports on quality performance
Process costs
costs expended to make sure productive process conforms to quality specifications
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Appraisal Costs
costs of testing and inspecting materials, parts, and product at various stages and at the end of a process
Operator costs
costs of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality
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Rework costs
Price-downgrading costs
costs of discounting poorquality productsthat is, selling products as seconds
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cost index
ratio of quality cost to manufacturing cost
sales index
ratio of quality cost to sales
production index
ratio of quality cost to units of final product
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$ 4,360,000 1,760,000
4,450,000 1,810,000
5,050,000 1,880,000
5,190,000 1,890,000
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Index
Quality Quality Mfg Sales Index Cost Index --------------------------------------------------------2001 18.58 46.04 2002 18.63 45.18 2003 12.66 34.00 2004 10.49 28.80
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Year
QualityCost Relationship
Cost of quality
Difference between price of nonconformance and conformance Cost of doing things wrong
20 to 35% of revenues
Profitability
In the long run, quality is free
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Y I %G %R
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= yield = number units started in production = percentage good units = percentage of defective units reworked
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Product Yield
Start 100 motors per day 80% are good 50% of poor quality units can be reworked Yield = (I)(%G) + (I)(1 - %G)(%R) Y = 100(0.80) + 100(1 - 0.80)(0.50) = 90 motors If product quality is increased to 90% good,
Product Cost
(direct manufacturing cost per unit)(input) + (rework cost per unit)(reworked units) Product cost = yield
(Kd)(I) + (Kr)(R) Y
= direct manufacturing cost per unit = input = rework cost per unit = reworked units = yield
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Product Cost
Direct mfg cost = $30, Rework cost = $12 100 motors started, 20% defective 50% of defective motors can be reworked Product cost = Product cost = (Kd)(I) + (Kr)(R) Y = $34.67 per motor
where
I = input batch size %gi = percent good at stage i
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Y = (%g1)(%g2)...(%gn)
100 (0.93)(0.95)(0.97)(0.92)
= 126.8 motors
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QPR =
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QPR Example
Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked Company studies 4 changes 1. Increase production to 200 units/day 2. Cut processing cost to $26 & rework cost to $10 3. Increase yield to 95% 4. Combine 2 and 3
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QPR Example
Direct cost = $30/unit Rework cost = $12/unit Start with 100 motors per day 80% are good, 50% of defective units can be reworked
Base case: QPR = 80 + 10 ( 1 0 0) (100)($30) + (10)($12) = 2.89
= 2.89
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QPR Example
Case 2: Reduce processing cost to $26 and rework to $10 QPR = 80 + 10 (100) (100)($26) + (10)($10) = 3.33
Case 3: Increase initial good-quality to 95% QPR = 95 + 2.5 (100) (100)($30) + (2.5)($12) = 3.22
= 3.71
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Problem - 1
At H & S motor Company, motors are produced in 4 stage process. Motors are inspected foll. Each stage, with % yield (on avg) of good quality, WIP units are as follows:
Stage Avg % good quality ------------------------------------------1 0.93 2 0.95 3 0.97 4 0.92 -------------------------------------------------------The company wants to know the daily product yield for pdt. Input of 100 units per day. Further more, it would like to know how many input units, it would have to start with each day to result in a final daily yield of 100 good quality units.
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Problem -2 (QPR)
A retail tel. Co. takes catalogue orders from customers & then sends the completed orders to the W/H to be filled. An operator processes on an avg of 45 orders/day. The cost of processing orders is Rs. 1.15 and it cost Rs. 0.65 to correct an order. An operator averages 7% bad orders per day, all of which are reworked prior to filling the customer order. Determine the QPR for an operator.
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Thanks
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