Three Types of Costs When Quality Considerations

The driving factors for a success or failure of implementing Six Sigma is largely dependent on the inputs set forth at the conception and duration of the integration. This whitepaper will compare and contrast these critical inputs for a successful deployment. In order to accomplish this five various companies: GE Electric, W.R. Grace, Royal Chemicals, Diversified Paper and Lemforder. Some of these organizations had very successful results while others failed to reach their full potential. What is clear is the similarities of those that succeed and those that failed.

Given the highly competitive nature of today’s markets we as a company must provide high quality products to survive. Quality itself has become a major competitive factor and in many ways is a contributing factor in success or failure. The intent of this memo is to identify, explain and evaluate the three types of cost associated with quality.

Trade-offs are often seen within the three types of costs listed above. Sometimes we must choose to spend our budget more heavily on appraisal costs so that we can try to

Cost has different perspectives depending on whom we are speaking about. Consumers refer to cost in reference to the price of healthcare, bills to insurance or payments to doctors directly. Nationally we refer to healthcare spending as a reflection of all healthcare spending that occurs in the nation and is normally measured in a percentage of the Gross domestic product or GDP. Provider costs are seen as the cost to pay staff, buying medical equipment and capital costs for buildings and the maintenance of the buildings infrastructure (Shi & Singh, 2005).

The AHRQ organization has several portfolios’ that are funded and supports research projects. Such portfolios are information technology, health patient safety, prevention and care management, and value portfolios. Within these portfolio’s, grants are there to fund new projects that relate to each category. Within each portfolio, research has been started and effectiveness of these projects is underway. Some clinical research projects are a set of priority conditions of importance to the Medicaid, Medicare, and SCHIP programs. Projected initiatives are to improve quality of care. The Value portfolio finds ways to reduce unnecessary cost and waste while maintaining or improving quality without adding cost which is a critical, national need (2012, p.5).

The current machine is more than adequate for what we do. I know at some point maintenance will price us into a new machine and Peter has already sent us an estimate.

Cost of machine Cost of training Annual cash

All relevant costs located in worksheets #2, and #3 indicate that Shamrock manufacturing will benefit by replacing the machines at either equipment cost. However, worksheet #1 presents a problem for Mr. Fitzgerald as it shows a $6500 increase in the first year expenses, which are irrelevant in the long-run, but may encourage Mr. Fitzgerald not to purchase the new equipment because it may reflect badly on the short-run net operating income of his plant during the evaluation period for his promotion. Worksheet #3 offers a breakeven scenario in the first year and a $24,000 reduction in relevant cash flows in year two, which is the best option for Mr. Fitzgerald and Shamrock, if available.

There are always pros and cons to any quality improvement methodology. For instance, the pros of Six Sigma tend to place extreme importance on leadership and its support for the success of the project. Another pro is the integration of different human elements, which include cultural change, and focus on the customer and their needs. “By using the concept of statistical thinking, Six Sigma encourages applications of statistical tools and techniques that reduce variability” (Harry, 2000). The cons of Six Sigma include, not having the quality data available, especially when a new process has been implemented without having the data available. Often the solutions that Six Sigma proposes can be costly and only a small

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Overview: Canada’s Cleaners Incorporated (CCI) is a dry cleaning company that was established in London, Ontario in 1987. CCI provides a variety of services which include dry cleaning, general pressing, and touch-ups. Its customers consist of 75% women and 25% men, and most of which are white collar workers. The company’s competitive advantage is that they offer a well-pressed shirt with very affordable pricing. The president of CCI, Ron Burdock, is thinking of buying a new shirt machine to replace the company’s 22-year-old shirt machine. He has received an offer of $22000 for his current machine and is in the midst of deciding between three new machines.

Six Sigma focuses on defect prevention; improving quality, cost savings, and reducing waste by helping

The concept of Six Sigma was developed in the early 1980’s at Motorola Corporation (Harry and Schroeder, 2000). Six Sigma can be defined as a statistical measure of the performance of a process or product (Kumi et. al., 2006). It is used as a quality control mechanism, which seeks to reduce defects or variations in a process to 3.4 per million opportunities thereby optimizing output and increasing customer satisfaction (Sambhe, 2012). Sigma is representing the standard deviation, a unit of measurement that designates the distribution or spread about the mean of a process (Six Sigma Academy, 2002). In addition, the Six Sigma uniquely driven by close understanding of customer needs, disciplined use of fact, data, and statistical analysis, and diligent attention to managing improving, and reinventing business processes (Pande, P., et. al. 2000). The Six Sigma methodology uses statistical tools to identify the factors that matter most for improving the quality of processes and generating bottom-line results. The Six Sigma DMAIC (Define, Measure,

Natural and Free has become one of the top leading companies in organic and non-GMO hair care sector. Our company prides itself on a variety of hair products that all different ethnicities can you use. We have identified three types of cost qualities we should follow to maintain our reputation. In order to keep our company growing in this competitive industry and keep our customers satisfied with our products, we must implement these quality considerations. The three types of cost of quality that we are considering are prevention costs, appraisal costs, and failure costs (Internal and External). I will define in detail each costs as well as provide examples of how these costs will guarantee our products to be safe and maintain the company values.

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.