Chapter 16
Total Quality Management
Teaching Notes for Cases
16-1: Precision Systems, Inc.
This case illustrates that quality cost information can play an important role in alerting top management about the importance of quality improvement in a non-manufacturing department of a manufacturing firm. The case is based on the following article:
Kalagnanam, S. S. and E. M. Matsumura, "Cost of Quality in an Order Entry Department," Journal of Cost Management (Fall 1995), pp. 68-74.
The required questions are designed to acquaint students with some of the terminology of "cost of quality" and some aspects of conducting a cost of quality study. Quality costs, defined as those that arise because poor quality may exist or
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For each external failure item, identify which of order entry’s internal customers (i.e., other departments within PSI that use information from the order acknowledgment) will be affected.
Items 1, 2, 5, 8, 19 and 12 are internal failures; the remaining are external failure items. Internal customers affected by external failure items are listed below.
Item Number Internal Customer(s) Affected 3 Manufacturing, service, stockroom, invoicing 4 Invoicing, accounting (profitability analysis) 6 Manufacturing, service, stockroom, invoicing, accounting 7 Shipping, invoicing, collections, customer support 9 Manufacturing, service, stockroom 11 Invoicing, collections, accounting
Other examples (not included in Exhibit 1):
Error Type Internal Customer(s) Affected
Incorrect serial # of system on OA Service, customer support
Duplicate order Stockroom, shipping, manufacturing, sales admin.
Incorrect sales rep. Code Sales administration
4. For the order-entry process, how would you identify internal failures and external failures? Who would be involved in documenting these failures and their associated costs? Which individuals or departments should be involved in making improvements to the order entry process?
An initial step would be to interview employees in order entry, as well as its
The cost of quality in a manufacturing process and environment are many as you are aware. But the 3 primary costs that we should review on a more regular basis to assure we are creating the most cost effective and quality products are the following: Appraisal, Prevention and Failure, and failure costs should be looked at as internal failure and external failure.
The three types of cost of quality are Prevention costs, Appraisal costs and Failure cost (Both internal and External) (Stevenson, 2009 pg. 421)
Classification: Posting of sales transaction to proper account: tested when accuracy tested; focus on unusual items
Internal failures often happen for many different reasons including receiving defective products from vendors, having the wrong settings set on the machines used to produce the product, using equipment that is not up to the correct safety standards, as well as using the improper methods when operating the machines, carelessness of employees, and not using the proper material handling procedures set forth by the company. The costs of internal failures include loss of production time, having to scrap and rework products, having to investigate circumstances within the workplace that are costing the company money, and damage done to the equipment. Regarding rework, often times the salaries and wages of employees can be affected. With his, there are many steps and procedures that a company must undergo and figure out to be able to get to the bottom of the issues that lie within this aspect of internal failure costs.
Cost minimisation however, cannot be pursued without attention to quality - there must be a balance between the two
Question 2. 2. (TCO G) Explain the concept of the cost of quality model and then link your explanation to how quality can be defined by organizations. What are some advantages and disadvantages of the cost of quality model? This answer must be in your own words—significant cut and paste from the text or other sources is not acceptable. (Points : 30)
Senior leadership must determine and direct the level of quality that is acceptable within the organization. Leadership should prioritize areas of quality and use data based on benchmarks from other facilities. (Dlugacz, 2006). In addition the author states there are some important areas that must be monitored for quality. Compliance must be followed by leaders and all
3. What major problems might you encounter with your new sales force structure as it relates to both external factors (customers) and internal factors (employee reactions)?
This week’s assignment is about evaluating the quality issues of three organizations. The three sectors I chose to evaluate are manufacturing, service and government. I will then discuss the importance of quality to each organization, the relationship of quality to customers, the leadership commitment to quality and the alignment of quality to the organization’s strategic goals and objectives.
Trace items returned to the receiving report, taking note of quantity and date received (S‑4).
Question You are a project management consultant assigned to a small manufacturing firm that has been experiencing a myriad of problems. After conducting interviews and fact-finding with key managers, you have observed the following:
What is quality improvement? Why is it necessary? Who benefits from having a Quality Improvement Team? What can we do to improve their performance? Quality improvement is a “structured
Our company should make sure that manufacturers deliver products with the highest design specification, in order to be order-winner quality conformance, by delivering products with no defects (Hill and Hill, 2012). Furthermore, improvements in quality lead to a decrease in cost for the company. According to (Evans, 1997) higher quality products lead to a decrease in costs for the company through higher productivity: ‘improvements in quality leads to lower cost because of less re-work, fewer mistakes, fewer delays and snags’ (Evans 1997, P.55).
3. Next we need a clear picture of our internal processes and how they impact both our customers and prospects. We would be surprised how often internal processes actually tell our customers we don’t want to do business with them.