Supply Chain Homework

Is quality free? Or does quality have a cost? What about the cost of poor quality?  How much does that cost? Can you think of a time when you bought a product and it was defective?  What did you do?  How did it make you feel about the firm who made the product?  Think about your actions in that scenario and the costs the company had to incur to “make it right.”

Cost of quality (COQ) analysis was developed in the 50s to help clarify the cost impacts of poor conformance quality. COQ identifies and assesses four major cost categories, which are prevention, appraisal, internal, and external costs.

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  • Prevention costs are incurred due to efforts used to prevent poor quality from occurring in the first place. 
  • Appraisal costs are basically the costs associated with incoming material inspections, product and process inspections, inspection staff salaries, test equipment, and development of test procedures. 
  • Internal failure costs result when a defect is detected before the product is shipped.  These costs include the cost of salvage and rework.
  • Finally, if a defect does occur, and it happens to be discovered by the customer, the firm incurs external failure costs due to complaint settlements, loss of customer goodwill and future sales, returned materials, warranty work, and field service or repairs.

Understanding the Cost of Quality:

The new Quality Manager for XcelForce Inc. has put together a proposal for implementing a TQM Program for their business units in Canada, Mexico, the United States, and the English-speaking Caribbean. She has provided the following expected cost information to the senior management team in charge of approving the proposal:

Cost item                                                                               Total for the year

Quality assurance programs                                                      $4,500,000

Equipment maintenance (regular/scheduled)                             $2,050,000

Product design improvements (redesign/reengineering)             $3,100,000

Estimated (after-sales) product warranty service and repairs      $5,500,000

Product testing and inspection (at the manufacturing facility)      $3,720,000

Employee training programs                                                         $2,500,000

Process improvement/Kaizen projects                                          $1,200,000

Material scrap (associated with defective process output)            $2,300,000

Rework labor (to correct defective process output)                       $4,260,000

Raw materials inspection                                                              $3,230,000

After-sales customer support                                                         $1,500,000

Travel to suppliers to conduct process certification                           $750,000

Travel to customers to solve problems                                              $800,000

1.
What is the total appraisal cost?

 
2.

What is the total prevention cost?

 
3.
What is the total cost of internal failures?

 
4.
What is the total cost of external failures?

 
5.
Delta Airlines carries about 100 million passengers a year. If Delta sets a Six Sigma goal for their baggage handling process, the intended result would be that no more than _________ passengers would suffer loss, damage, or delay of their luggage per year.

 
6.
A hospital is researching the incidence of non-trauma patients in the Emergency Room that wait more than 30 minutes before they are seen at the first station (triage). There have been multiple complaints. The committee in charge of the research gets together to exchange thoughts and ideas about the possible causes for such delays. According to Six Sigma, the best tool to summarize the outcome of this meeting is:

 
7.
Phil Bord is a CEO for a large auto manufacturer and is interested in improving the product quality. Phil had overheard his friend mention 6 Sigma. Considering that Phil has no idea what 6 Sigma is, what are some key points to help Phil out?
 

 

As part of the TQM implementation, those responsible for the manufacturing processes at XcelForce must collect data regarding product defects and the reason for the defects. The following table is a summary obtained last month at the Sonora (Mexico) plant after pulling a total of 1000 units for inspection. A total of 33 defective parts were observed.  Assume that this data is representative of the overall defect rates at this plant.

 

Observation

Reject Cause

Observation

Reject Cause

Observation

Reject Cause

1

Fracture

2

Oxide defect

3

Contamination

4

Oxide defect

5

Oxide defect

6

Fracture

7

Oxide defect

8

Contamination

9

Metallization

10

Oxide defect

11

Contamination

12

Contamination

13

Oxide Defect

14

Contamination

15

Contamination

16

Contamination

17

Fracture

18

Fracture

19

Fracture

20

Contamination

21

Contamination

22

Contamination

23

Contamination

24

Contamination

25

Fracture

26

Fracture

27

Oxide defect

28

Oxide defect

29

Metallization

30

Contamination

31

Contamination

32

Oxide defect

33

Contamination

 

8.
According to your reading, which quality improvement tool is most adequate to determine which type of defect should be tackled first?

 
9.
According to the data, tackling “oxide defects” is the highest priority in this plant.
 

 

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