Cost of Quality

1. Cost of Quality • Many times, when organizations look at the cost of quality, they look at the cost of implementing a quality program. • This is not the correct notion of cost. • When we look to define the cost of quality, we can look at it in two ways: • The Cost of Compliance- those costs associated with doing what you said you were going to do • The Cost of Non-Compliance- those costs (penalties) associated with not doing what you said you were going to do.

2. Remember: as the supplier, you said you were going to produce a quality product • The cost of compliance is often seen as a direct dollar cost (an up-front cost), while the cost of non-compliance may not be seen as a direct dollar cost. • When we look at the direct dollar costs, we can easily see the value, but when we can’t easily measure the costs, we tend to feel they are not as damaging. • The costs of non-compliance can be lethal to any business.

3. Costs of Compliance • When we look at the costs of compliance, we look at the costs of doing what we said we were going to do. • Audits- performing inspections to ensure defective products do not get passed to the customer. Audits are also done to ensure adequate service is provided. • Design Reviews- reviewing the control designs currently in use to ensure the design is the best as we work towards meeting our customer’s needs.

4. Costs of Compliance • Documentation- creating documentation (manuals, reports, etc.). • Equipment Calibration- ensuring all equipment is working as it should so the final product is not defective. • Training- enhancing the knowledge of workers by providing training when needed. (eg. training on new piece of equipment to ensure it is used properly and safely)

5. Costs of Non-compliance • The costs associated with not doing what we said we were going to do. • Accidents- there are many direct costs associated with accidents in the workplace, but there are also indirect costs that are not as easy to place an exact dollar amount on. Eg. The cost of having to replace a valuable worker who produces quality work, with someone who is not as familiar with that work. • Customer Satisfaction- this cost is difficult to measure. Ask, if one dissatisfied customer had been satisfied in the original transaction, what might they have spent in future transactions? Also, imagine the number of people who might have been told about the dissatisfying experience. How much would they have spent in future transactions? We cannot measure this but what we may have lost can be very damaging.

6. Cost of Non-compliance • Loss of Market Share: Again, what might we have lost because of our non-conformance? How much of our business has gone to the competition as a result of our loss of quality? • Joseph Juran refers to these costs of non-conformance as the “costs of poor quality”. He says that these costs would disappear if products and processes were perfect.

7. Direct Costs • Direct costs are those of compliance and non-compliance. These costs are more easily identified and tracked than indirect costs since they can often be identified as an up-front dollar amount. • Direct Costs may be divided into 4 categories: 1. prevention: any cost incurred in an effort to prevent failure in meeting a requirement (applicant screening, job descriptions, market analysis, planning, training, procedure writing)

8. Direct Costs • 2. Appraisal: any cost incurrent in an effort to detect a failure in meeting requirements (Audits, shipping inspection, final inspection, equipment calibration, procedure checking) • 3. Internal failure: any cost incurred for products that do not meet requirements and have not been transferred to the customer (Employee turnover, rework, repair costs, scrap) • 4. External failure: any costs incurred for a product or service that does not meet the requirements and the product was transferred to the customer (warranty expense, complaint investigation, returned goods)

9. Indirect Costs • These are the costs associated with non-compliance (not doing what we said we were going to do). They are difficult to identify and track because the exact dollar amount is not always clear. They are divided into 5 categories: 1. Lost Opportunity Costs: situations where an existing opportunity to make money has been lost. These often include excessive inventory, accidents and price concessions.

10. Indirect Costs • 2. Customer goodwill: when a product fails to meet customer requirements, or it is not “fit for use”, customers may incur additional costs, they may be dissatisfied and they may tell other people about their dissatisfaction. Some of these costs include: loss of customers and loss of reputation. • 3. Erosion of market share: if an organization fails to meet ever changing customer requirements or loses its reputation for producing quality products, delivered on time, it will probably begin to lose its market share to its competitors.

11. Indirect Costs • 4. Liability: when a product is seen to be deficient, causing property damage, injury, or death, a lawsuit may be filed. If the verdict is unfavorable, the company’s reputation may be damaged causing a loss of customers and market share. • 5. Penalties: Again, if the verdict is unfavorable, the company may have to pay large fines but there is also the dissatisfaction of possible late deliveries or payment of bills.

12. Explain the purpose of codes and standards in various occupations • It is important to define codes and standards before discussing the purpose of them. • A code is a system of accepted laws and regulations that govern procedure or behaviour in particular circumstances or within a particular profession. • For example: Construction Code, Electrical Code and Safety Codes • A standard is defined as a level of quality or excellence that is accepted as the norm or by which actual attainments are judged. • For example, standards used when storing materials. • Question: What is the difference between a standard and a code?

13. What is a Quality Standard? • Standards set out the guidelines for achieving a certain level of expertise in production or product development. • These guidelines help all members of an organization work to a common set of rules. • Standards provide customers with the assurance that products or services of the require quality will be supplied. • It provides suppliers with the responsibility for achieving the required quality and then demonstrating that it has been provided.

14. Why are Standards Developed? • 1. Prevention- preventing the occurrence of non-conforming products or services. • 2. Reaction- reacting to non-confirming products or services to prevent their recurrence. • 3. Verifying- requires suppliers to plan and establish a program for verifying and documenting the conformance of products or services throughout the process. • 4. Sorting- requires suppliers to plan and establish a program for sorting the good from the bad. Suitable for mass production or high volume services

15. Why is selecting the appropriate standard important? • The selection of an appropriate standard is important for the supplier. If he/she selects one that is too low, he/she may not meet customer requirements. If he/she selects one that is too high, then the time and expense necessary to gain and maintain it may harm the business. • An organization can choose to develop and apply its own standards, but a more strategic approach is to use national, international or foreign standards that fit its needs, or alternatively, to put forward a standard it has developed as the basis for a national or international standard.

16. International Organization for Standardization • The term ISO 9000 refers to a set of quality management standards. Its purpose is to facilitate international trade by providing a single set of standards that people everywhere would recognize and respect. • It applies to all kinds of organizations in all kinds of areas such as manufacturing, processing, servicing, printing, forestry, electronics, steel, computing, legal services, financial services, accounting, trucking, etc.

17. ISO- How does it work? • A company will decide it needs to improve its quality, so it will decide to develop a quality management system. • The company will decide which of the ISO programs meets its needs. • There are a number of programs (ISO 9000:2005, ISO 9001: 2000, etc.) • They consist of process standards (not product standards- the company chooses this) • Once your quality management system has been fully developed and implemented, you carry out an Internal Audit to ensure all requirements have been met. • Then a Registrar from ISO will come in to audit the effectiveness of your quality management system. If he/she likes what he/she sees, your quality system will be certified ISO approved. • We discussed the 8 ISO principles in a previous class:

18. ISO Principles • 1. Focus on your customers: all organizations rely on customers so they must understand their needs, meet their requirements and exceed their expectations. • 2. Provide leadership: leaders must establish a unity of purpose and set the direction the organization should take. They must also create an environment that encourages people to achieve the organization's objectives. • 3. Involve your people. Organizations rely on people, so organizations must encourage the involvement of people at all levels and help people develop and use their abilities.  • 4. Use a process approach: organizations are more efficient and effective when they use a process approach(a process uses inputs to generate outputs).

19. 5. Take a systems approach: organizations must identify interrelated processes and treat them as a system. Every process generates at least one output and this output becomes an input for another process. These input-output relationships glue all of these processes together- that’s what makes it a system). • 6. Encourage continual improvement: organizations must make a permanent commitment to continually improve their overall performance. This will make them more efficient and effective. • 7. Get the facts before you decide: organizations perform better when their decisions are based on facts. • 8. Mutually beneficial relationships with suppliers: Organizations depend on their suppliers to help them create value.

20. CSA- Canadian Standards Association • CSA is the abbreviation for the Canadian Standards Association, which is Canada’s largest standards development and certification organization. • CSA was established in 1919 and is an independent, non-government, not for profit association with headquarters in Toronto. • CSA is accredited by the Standards Council of Canada, a crown corporation mandated with promoting efficient and effective standardization in Canada • CSA standards are developed and written by volunteer committees representing a combination of government, industry, academia, special interest groups, consumer groups and the public.

21. CSA • The Canadian Standards Association is an independent, non-profit organization governed by a Board of Directors that exists to develop standards. Among the 57 different areas of specialization are: • climate change, business management and safety and performance standards, including those for electrical and electronic equipment, industrial equipment, boilers and pressure vessels, compressed gas handling appliances, environmental protection, and construction materials. • Most standards are voluntary, meaning there's no laws requiring their application. • Despite that, adherence to standards is beneficial to companies because it shows products have been independently tested to meet certain standards. • The CSA mark is a registered certification mark, and can only be applied by someone who is licensed or otherwise authorized to do so by the CSA.

22. CSA- How does it work? • When called on to develop a standard, CSA forms a committee composed of volunteer members. The volunteers are selected to represent the various interest groups most likely to be affected by the standard, such as business and industry, regulatory bodies, science and academia, labour, and consumer groups, as applicable. • Our 9000 members come from all walks of life and all professions. They contribute to more than 1300 committees involved in the development of standards for thousands of products, materials, and services. • Their committees are created using a “balanced matrix” approach, which means each committee is structured to capitalize on the combined strengths and expertise of its members- with no single group dominating.

23. CSA- How does it work? • The committee considers the views of all participants and develops the details of the standard by a consensus process, which includes the principles of inclusive participation, and respect for diverse interest and transparency. • Substantial agreement among committee members, rather than a simple majority of votes, is necessary. • When a draft standard has been agreed upon, it is submitted for public review, and amended if necessary. • CSA standards are living documents, continually revised and refreshed to address changing requirements and emerging technologies. Each standard is reviewed at least every five years as part of their process of continual improvement.

24. How do products earn the CSA certification mark? • The manufacturer submits appropriate technical documentation and a prototype of the product to CSA International. • The product is then tested to determine whether it meets specific standards that apply to that type of product in the market in which it is intended to be sold. • For example, electrical appliances are tested to a different set of standards than gas appliances. • Although the requirements vary for different types of products, the goal is basically the same—to help ensure that the product complies with the local codes and regulations. • Production facilities are inspected regularly to ensure that they continue to comply with the standards.

25. What types of products carry the CSA certification mark? • The CSA mark appears on a wide variety of qualified products manufactured for consumer, commercial and industrial uses. • Examples include: • gas and electrical appliances; HVAC (heating, ventilation and air conditioning) systems and components; lighting products; home entertainment products; industrial controls and switchgear; electro-medical and laboratory equipment; plumbing products; recreational vehicles; process controls; power supplies; sport and personal safety devices; and information technology equipment.

26. WHMIS • The Workplace Hazardous Materials Information System (WHMIS) is Canada’s national hazard communication standard. • The key elements of the system are cautionary labeling of containers of WHMIS “controlled products”, the provision of material safety data sheets (MSDSs) and worker education and training programs. • Their mission is to prevent death, illness and injury related to workplace chemicals through the communication of relevant information.

27. WHMIS is implemented through coordinated federal, provincial and territorial legislation. • Supplier labeling and MSDS requirements are set out under the Hazardous Products Act and associated Controlled Products Regulations. • The Hazardous Products Act and its regulations are administered by the Government of Canada Department of Health, commonly referred to as Health Canada. • The Controlled Products Regulations establish a national standard for the classification of hazardous workplace materials

28. A product which falls within any of the hazard criteria set out in theControlled Products Regulations (CPR) is a WHMIS "controlled product” and is subject to the MSDS and labeling requirements of the Hazardous Products Act (HPA). • The HPAplaces a legal requirement on the Canadian supplier of a WHMIS controlled product intended for use in a work place in Canada to transmit a MSDS and apply a label disclosing prescribed information as a condition of sale. • The HPA also places a legal requirement on the Canadian importer of a controlled product to obtain or prepare a MSDS and to ensure that the label is applied as a condition of importation.

29. How does it work? • Each of the provincial, territorial, and federal agencies responsible for occupational safety and health has established employer WHMIS requirements within their respective jurisdictions. • These requirements place an onus on employers to ensure that controlled products used, stored, handled or disposed of in the workplace are properly labeled. • Material Safety Data Sheets (MSDS) are made available to workers, and workers receive education and training to ensure the safe storage, handling and use of controlled products in the workplace.

31. Food Safety Code of Practice • The 1993 Sanitation Safety Code has been replaced by the Food Safety Code of Practicepublished byThe Canadian Restaurant and Foodservices Association (CRFA) which is a more accessible version of the Food Retail and Food Services Code, intended to guide food service operators to achieve and maintain conditions that ensure food safety. • It contains the standards which must be implemented to ensure that all food is safe for human consumption. • It contains the following topics: • Hazard avoidance, quality management, cleaning, personal hygiene, control of insects, rodents and birds in the food environment, sanitary aspects of food plant design, sanitation of raw materials, equipment ad process sanitation, packaging sanitation, sanitation during food transport and food regulations.

32. Food Retail and Food Services Code • Guiding Principles a) The safety of foods produced and sold through the food retail and food service sectors is a shared responsibility among many stakeholders including: the operators of food premises, food workers, regulatory agencies and consumers. • b) The Code has been developed on the basis of the following guiding principles: • i) the retail and foodservice industries have the primary responsibility of ensuring the safety of their foods and, where applicable, of providing a reasonable level of descriptive product information to permit consumers to make informed decisions; • ii) consumers have a right to be informed, and are also responsible for safe food handling; • iii) government has a responsibility to: • set and enforce standards for health and safety based on sound scientific risk assessment and management principles, • work to ensure that food product information provided by industry is sufficient and accurate, • provide health and food safety information to consumers and to industry.

33. Measurement of Quality • To determine if we have produced a quality product, or provided a quality service, we must first define what we mean by quality. • Once we have defined quality we must determine what we need to measure, how to measure it, and what we will accept as a quality outcome.

34. Measurement • What makes something “fit for use”? In any trade, there is a term called “Tolerance”. Tolerance allows for a variation within acceptable predetermined levels in a product, making it acceptable, or “fit for use”. • The lower the tolerance, the greater the demand that is imposed on the tradesperson. • VARIATION: if one, two, ten or twenty people perform the same job, there will ultimately be a variation between each item made. As long as the item falls within the guidelines for quality, or “fitness for use”, it will be considered a good quality product.

35. VARIATION • Some examples: • A cook bakes a cake and the recipe calls for two teaspoonfuls of sugar. The recipe states that the two teaspoonfuls can be over or under by one quarter of a spoonful. So if the cook uses two and a quarter spoonfuls, or one and three quarter spoonfuls, the cake will still be within tolerance and “fit for use”. • A welder is asked to weld two pieces of plate together at 90 degree angles, plus or minus 1 degree. So, if the plate is welded at 89 or 91 degrees, it is within tolerance and “fit for use”.

36. Variation • There are 5 factors that can contribute to variation: • 1. The process causes variations in quality due to factors such as tool wear, machine vibration, fluctuations in electrical and pneumatic power. These factors are always at play even between supposedly identical machines. • 2. Material variation can be caused by thickness, porosity, moisture content and variations already present in raw materials. • 3. Environment variation is caused by factors such as temperature, light (too much or lack of) and clean air. • 4. Operator (tradesperson) variation occurs by the method which the operator performs the work. The emotional and physical wellbeing of the person, and the type of training that the tradesperson has received. • 5. Inspection variation occurs based on elements of the above noted factors. In the inspection activity, there is an inspector, inspection equipment, and the environment.

37. Variation • When all these factors are considered, the only variations that should take place are those that occur due to chance. When only chance elements are present, then the process is said to be under control. • The measurement of quality is that area of study in which we determine how well we have attained our quality objectives. • It generally involves a means by which we evaluate actual performance, compare performance to the goal sought and take action (if necessary) on the difference.

38. The Quality Audit • ISO says that the success of any quality management system is having regularly scheduled internal audits. • A quality audit is defined as a planned and documented check that allows us to determine if we are doing if we are doing what we said we were going to do– produce the final outcome of quality. • The audit gives us an objective examination allowing us to measure how well the quality system is working and lets us know where we can possibly improve.

39. Elements of the Quality Audit • Before the audit • Compile the audit schedule: determine the exact nature of the audit (check on the whole system or on some particular aspect of the company)- this will determine the nature and timing of subsequent activities. • Appoint a person or persons to be responsible for the audit: depending on the nature of the audit, the company will have to decide on whether the audit will be an internal or external audit. Once this has been determined, an auditor will be appointed and this person will then be responsible for the planning, preparation, performing and reporting of the audit. • Notify the person or departments to be audited: a time must be determined that is agreeable to both the auditor and the auditee(s). Final notification of audit time will be presented in writing. • Identify, obtain and review all documentation relative to the audit: examples may be procedures being audited; work instructions (know what is currently happening in the areas you’re auditing, relative specification, code and standards of the process being audited and a copy of the last audit report. • Develop the audit checklist: this is a list developed to identify the areas that will be examined. The items may be selected based on process and on any areas that have had problems in the past.

40. During the audit • During the performance of the audit, those involved (auditor and auditee(s)) must maintain an atmosphere that is non-judgemental so the audit is seen as a positive exercise. • All safety procedures must be followed. • The purpose and scope of the audit should be clearly outlined to those being audited and any questions or concerns dealt with prior to the start of the audit. • A meeting of the audit team usually occurs so that findings can be evaluated prior to the completion of the audit report.

41. After the audit • A meeting is conducted once the audit report has been written. • The audit report must be issued in a timely manner. • The meeting is important as it provides a forum for the auditor and the auditee(s) to discuss any positive findings of the audit and any negative findings that need to be addressed. • In class activity: • Why is it important to discuss positive findings? Negative findings?

42. Elements of a Quality System • Successful quality systems share common elements: • Management: a quality system cannot succeed without the active and continuous involvement of line and staff managers. • Successful quality systems require a partnership in responsibility for improving quality and achieving results. Everyone shares the responsibility for quality

43. Elements of a Quality System • Customers: Every organization needs to know its customers. Successful organizations tell customers what their products are supports to do- and then ask them how well the products performed. • Design: Quality has to be designed into a product or service. An organization can only do that by bringing design and development personnel in on the quality effort along with marketing, production, and customer support.

44. Elements of a Quality System • Purchasing: suppliers are partners, not adversaries in the quality effort. Smart organizations evaluate a supplier’s price and quality, and, if necessary, help them improve their quality system • Production: production equals people working with processes to produce goods and services. Employees need training, tools, and clear work instructions to efficiently produce high quality designs. • Education and training: everyone has an influence on quality- line workers, middle management, support staff, and senior executives. They all benefit from training in the principles of quality.

45. Elements of a Quality System • Participative Management: providing skills and training is not enough; managers must encourage staff to solve problems independently. Managers need to tap into a company’s most valuable resource, employees, to boost productivity and cut costs. • Statistics: decision makers need to know the risks involved in their decisions. Successful organizations know statistics can be the difference between failure and success in controlling processes and solving problems.

46. Elements of a Quality System • Technology: advances in computerization and robotics promise huge gains in productivity- if automated systems are not producing products that must be reworked. • Quality Costs: organizations can spend money on quality by investing in good quality or by paying for poor quality. Successful ones invest in good quality because they know it costs must less over the long term.

47. Elements of a Quality System • Auditing: an effective quality audit provides companies with solid information about how people, systems, and products are performing in terms of quality. • Ongoing improvement: the secret to success in quality is preventing problems. To help improve quality and prevent problems before they occur, quality teams can be established to bridge departmental barriers.

48. The 16 Fundamental Principles of Quality Assurance • The organization is responsible for establishing a program that satisfies these principles. • The required quality and the means of achieving it will be defined. • A policy statement will be issued committing all units of the organization to the program • Responsibility and assignments of individuals will be defined and understood

49. The 16 Fundamental Principles of Quality Assurance 5. Personnel will be competent at the work they do. 6. The right people will have the right information at the right time 7. Relevant experience will be sought and used. 8. Work will be planned and controlled. 9. The right material, equipment and processes will be used. 10. Work will be effectively verified to conform that it is correct.

50. The 16 Fundamental Principles of Quality Assurance 11. Those who verify work will do so independently from those who do the work (the responsibility for quality is on the operator, including the work-in-progress inspection. Final inspection is provided, but every attempt is made to keep it to a minimum). 12. Deficiencies and their causes will be identified and remedied. 13. Changes to accepted material, equipment and processes will be controlled.