Implementing Quality Concepts

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Cost Accounting Foundations and
Evolutions Kinney, Prather, Raiborn
Chapter 16 Implementing Quality Concepts
2
Learning Objectives (1 of 3)

• Define quality and explain from whose viewpoint
  quality should be evaluated
• Define benchmarking and explain why companies use
  benchmarking
• Explain total quality management as a management
  philosophy and describe the conditions necessary
  to yield its benefits

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Learning Objectives (2 of 3)

• Describe the types of quality costs and explain
  how these costs are related
• Explain how the cost of quality is measured
• Describe how a balanced scorecard and cost
  management system provide information on quality
  in an organization

4
Learning Objectives (3 of 3)

• Explain how quality can become a part of an
  organizations culture
• Identify the international quality standards

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Quality

• The sum of all of the characteristics of a
  product or service that influence its ability to
  meet the stated or implied needs of the person
  acquiring it
• Totality of internal processes that generate a
  product or service
• Customer satisfaction with that product or service

Quality
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Improving Quality

• Increase good output from a specific amount of
  input
• Reduce variability, often by automating the
  process
• Reduce the failure rate
• Conform to customer requirements

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Quality Control

• Quality control all attempts to reduce
  variability and product defects
• Six Sigma
• Statistical Process Control

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Statistical Process Control

• Analyze where fluctuations occur in processes
• Use control charts
• SPC charts require workers to respond when there
  are
• occurrences outside the control limits
• nonrandom patterns
• Workers can prevent product defects and process
  malfunctions

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Characteristics of Product Quality

• Objective
• Performance
• Features
• Reliability
• Conformance
• Durability
• Serviceability and responsiveness

• Subjective
• Aesthetics
• Perceived value

Quality
Sloan Management Review
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Characteristics of Service Quality

• All the characteristics of
• product quality plus
• Assurance
• Tangibles
• Empathy

First Class
First Class
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Evaluating Quality

• Grade
• One of the many quality levels that a product or
  service has relative to the inclusion or
  exclusion of characteristics to satisfy customers
  needs, especially price

• Value
• Meet the highest number of needs at the lowest
  possible cost (purchase price plus operating,
  maintenance, and disposal costs)

First Class
Its too expensive
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Reasons to Benchmark

• Increase awareness of the competition
• Understand competitors production and
  performance methods
• Identify areas of competitors internal strengths
  and weaknesses
• Identify external and internal threats and
  opportunities

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Reasons to Benchmark

• Justify a suggested plan for continuous process
  improvement and change
• Create a framework for program and process
  assessment and evaluation
• Establish a focus for mission, goals, and
  objectives
• Establish performance improvement targets

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Total Quality Management (TQM)
Management approach of an organization, centered
on quality, based on the participation of all its
members and aiming at long-term success through
customer satisfaction, and benefits to all
members of the organization and to society
ISO 8401
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Benefits of TQM

• Internal
• Improved response time to change
• Increased ability to compete profitably
• Decreased costs by reducing or eliminating
  non-value-added activities and waste
• Increased profitability through reduced costs
• Improved products, services, and customer
  relations
• Increased employee morale, motivation, and
  retention

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Benefits of TQM

• Internal
• Improved internal communications and
  organizational focus
• Enhanced employee decision-making abilities and
  teamwork
• Increased innovation and acceptance of new ideas
• Reduced number of errors
• Increased benchmarks for evaluating employee
  performance

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Benefits of TQM

• External
• Increased customer trust and loyalty
• Enhanced customer satisfaction
• Improved response time to customer requests
• Decreased prices resulting from reduced internal
  costs

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Types of Quality Costs

• Cost of Compliance
• Preventive costs - prevent product defects
• Appraisal costs - monitor and compensate when
  prevention fails
• Cost of Noncompliance
• Failure costs
• Internal losses - scrap, rework
• External losses - warranty work, customer
  complaint departments, litigation, product
  recalls

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Strategic Cost Management

• Use management accounting information to
• set and communicate organizational strategies
• establish, implement, assess the methods to
  accomplish the strategies
• assess the achievement of strategies
• Includes reporting information on
• quality goals and objectives

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Organizational Culture of Quality

• Committed and consistent top leadership
• Employees who are eager to meet and exceed
  customer expectations
• Work environment that cares about employees and
  rewards efforts to achieve high quality
• Empowered employees
• Job and quality training
• Pursuit of quality awards

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Questions

• What is quality?
• How is benchmarking used to improve quality?
• What are the different measures of the cost of
  quality?