Cost of Quality_Final - 24.01.2012

8/12/2019 Cost of Quality_Final - 24.01.2012

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EDP Project

SEPT - 2011


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Define Cost of Quality and Develop Report for Cost of Quality

Project Objective: To Study and Define Cost of Quality and Developing Report for

measuring and analysing Cost of Quality

Project Deliverables:

1. To Define Cost of Quality (before sales and after sale)

2. To determine the elements of Cost to be considered for determining the Cost of Quality.

3. To standardize a format for capturing the Cost of Quality

4. Assess the status where TML stands in comparison to other Auto industry

Project Guide: Uttam Biswas, Head (Finance)

Name Location

Riat Rashpalsingh Pune PCBU

Verma Manish Jamshedpur Works

Kumar Dhanu Jamshedpur Works

Taiyab Md. Jamshedpur Works

Kothari Manoj Pantnagar Works

TEAM MEMBERS


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Cost of Quality

The COQ is the cost (both Tangible and Intangible)

relating to the Quality characteristics of a product orService.

Definition


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1. Cos ts of conformance

(Cost of control):It has twocomponents:

Prevention costs

Appraisal costs

2. Cos ts of non conformance(Cost of failure of control):It

has two components:

Internal failure costs

External failure costs

Elements of costs to determine Cost of Quality


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1. Quality management has a major impact on the financial results.

2. Many areas do not realize the actual cost of quality leading to high quality cost

3. To achieve the most effective improvement effort, it is evident that quality and

costs are complementary and not conflicting objectives.

GENESIS OF THE PROJECT

The goals of this project are to measure as

accurately as possible the Costs of Quality, to identify

what could be improved in order to optimize costsand processes, and to set up a framework

for the collection and analysis of quality costs.


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Quality Cost


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Scraps

Customer returns

Inspection costs

Testing costs

Reprocess

Loss of market share

Loss of costumers

Lack of motivation

Development cost of

failed product

Unused capacity

Loss of productivity

Inefficient processes

Longer product life

cycle

Iceberg Model - Intangible costs,


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WORK DONE FOR DEVELOPING FORMAT FOR CAPTURING COST OF QUALITY

Benchmark data for cost of quality is not available from other Automotive

Industries

Cost of Quality for all the four plants (Jsr, Lkw, Pune & Pantnagar) were

gathered and studied.

Comparison was done in between the reporting of Cost of Quality for all theplants.

All elements of cost involvement were studied inside the plant and

recommendations given for capturing the same

Cost elements were categorized according to the type of costs


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Scraps

Customer returns

Inspection costs

Testing costs

Reprocess

Loss of market share

Loss of costumers

Lack of motivation

Development cost of

failed product

Unused capacity

Loss of productivity

Inefficient processes

Longer product life

cycle

Iceberg Model - Intangible costs,


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JAMSHEDPUR FORMAT FOR CAPTURING COST OF QUALITY

S. No. Particulars Source of Data

1.0 Prevention Costs

1 Products/Service/Design Development 80% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 %

Share of Common Services

1 Purchasing Prevention Costs Total expense of ADD (BC 1216936) and Sourcing World Truck (1216272) has been

considered for purchasing prevention cost + 26 % Share of C.S .

1 Operations Prevention Costs Cost of maintenence work + 26 % Share of C.S .

1 Quality Administration Total expense of Inspection + 26 % Share of Common Services

1 Other Prevention Costs

2.0 Appraisal Costs

2 Purchasing Appraisal Costs Not Tracked

2 Operations Appraisal Costs Total cost of Inspection + 26% Share of Common Service2 External Appraisal Costs PDI provision

2 Review of Test and Inspection Data 20% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 %

Share of C.S.

2 Misc. Quality evaluations

3.0 Internal Failure Costs

3 Product/Service Design Failure Costs Not Tracked

3 Purchasing Failure Costs Not Tracked

3 Operations Failure Costs Not Tracked

3 Scrap Net Values of amount booked as scrap in GL 400001 & 891001& Recovery in 4001013 Rework

3 Rectification Cost of Rectification work Centres

3 Other Internal failure costs

4.0 External Failure Costs

4 Warranty Cost Warranty Provision

TOTAL QUALITY COSTS

PRODUCTION: (Eq. Nos.) Total Eq Veh


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S. No. Particulars Source of Data

1.0 Prevention Costs

1 Products/Service/Design Development 80% of ERC Revenue and Support Projects cost

1 Purchasing Prevention Costs Total expense of ADD (BC 1316240) has been considered for purchasing preventioncost.(Manpower Cost)

1 Operations Prevention Costs Manpower Cost for workers employed for maintenence work (data manually by area

owner) and machinery spares expense (SAP)

1 Quality Administration Total expense of QA (BC 1316500)+ C/s share

1 Other Prevention Costs

2.0 Appraisal Costs

2 Purchasing Appraisal Costs 80% of ERC Revenue and Support Projects cost

2 Operations Appraisal Costs Total expense of ADD (BC 1316240) has been considered for purchasing prevention

cost.(Manpower Cost)

2 External Appraisal Costs Manpower Cost for workers employed for maintenence work (data manually by area

owner) and machinery spares expense (SAP)

2 Review of Test and Ispection Data Total expense of QA (BC 1316500)+ C/s share

2 Misc. Quality evaluations

3.0 Internal Failure Costs

3 Product/Service Design Failure Costs Not Tracked

3 Purchasing Failure Costs Not Tracked

3 Operations Failure Costs Not Tracked

3 Scrap Values booked as scrap in GL 400001 & 891001

3 Rework 3 Rectification Manpower employed for Rectification work in R2 area and other direct cost centres

(Captured Mannualy)

3 Other Internal failure costs

4.0 External Failure Costs

4 Warranty Cost Warranty Provision

Retro Cost Values booked in GL 445915 Campgn/RetroFit Exps

TOTAL QUALITY COSTS

PRODUCTION: (Eq. Nos.) Total Eq Veh

LUCKNOW FORMAT FOR CAPTURING COST OF QUALITY


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PUNE FORMAT FOR CAPTURING COST OF QUALITY

PREVENTIVE COSTS

Quality Planning & Process Control Planning

Quality Planning Salary -10 % of QA BCs + C/s shareProcess Control Planning Salary 22 % of QA BCs + C/s share

Quality Planning by functions other than Quality Control M/s Purchase + Projects + APL - 10 % of Salary

10 % Design of ERC & PE Bc

30 % Testing Charges of ERC

Quality Training Training cost - 50 %

Other Preventive Costs QA Balance Expenses

APPRAISAL COSTS

Test & Inspection of purchased Material QA Cost involved in Inward Inspection - 9510 & 9711Self Checking 1 % Salary of Auto for self checking

Inspection & Testing QA Cost involved in Inward Inspection - Balance salaries + C/s Allocation

Test & Inspection Material Estimated Rs.25 lakhs per Qtr

Outside Endorsements / Approvals a/c 439350 - Testing charges

Maintenance & Calibration of Inspection & Test Equipments QA Metrology Expenses - Partial salary + depreciation Cost

INTERNAL FAILURES

Rejections Rejection value of auto provided by QA - Value of Controllable Fault (CF)

Trouble Shooting 5 % of salary of M1 to M5 in Auto + Foundry

EXTERNAL FAILURES

Domestic Warranty provision for Current Year

Export Warranty provision for Current Year

Additional Provision for previous years (Domestic)

Additional Provision for previous years (Export)

Retro fitment Cost


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S NO P A R T I C U L A R S Source of Data

I

1 Quality Planning & Process Control Planning

a Quality Planning

b Process Control Planning

2 Quality Planning by functions other than Quality Control

3 Quality Training

4 Other Preventive Costs

II

1 Test & Inspection of purchased Material

2 Self Checking3 Inspection & Testing

4 Test & Inspection Material

5 Outside Endorsements / Approvals

6 Maintenance & Calibration of Inspection & Test Equipments

III

1 Rejections

2 Trouble Shooting

IV1 Warranty provision for domestic vehicles sold during

the period

2 Additional Provis ion for previous years

V

1 Interest on Investments

APPRAISAL COSTS

PREVENTIVE COSTS

OTHERS

% of Turnover

GRAND TOTAL ( I TO V )

EXTERNAL FAILURES

INTERNAL FAILURES

PANTNAGAR FORMAT FOR CAPTURING COST OF QUALITY


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Particulars Source Of data Particulars Source Of data

Marketing/Customer/User Not Tracked Quality Planning & Process

Control Planning

Products/Service/Design

Development

80% of ERC Revenue and Support

Projects costQuality Planning

Salary -10 % of QA BCs + C/s

share

Purchasing Prevention

Costs

Total expense of ADD (BC 1316240)

has been considered for purchasing

prevention cost.(Manpower Cost) Process Control PlanningSalary 22 % of QA BCs + C/s

share

Operations Prevention

Costs

Manpower Cost for workers

employed for maintenence work

(data manually by area owner) and

machinery spares expense (SAP)

M/s Purchase + Projects +

APL - 10 % of Salary

Quality Administration Total expense of QA (BC 1316500)+

C/s share 10 % Design of ERC & PE BC

Other Prevention Costs 30 % Testing Charges of ERC

Quality Training Training cost - 50 %

Other Preventive Costs QA Balance Expenses

Lko & Jsr (Format and Reporting Same) Pune & Pantnagar (Format and Reporting Same)

Quality Planning by functions

other than Quality Control

RemarksCOQ

Elements

1. Cell indicated with

red colour are totally

different for cost

tracking


same colour (other than

red) are showing data

capturing from samesource but criteria is

different

Preventive

Cost

COMPARISION OF REPORTING FOR ALL LOCATIONS


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Purchasing Appraisal Costs Not TrackedTest & Inspection of purchased

Material

QA Cost involved in Inward

Inspection - 9510 & 9711

Operations Appraisal Costs

Total cost of VQA (BC 1316550) +

Manpower employed for Inspection

work in R2 area and other direct

cost centres(Manually)

Self Checking1 % Salary of Auto for self

checking

External Appraisal Costs PDI provision Inspection & Testing

QA Cost involved in Inward

Inspection - Balance salaries

+ C/s Allocation

Review of Test and

Inspection Data

20% of ERC Revenue and Support

Projects costTest & Inspection Material Estimated Rs.25 lakhs per Qtr

Misc. Quality evaluations Outside Endorsements /Approvals a/c 439350 - Testing charges

Maintenance & Calibration of

Inspection & Test Equipments

QA Metrology Expenses -

Partial salary + dpe


Appraisal

Cost

RemarksCOQ

Elements



different for cost

tracking




capturing from same

source but criteria is

different


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Product/Service Design

Failure CostsNot Tracked Rejections

Rejection value of auto provided by

QA - Value of CF

Purchasing Failure Costs Not Tracked Trouble Shooting5 % of salary of M1 to M5 in Auto +

Foundry

Operations Failure Costs Not Tracked

ScrapValues booked as scrap in GL

400001 & 891001

Rework

Rectification

Manpower employed for

Rectification work in R2 area and

other direct cost centres

(Captured Mannualy)

Other Internal failure

costs


Internal

Failure

RemarksCOQ

Elements




capturing from same


different


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Warranty Cost Warraty ProvisionDomestic Warranty provision for

Current Year

Retro CostValues booked in GL 445915

Campgn/RetroFit Exps

Export Warranty provision for Current

Year

Additional Provision for previous

years (Domestic)

Additional Provision for previous

years (Export)

Retro fitment Cost

Interest on Investments Interest on QA Net Block

Inventory Carrying CostInterest on Inventory - 5 % held

for QA


External

Failure




capturing from same


different



different for costtracking

RemarksCOQ

Elements

Others


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Prevention Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar

All cost towards failed project to be

considered

All costs related to design development tobe considered

Expenses of ADDAll Expenses of ADD team for developing

new vendors to take care of quality issues

Expenses of SQIG

Total Expenses of SQIG team as they are

involved in process correction for getting

quality components

Expenses of QA & Materials team for

conducting PPAP & Training at vendors endAll Expenses of this team to be taken

Expenses of CFT team for Quality Improvement

at vendors end All Expenses of this team to be taken

Expenses for Dies/ Jigs/ Fixtures / ToolsAll expenses for correcting old or providing

new things to be taken

Maintenance of machines which are not giving

desired quality output

All expenses for correction of machines to

be taken

Online updation of Hourly Production Control

Chart to be started

Time lost due to Defect/ Repair & Waiting

for matl for Quality issues to be taken

Manpower related cost of Central Quality to

be considered

Manpower related cost of Divisional QA

persons to be considered

Manpower related cost of SQA persons to

be considered

Cost of Training to be considered

Cost of released Manpower to be

considered

PDI COST (Internal )All cost related to conducting internal PDI to

be consirered

Project CostProducts / Service / Design

Development

Other Prevention Costs

Training Related cost to be considered

Purchasing Prevention

Costs

Operations Prevention

Costs

Quality Administration Administ rative Costs

Not Being Monitored Being Monitored but not taken in COQ Being Monitored & also taken in COQ

RECOMMENDATIONS


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RECOMMENDATIONS

Appraisal Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar

Cost related to testing of components

Cost related to destructive testing ofmaterials

Self Audit Cost

Pre Delivery Inspection Cost External PDI Cost to be included

Camps setup for Quality Check of the

VehiclesCost for setting up camps + Manpower cost

CFT Team formed for study/ analysis of

quality issues of vehicles in the field CFT Cost to be included

Testing Cost of products Cost of testing of vehicles on the field

Test from other agencies Cost of testing from other agencies

Cost for calibrationTotal cost of calibration of jigs, Fixtures,

Tools & Guages

Misc. Quality evaluations Cost of checking of incoming material

(Dimensional + Paint)

Persons cost for checking of incoming

components

Operations Appraisal Costs

External Appraisal Costs

Review of Test and

Inspection Data

Testing Cost


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RECOMMENDATIONS

Internal Failure Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar

Cost of rejection

Cost of Transportation

Cost of Manpower in Document Preparation

Manpower cost involved in rectification

Tool Room cost for rectification of jobs

Manufacturing cost for job rectification

Cost involved in delayed supply of Vehicles

Total interest paid on QA Blocked stock

Interest paid on Hold Vehicles/ Aggregates

Interest on excess inventory held for line

feeding in case of rejections

Cost of returning defective material to the

supplier

Cost of manpower in despatching the materials

Misc CostMisc. Cost

Rejection Rejection Cost

Rectification Rectification Cost

Interest on Investments Interest on QA Hold Stock


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RECOMMENDATIONS

External Failure Cost PARTICULARS RECOMMENDATION JSR LKW Pune Pantnagar

Domestic warranty cost

Export Warranty cost

Market share loss

Payout for the material of Retro fitment

Manpower cost for doing retrofitment

Expenses incured for training to the drivers

Expenses incurred for training to Vehicle

Owners

Training to the Drivers and

Vehicle OwnersCost of Training

Warranty Cost for the vehicle Payout of warranty cost

Retro fitment Cost Payout of Retro Fitment


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Thank You

Documents

Cost of Quality_Final - 24.01.2012