Yaroslav Rozhankivskyy: Три складові і три передумови максимальної продуктивн...
Streamlining Processes to Improve Quality and Reduce Delays
1.
2. Introduction
To satisfy their customers and to be
competitive, managers need to find cost-
effective ways to continuously improve
the quality of their products and to
shorten delivery time.
This chapter describes how managers
streamline processes to improve quality
and reduce delays.
G e t u s e f u l a n d f u n d o w n l o a d s a t
3. Two Aspects of Quality
1 Quality of design measures how closely
the characteristics of products or
services meet the needs and wants of
customers.
2 Conformance quality refers to the
performance of a product or service
according to design and product
specifications.
G e t u s e f u l a n d f u n d o w n l o a d s a t
4. Two Aspects of Quality
Actual
Performance
Design
Specifications
Customer
Satisfaction
Quality
of Design
Failure
Conformance
Quality
Failure
5. Costs of Quality
The costs of quality (COQ) refer to costs
incurred to prevent, or costs arising as a
result of, the production of a low-quality
product.
These costs focus on conformance
quality and are incurred in all business
functions of the value chain.
G e t u s e f u l a n d f u n d o w n l o a d s a t
6. Costs of Quality
1 Prevention costs--costs incurred in
precluding the production of products
that do not conform to specifications.
2 Appraisal costs--costs incurred in
detecting which of the individual units of
products do not conform to
specifications.
G e t u s e f u l a n d f u n d o w n l o a d s a t
7. Costs of Quality
3 Internal failure costs--costs incurred by a
nonconforming product detected before
it is shipped to customers.
4 External failure costs--costs incurred by
a nonconforming product detected after
it is shipped to customers.
G e t u s e f u l a n d f u n d o w n l o a d s a t
8. Costs of Quality
Santa-Cruz Photo Corporation made
10,000 photocopying machines in the
year 2000.
Santa-Cruz Photo determines the costs
of quality of its photocopying machines
using a 7-step activity-based costing
approach.
G e t u s e f u l a n d f u n d o w n l o a d s a t
9. Costs of Quality (Steps 1 and 2)
Step 1: Identify the chosen cost
object(s).
The cost object is the 10,000
photocopying machines that Santa-Cruz
Photo makes.
Step 2: Identify the direct costs of quality
of the product.
The photocopying machines have no
direct costs of quality.
10. Costs of Quality (Step 3)
Step 3: Select the cost-allocation bases to
use for allocating indirect costs of
quality to the product.
Santa-Cruz Photo classifies activities that
result in prevention, appraisal, internal
failure, and external failure costs.
(Information on the total quantities of each
of these cost-allocation bases used in all of
Santa-Cruz’s operations is not provided.)
11. Costs of Quality (Step 4)
Step 4: Identify the indirect costs of
quality associated with each cost-
allocation base.
These are the total costs (fixed and
variable) incurred on each of the costs
of quality activities.
(Information about these total costs is
not provided.)
G e t u s e f u l a n d f u n d o w n l o a d s a t
12. Costs of Quality (Step 5)
Step 5: Compute the rate per unit of
each cost-allocation base
used to allocate indirect costs of
quality to products.
For each activity, the total costs
calculated in Step 4 is divided by the
total quantity of the cost-allocation
base calculated in Step 3 to compute
the rate per unit for each cost-allocation
base.
G e t u s e f u l a n d f u n d o w n l o a d s a t
13. Costs of Quality (Step 5)
Santa-Cruz Photo chooses the number
of inspection hours as the cost-
allocation base for the inspection activity
in all of Santa-Cruz’s operations.
14. Costs of Quality (Step 5)
Cost of Quality and
Value Chain Category Rate
(Assumed) Prevention costs:
Design engineering (R&D) $ 80 per
hour Process
engineering (R&D) $ 60 per hour
Appraisal costs:
Inspection (Manufacturing) $ 40 per
hour Internal failure costs:
Rework (Manufacturing) $100 per
hour
15. Costs of Quality (Step 5)
Cost of Quality and
Value Chain Category Rate
(Assumed) External failure costs:
Customer support (Marketing)$ 50 per
hour Transportation (Distribution) $240
per load Warranty repair
(Customer Service) $110
per hour
16. Costs of Quality (Step 6)
Step 6: Compute the indirect costs of
quality allocated to the product.
Santa-Cruz Photo first determines the
quantities of each of the cost-
allocation bases used by the
photocopying machines.
This amount is multiplied by the cost-
allocation rate calculated in Step 5.
G e t u s e f u l a n d f u n d o w n l o a d s a t
17. Costs of Quality (Step 6)
Cost of Quality and
Value Chain Category Quantity
Prevention costs:
Design engineering (R&D) 20,000
hours Process
engineering (R&D) 22,500 hours
Appraisal costs:
Inspection (Manufacturing) 120,000
hours Internal failure costs:
Rework (Manufacturing) 50,000
hours
18. Costs of Quality (Step 6)
Cost of Quality and
Value Chain Category
Quantity External failure costs:
Customer support (Marketing) 6,000
hours Transportation (Distribution)
1,500 loads Warranty repair
(Customer Service)
60,000 hours
19. Costs of Quality (Step 6)
What is the total cost for design
engineering?
20,000 hours × $80 = $1,600,000
What is the total cost for inspection?
120,000 hours × $40 = $4,800,000
20. Costs of Quality (Step 6)
Cost of Quality and
Value Chain Category Total Costs
Prevention costs:
Design engineering (R&D) $1,600,000
Process engineering (R&D) 1,350,000
Total $2,950,000
Appraisal costs:
Inspection $4,800,000
Total $4,800,000
21. Costs of Quality (Step 6)
Cost of Quality and
Value Chain Category Total
Costs Internal failure costs:
Rework (Manufacturing)
$5,000,000 Total
$5,000,000
22. Costs of Quality (Step 6)
Cost of Quality and
Value Chain Category Total
Costs External failure costs:
Customer support (Marketing)$
300,000 Transportation (Distribution)
360,000 Warranty repair
(Customer Service)
6,600,000 Total
$7,260,000
G e t u s e f u l a n d f u n d o w n l o a d s a t
23. Costs of Quality (Step 7)
Step 7: Compute the total costs of quality
of the product by adding all direct and
indirect costs of quality assigned to it.
What are the total costs of quality?
Prevention costs $ 2,950,000
Appraisal costs 4,800,000
Internal failure costs 5,000,000
External failure costs 7,260,000
Total $20,010,000
24. Techniques Used to Analyze
Quality Problems
Three methods that companies use to
identify quality problems and to improve
quality are:
1 Control charts
2 Pareto diagrams
3 Cause-and-effect diagrams
25. Control Charts
Statistical quality control (SQC), or
statistical process control (SPC), is a
formal means of distinguishing between
random variation and nonrandom
variation in an operating process.
A control chart is a graph of a series of
successive observations of a particular
step, procedure, or operation taken at
regular intervals of time.
26. Control Charts
Each observation is plotted relative to
specified ranges that represent the
expected statistical distribution.
Only those observations outside the
control limits are ordinarily regarded as
nonrandom and worth investigating.
27. Control Charts
On the basis of experience, Santa-Cruz
decides that any observation outside
the arithmetic mean m ± 2s standard
deviations should be investigated.
28. Control Charts
1 2 3 4 5 6 7 8 9 10
Days
m
m + s
m + 2s
Production Line
m - s
m - 2s
DefectRate
29. Control Charts
For the production line, the last two
observations signal that an out-of-
control occurrence is highly likely.
Given the ± 2s from the mean rule, both
observations would lead to an
investigation.
30. Pareto Diagram
Observations outside control limits serve
as inputs to Pareto diagrams.
A Pareto diagram indicates how
frequently each type of failure (defect)
occurs.
31. Pareto Diagram
Copies are
fuzzy and
unclear
Copies are
too
light/dark
Paper gets
jammed
NumberofTimes
DefectObserved
700
500
200
32. Cause-and-effect Diagrams
The most frequently recurring and costly
problems identified by the Pareto
diagram are analyzed using cause-
and-effect diagrams.
A cause-and-effect diagram identifies
potential causes of failures or defects.
As a first step, Santa-Cruz analyzes the
causes of the most frequently occurring
failure, fuzzy and unclear copies.
G e t u s e f u l a n d f u n d o w n l o a d s a t
33. Cause-and-effect Diagrams
Santa-Cruz identifies four major
categories of potential causes of failure:
1 Human factors
2 Methods and design factors
3 Machine-related factors
4 Materials and components factors
34. Cause-and-effect Diagrams
Methods and
design factors
Human factors
Machine-related
factors
Materials and
components factors
Multiple suppliers
New operator Flawed part design
Poor maintenance
35. Relevant Costs
Careful analysis of Santa-Cruz’s cause-
and-effect diagram reveals that the
frame of the copier is often
mishandled as it travels from the
suppliers’ warehouses to Santa-Cruz’s
plant.
Mishandling causes the dimensions of
the frame to vary from specifications,
resulting in fuzzy and unclear copies.
36. Relevant Costs
The team of engineers working to solve
this problem offers two alternative
solutions:
1 Improve the inspection of the frames
immediately upon delivery.
2 Redesign and strengthen the frames
and the containers used to transport
them to better withstand mishandling
during transportation.
37. Relevant Costs
What must management do to evaluate
each alternative?
Measure the total relevant costs and total
relevant revenues.
Additional Additional
Inspection Cost Redesign Cost
Difference
$200,000 $230,000
$30,000
Santa-Cruz determines the fixed and
variable cost component of each activity
involved.
G e t u s e f u l a n d f u n d o w n l o a d s a t
38. Relevant Costs
Variable Allocated
Costs Fixed Costs
Total
Rework-hour $ 40 $60 $100
Customer-support-hr $ 20 $30 $ 50
Transportation/load $180 $60 $240
Warranty/repair hour $ 45 $65 $110
G e t u s e f u l a n d f u n d o w n l o a d s a t
39. Relevant Costs
Only variable costs are relevant
because fixed costs are not affected.
Before making a decision, management
must compare the incremental costs of
each alternative against the
corresponding incremental benefit.
42. Relevant Benefits
Further
Redesigning
Inspection Frames Relevant savings:
Rework costs $480,000 $ 640,000
Customer-support costs 20,000 28,000
Transportation costs 45,000
63,000 Warranty repair costs 450,000
630,000 Total $995,000
$1,361,000
G e t u s e f u l a n d f u n d o w n l o a d s a t
43. Comparison
Further
Redesigning Inspection
Frames Relevant savings $995,000
$1,361,000 Additional cost
200,000 230,000 Difference
$795,000 $1,131,000
What should Santa-Cruz do?
Redesigning the frames provides a
$336,000 incremental benefit over
further inspection.
44. Nonfinancial Measures
Nonfinancial measures can be categorized
into:
– Nonfinancial measures of customer-
satisfaction
– Nonfinancial measures of internal
performance
45. Nonfinancial Measures
Nonfinancial measures of customer
satisfaction include:
– Number of customer complaints
– Defective units as a percentage of total
units shipped to customers
– Percentage of products that experience
early or excessive failure
– On-time delivery rate
46. Nonfinancial Measures
Nonfinancial measures of internal
performance include:
– Number of defects for each product line
– Process yield (ratio of good output to
total output)
– Employee turnover (ratio of the number
of employees who left the company to
the total number of employees)
G e t u s e f u l a n d f u n d o w n l o a d s a t
47. Evaluating Quality Performance
Measuring the financial costs of quality
and the nonfinancial aspects of quality
have distinctly different advantages.
Financial measures are helpful to
evaluate trade-offs among prevention
costs, appraisal costs, and failure costs.
They focus attention on the costs of
poor quality.
G e t u s e f u l a n d f u n d o w n l o a d s a t
48. Evaluating Quality Performance
Advantages of COQ measures:
– Consistent with the attention directing
role of management accounting, COQ
focuses attention on how costly poor
quality can be.
– Financial COQ measures assist in
problem solving by comparing different
quality-improvement programs and
setting priorities for achieving maximum
cost reduction.
49. Evaluating Quality Performance
– COQ provides a single, summary
measure of quality performance.
Nonfinancial measures help focus
attention on the precise problem areas
that need improvement and also serve
as indicators of future long-run
performance.
50. Evaluating Quality Performance
Advantages of nonfinancial measures of
quality:
– Nonfinancial measures of quality are
often easy to quantify and understand.
– Nonfinancial measures direct attention
to physical processes and hence focus
attention on the precise problem areas
that need improvement.
51. Evaluating Quality Performance
– Nonfinancial measures provide
immediate short-run feedback on
whether quality improvement efforts
have, in fact, succeeded in improving
quality.
– Nonfinancial measures are useful
indicators of future long-run
performance.
G e t u s e f u l a n d f u n d o w n l o a d s a t
52. Time as a Competitive Weapon
Companies need to measure time in
order to manage it properly.
Two common operational measures of
time are:
1 Customer-response time
2 On-time performance
53. Customer-Response Time
Customer-response time is the amount of
time from when a customer places an order
for a product or requests service to when
the product or service is delivered to the
customer.
The following are different components of
customer-response time:
Receipt time is the time it takes a
Marketing Department to specify a
customer’s exact requirements to
manufacturing.
54. Customer-Response Time
Manufacturing lead time is the amount
of time from when an order is ready to
start on the production line to when it
becomes a finished good.
Delivery time is the time it takes to
deliver a completed order to the
customer.
55. On-Time Performance
On-time performance refers to situations
in which the product or service is
actually delivered at the time it is
scheduled to be delivered.
On-time performance is an important
element of customer satisfaction
because customers want and expect on-
time deliveries.
56. Time Drivers and Costs of Time
A time driver is any factor where change
in the factor causes a change in the
speed with which an activity is
undertaken.
Managing customer-response time and
on-time performance requires an
understanding of the causes of delays
and the resulting costs.
57. Time Drivers and Costs of Time
Two important drivers of time are:
1 Uncertainty
2 Limited capacity and bottlenecks
The following are different components
of customer-response time:
Receipt time is the time it takes a
Marketing Department to specify a
customer’s exact requirements to
manufacturing.
58. Time Drivers and Costs of Time
Average waiting time is the average
amount of time that an order will wait in
line before it is set up and processed.
Average waiting time = Average number
of orders × (Manufacturing time)²
Divided by 2 × [Annual machine capacity
– (Average number of orders ×
Manufacturing time)]
59. Time Drivers and Costs of Time
The longer the manufacturing time, the
greater the chance that the machine will
be in use when an order arrives, and
the longer the delays.
The denominator in this formula
measures unused capacity, or cushion.
The smaller the unused capacity, the
greater the delays.
60. Theory of Constraints
The three main measurements in the
theory of constraints are:
1 Throughput contribution equal to
revenues minus direct material costs.
2 Investments equal the sum of material
costs in direct materials inventory,
work-in-process inventory, finished
goods inventory, R&D costs, and costs
of equipment and buildings.
61. Theory of Constraints
3 Operating costs equal to all operating
costs (other than direct materials)
incurred to earn throughput contribution.
The objective of TOC is to increase
throughput contribution while decreasing
investments and operating costs.
TOC considers a short-run time horizon
and assumes operating costs to be fixed
costs.
62. Theory of Constraints
The theory of constraints emphasizes
the management of bottlenecks as the
key to improving the performance of the
production system as a whole.
63. Managing Bottlenecks
The four steps in managing bottlenecks
are:
1 Recognize that the bottleneck operation
determines throughput contribution of
the system as a whole.
2 Search and find the bottleneck operation
by identifying operations with large
quantities of inventory waiting to be
worked on.
G e t u s e f u l a n d f u n d o w n l o a d s a t
64. Managing Bottlenecks
3 Keep the bottleneck busy and
subordinate all nonbottleneck operations
to the bottleneck operations.
4 Take actions to increase bottleneck
efficiency and capacity – the objective is
to increase throughput contribution
minus the incremental costs of taking
such actions.
G e t u s e f u l a n d f u n d o w n l o a d s a t