A firm that does not add value to a product or service suffers from loss and is thrown out of market . By adding value a company makes a difference between the price it charges to the customers and the total cost of materials that make the product . For most businesses , it is the ability to expand this value that allows for making increased profits . A company adds values by improving the use the factors of production land , labour , capital and organisation .
The cost of poor quality combined with the cost of quality administration can be significant ranging between 10 and 15 percent of sales for good many companies . Lucas TVS of India faced 2 percent rejection rate and by use of TQM it reduced to zero which meant an annual saving of 1 crore of rupees . The quality costs are broadly grouped under four captions namely , prevention costs , appraisal costs , external failure costs and internal failure costs .
Types of quality costs
(1) The prevention costs are – receiving inspection, in process inspection, laboratory inspection, laboratory endorsement, testing set up, test maintenance equipment, quality audits, quality equipment calibration and production equipment maintenance .
(2) The appraisal costs are – quality engineering, quality planning design of quality equipment, design verification and review,, quality training, quality improvement projects, quality data, gathering analysis and reporting, statistical process control, other process control activities used to prevent defects and cost accounting for production variance .
(3) The external failure costs are – warranty adjustments, repair customer service returned goods, returned repaired goods investigation of defects,, product recalls,, product liability suits, lost revenue from customer bad will ( an opportunity cost ) .
(4) The internal failure costs are – scrap, rework,, reinspection of rework,, down grading because of defects, losses caused by vendor scrap, down time caused by defects, and failure analysis .
(5) The quality costs are – prevention , appraisal , external failures , internal failure as has been explained above .
Elements of TQM
- Total employee involvement
- Integrated system
- Strategic and systematic approach
- Continual improvement
- Fact-based decision making
Poor quality has a snowballing effect as it moves up the value chain . Early prevention is everything . A quality problem that costs ” X ” to correct in the design stage , costs 10 X ‘ to correct if it reaches production , and escalates to ‘ 100 X ‘ if it must be corrected after the product reaches the field . Therefore total quality management is management of quality of materials , manpower , machines and the management . Each word of phase “ total quality management ” has its meaning .
By ‘ total we mean involvement of all persons in improvement of quality ; ‘ quality ‘ is measured in terms of customer ‘ s expectations and management stands for the structure and the system . That is TQM is customer oriented systematic and structured approach to enhance the quality of products and services .
Quality is the product of the system and , therefore , the system must be designed to guarantee that requirement will be met . If the system is lax and unsound there will be not only defects but catastrophes are inevitable . TQM is the journey that never ends .
The fundamental tenet of TQM is the continuous improvement TQM has two aspects namely , quality of design and quality of conformance to design . According to this philosophy , total quality has six dimensions namely , customers, external and internal never ending improvement, control of business process — upstream preventive management, on going preventive management, on going preventive action , leadership and team work .
The most respected Guru W . E . Daming has identified the customer as the most important part of the production line . The Daming approach is the systematic improvement of quality by application of Daming cycle which configures as under : improved quality leads to reduced re, work , fewer delays and better equipment utilisation . The Daming philosophy is based on three basic principles – customers orientation , continuous improvement and quality determined by the system .