Quality Costing for Performance Improvement in Manufacturing Organizations

Quality Costing for Performance Improvement in Manufacturing Organizations

Research Summary

Organizations are associated with their variety of products and services, which they supply to the consumer market. In fact, the business environment is surrounded by the multiple agencies that seek to meet the insatiable needs of the consumers. In particular, manufacturing organizations produce a specific line of products that are used as raw materials or finished goods in the business environment. In this regard, the Cost of Quality (COQ) is an essential aspect of the manufacturing of different products by organizations. Primarily, this paper will highlight how organizations use COQ to manage and oversee their business operations. By far, this study will examine the role of quality managers in organizations and their contribution towards the overall success of a manufacturing plant (Malik, Khalid, Zulqarnain, and Iqbal 2014, p. 4). While many organizations have embraced technology to improve the performance levels, it is essential for researchers to examine the viability of different technology tools and their effectiveness in the workplace.

The various costs incurred by an organization due to its inability to match the set standards in a particular field reduce its productivity levels and reputation in the business environment. For instance, a group that does not adhere to set rules is likely to incur substantial overhead costs to cover for the multiple routine checks conducted by the industry regulator. From this observation, it is imperative to note that by analyzing the requirements, which must be met by an organization when setting up a COQ program, this study will look at estimates that are used to develop the management presentation. Manufacturing organizations should use the cost of quality to improve the quality of its products, identify problems in the workplace, and maintain an edge over other industry players.

Introduction

Cost of quality enables an organization to solve existing problems that affect its performance and reputation in the business environment. Drafted in 1945, the loss of quality has been embraced in the workplace as a useful technique for organizations. To this end, scholars have identified four aspects that are associated with the COQ technique. They include appraisal costs, failure costs, prevention costs, internal and external costs. Uniquely, these expenses allow an organization to achieve its goals and objectives. Of essence is the fact that organizations can derive their relevance in the business environment from the pointers identified by the quality managers who are tasked with the responsibility of evaluating the progress of a corporation.

The difference between appraisal costs and failure costs is called conformance cost while the difference between internal and external values is called nonconformance cost. In this case, quality managers use the differences in the above description to develop COQ programs and other policies that influence the performance of an organization. Through a detailed presentation, quality managers advise the leadership of a group on the best ways to approach a problem in the workplace. By conducting this research, corporations will gain information that will enlighten them on the importance of using costs of quality to improve the performance of their employees and the entire organization.

Problem Statement

Although the costs of quality are essential in the performance of an organization, corporations should not rely entirely on the technique. This study should identify the relationship between an organization and its compliance with existing standards outlined by the regulator. Further, there is a need for researchers to examine how industry regulators use the COQ technique to describe rules that will guide the activities of manufacturing organizations across the world. There is a growing need among manufacturing industries to check the quality of their products. This is explained by the fact the modern consumer is informed due to his or her unlimited access to the internet and social media. It is essential to point out that manufacturing organizations are judged on their ability to channel quality products to the consumer market. For instance, ISO 9001 certification is tied to the costs of quality and portrays an organization’s ability to adhere to the basic standards of operation in a specific industry. For this reason, it is essential for the study to indicate why organizations fail despite their efficient use of the COQ technique.

Research Questions

This study aims to examine how quality costing can be used for performance improvement in manufacturing organizations across the world. Indeed, the purpose of organizations is to make profits through the production of quality goods and services to the consumer market. Competition in the business environment compels organizations to restructure their business policies to match the expectations of the consumers. To the consumers, competition among manufacturing organizations leads to the availability of quality products in the consumer market. Therefore, consumers believe that continued competition among organizations will not only lead to the availability of quality products but also, cheap commodities that will complement their lifestyle by allowing them to spend less on quality goods.

In this regard, one of the useful methods to increase performance in a group is by implementing the quality costing technique. From this observation, the method distinguishes an organization from the rest by allowing a corporation to produce unique products that stand out in the consumer market. For this reason, there is a need for scholars to examine the effectiveness of the COQ technique in the workplace and how organizations can improve their performance and productivity levels using the method.

Research Objectives

1. To analyze the effectiveness of the COQ technique compared to other performance improvement methods.
2. To determine the role of quality managers in the workplace and their contribution towards the increase of productivity in an organization.

• To determine the distribution of total quality cost among the four categories identified in the literature review section by utilizing closed questionnaires to minimize the provision of an irrelevant answer.

1. To examine the viability of the COQ technique and how it is used by industry regulators to come up with ISO 9001 performance policy.

Literature Review

The origin of Cost of Quality (COQ) technique can be traced back to 1945. By 1960, extensive literature about the technique had been compiled, and in 1961, a committee was formed to promote the application of the method. As Austenfeld (2005, p. 150) observes, more contracts including government and commercial are including quality cost requirements. Besides, COQ has been incorporated into various organizational certification programs. Additionally, the increasing competitiveness in the contemporary world has compelled companies to improve the quality of the products and services offered to their customers while taking into account the impacts of these actions on cost. Fundamentally, to perform these functions, organizations have resorted to using COQ. According to Malik, Khalid, Zulqarnain, and Iqbal (2014, p. 2), the costs incurred on quality improvement measures can be considered as an investment in quality. The investment should be utilized efficiently to obtain optimal results. Therefore, it is crucial to identify the areas that require quality improvement, and COQ is useful in identifying these areas.

Quality improvement projects are implemented to augment business’ goals. In this regard, strategies should be executed in such a way that strategic business goals are linked. More specifically, quality improvement projects should be targeted to specific areas to ensure that the improvement efforts focus solely on the areas exhibiting poor performance. For instance, if the strategy seeks to boost market share, quality improvement projects should focus on areas related to marketing. Additionally, if the approach aims at increasing profits in a particular product line, the projects should focus on cutting the costs by minimizing errors and getting rid of activities that do not add value. As such, in COQ, organizations ought to consider such issues to ensure that quality improvement does not affect their profit margins. Besides, they should seek to identify the areas that need improvements to avoid incurring unnecessary expenses.

Quality costs are grouped into four categories namely prevention, appraisal, internal, and external failure. Essentially, these classes have been accepted and included in various international standards. Nonetheless, in a majority of the countries, the calculation of quality costs is not done explicitly. Instead, the costs are absorbed into other overheads. Additionally, while quality has been cited as one of the factors that are vital for successful competition, a significant number of the companies have discovered that their approaches are insufficient (Sower, Quarles, & Broussard 2007, p. 122). In essence, COQ programs do not improve quality by themselves. Instead, they provide a framework for quality systems to improve quality. Information gathered from COQ can be utilized in identifying critical opportunities for corrective action and providing incentives for quality improvement (Wudhikarn 2012, p. 3440). Since the categorization of quality tests into prevention-appraisal-failure (PAF), the scheme has been broadly accepted as a valid model for quality costing. The basic model of quality costing can be applied in all industries and thus, requires minimal adjustments.

Kirlioglu and Cevik (2012, 98), observe that with the aid of effective quality control systems, firms can minimize losses such as loss of labor hours, which can improve the overall performance. For a quality cost system to be efficient, the system should be designed in such a way that it sufficiently report quality costs. By obtaining sufficient and reliable data in quality costing, a firm can reduce the non-conformance costs. Additionally, COQ can be incorporated in the supply management chain of an organization.

Essentially, the incorporation of COQ in supply chain ensures that quality in this system is optimized at the lowest costs possible. Assuredly, failure to include COQ oversees the selection of suppliers with the most economical operational costs, without taking into account quality non-conformance costs that may arise from the defective materials delivered by the suppliers. In this sense, the production cost choices could overlook quality and culminate in additional costs in the latter supply chain stages.

Methodology

Research Design and Procedures

Survey methodology and in particular questionnaires will be used for data collection. Fundamentally, surveys enable the researcher to cover a broader scope compared to other data collection methods that are used in the study of quality cost. Questionnaires will be developed to determine the distribution of total quality cost among the four categories identified in the literature review section. The questionnaires will be designed to produce factual information rather than opinions, and thus, the questionnaires will be developed in such a way that the subjects will be required to provide accurate responses. Therefore, the study will utilize closed questionnaires to minimize the provision of irrelevant answers. The questionnaires will assess the maturity of the organizations’ quality system. The research subjects will be the quality and accounting professionals working in various manufacturing organizations across the U.S. Approximately 100 subjects will be randomly selected and contacted through emails to request their participation in the study.

Data Collection and Analysis Procedures

A correlational analysis will be used as the primary data analysis tool. This tool will be utilized to assess the inter-rater reliability of the collected information. Fundamentally, inter-rater reliability measures the extent to which multiple raters match ratings on certain measures. Precisely, since the data obtained from the assessment of quality system maturity will be ordinal, Spearman’s rank correlation coefficient will be calculated to evaluate the inter-rater reliability.

The magnitude and direction of the correlation coefficient will be used to provide evidence for reliability. Pearson’s correlation coefficient will be utilized in measuring the inter-rater reliability of quality cost distribution since the data will be in the form of a ratio. The magnitude and direction of the correlation coefficient for all categories of quality costs will be used to provide evidence for reliability. Positive reliability tests will provide confidence in the data provided. Based on the evidence, the quality cost distribution data will be stored for further analysis.

References

Austenfeld RB 2005, ‘The Cost of Quality – A Primer,’ Papers of the Research Society of Commerce and Economics, vol. 44, no. 2, pp. 149-198.

Kirlioglu, H & Cevik, Z 2012, ‘Measuring and Reporting Cost of Quality in a Turkish Manufacturing Company: A Case Study in Electric Industry,’ Journal of Economic and Social Studies, vol. 3, no. 2, pp. 87-99.

Malik, TM, Khalid, R, Zulqarnain, A, & Iqbal, SA 2014, ‘Cost of quality: findings of a wood products’ manufacturer,’ The TQM Journal, vol. 28, no. 1, pp. 2-20.

Sower VE, Quarles, V, & Broussard, E 2007, ‘Cost of quality usage and its relationship to quality system maturity,’ International Journal of Quality & Reliability Management, vol. 24, no. 2, pp. 121-140.

Wudhikarn, R 2012, ‘Improving overall equipment cost loss adding cost of quality,’ International Journal of Production Research, vol. 50, no. 12, pp. 3434-3449.