Cost of quality (COQ) and total cost of quality (TCOQ) have become the most powerful management tools to measure quality performance during the past two decades. At macro level in the business, TCOQ is expressed as the sum of prevention, appraisal and failure costs within the organization while at micro level, COQ is concerned with the same cost elements but it is only for individual activities of the business. Regarding to K.Kumar and J.C. Brittain (1995), they conducted postal surveys over 107 companies and they conclude cost of quality programme could assist to improve the reliability other than reduces costs. They indicate that there is a strong relationship between total cost of quality and reliability of quality. Many companies in British adopted ISO 9000 in order to reach the higher levels of awareness of quality issues.
Continuously improving quality is considered as the best way to enhance customer satisfaction, to reduce manufacturing costs and also to increase productivity. While concentrate to improving quality, we must always remember it must be done at the lowest possible cost as well. Nevertheless, this can only happen when they are identified and measured. Andrea Schiffauerova and Vince Thomson (2006) conducted a research to investigate if companies collect, measure and monitor quality costs, which kinds of costs were considered in the calculations and whether any formal COQ approach was used. Four companies were selected participate in this research. This research is focused on the relation between quality strategies and industrial sectors on the kinds of COQ models used and on the satisfaction with company efforts. From this research, they suggested, cost of quality (COQ) should be a part of management program as it is not complex and well documented. Managers should understand well about the COQ concept, increase their ability to implement this system as how to save money.
Cost of quality as presently understood, is the sum of the cost incurred within a firm in preventing poor quality, the costs incurred to ensure and evaluate that the quality requirements are being met, and any other costs incurred as a result of poor quality. There are different types of quality cost models and PAF model was developed by Feigenbaum (1956) and Masser (1957) which is the oldest of the quality costs models. Some argue that PAF is weak in identifying the causes of quality problems and consume more time when finding the quality problems ad causes compare to other models. Samir K. Srivastave (2008) was utilize the blend of quality-costing, quality-loss and process cost approaches to estimate quality costs in monetary term as per PAF model, and suggested there are still issues about capturing the full PAF costs.
Although COQ system is very popular and important for organizations to adopted, but still there are numbers of organization do not utilize it, Victor E.Sower, Ross Quarles and Eric Broussard (2007), did a research to examine the relationship between the distribution of quality costs and the level of maturity of an organization's quality system, to determine why some organization do not utilize COQ systems. They highlight the most frequent reasons for companies not tracking quality costs, which are lack of management support, absence of management interest in such costs, lack of understanding of the principle of quality costing amongst the management team, lack of adequate accounting and inadequate information systems.
The measurement of quality costs is a good indicator of the quality and the overall performance of a firm. There have been many attempts to measure quality costs in both theoretical and empirical research. Mine Omurgonulsen (2009), did a study to measure quality cost with specific reference to the Turkish food manufacturing industry. Panel regression method has been used by him to analyze the relation between conformance costs and non-conformance costs in seven food manufacturing firms for the period between years 2000 to 2005. He concludes that there is a trade-off between conformance and non-conformance costs and the non-conformance costs can be reduced by increasing conformance expenditures. The negative relation found between conformance and non-conformance costs can rather be attributed to external failure costs than internal costs.
Amar Ramudhin, Chaher Alzaman and Akif A. Bulgak (2008) explored the challenges of introducing a model integrating the COQ into the modeling of supply chain network. They incorporate COQ in supply chain network design and conclude that it able to ensure the lowest overall cost. It is because it reduces the probability of defective and hence the probability of additional cost which might be due to corrective action. They also suggest presented a graphical demonstration of how quality costs affect the overall quality conformance of a given system, which can observe that as the quality level rises, failure costs decline and appraisal plus prevention costs increase.
The most effective tools for evaluating the success of a quality management programme are the measurement of quality costs. A systematic approach is need for measuring quality costs. S.B. Jaju, R.P. Mohanty and R.R Lakhe (2009) conducted a study to capture quality costs in a manufacturing company. Appropriate framework is proposed by S.B. Jaju, R.P. Mohanty and R.R Lakhe for capturing quality cost and various statistical analyses are carried out to characterize trends and relationships between various components. They concluded that quality cost should not be seen as solving a problem with a unique definition, but rather that there exists a whole space of reasonable notions of quality improvements, and that these notions can be seen as actionable guidelines to successfully implement a TQM programme.
Oiang Su, Jing-Hua Shi and Sheng-Jie Lai (2009) did a real case study which is concentrates on the statistic analysis of the trade-off relationship between quality costs and the quantitative calculation of the balanced point. The statistic analysis reveals that the trade-off relationships within quality costs will not show up except when time delays are taken into account. With these time delays, the related total quality costs (RTQC) can be derived and utilized to compute the balanced point of the quality costs. Regarding to this case study, they demonstrates that the findings and approach can provide a useful assistance in the quality cost saving and management improvement.
A research was conducted by Mark A. Johnson (1995), to investigate measure of the cost of quality in engineering departments. It was to identify existing measures of the cost of non-conformance in engineering operations, and to recommend some measures for possible use in the client engineering unit. Information was obtained from the telephone interviews with engineering quality practitioners from a variety of major US corporations. Based on Mark A. Johnson, information provided may be of some use to engineering quality practitioners who are considering implementing their own COQ programme. Perhaps, they too may benefit from the information pertaining to the benchmarking of COQ elements and the organizational, behavioral and accounting processes necessary to implement a COQ measurement system successfully.
Ozgur Akkoyun and Huseyin Ankara (2009) did a study case which developed PAF quality cost model for marble processing plants. Data were collected from quarries and factories located in Diyarbakir Region (Turkey). All costs occurring in marble processing systems were examined, identified, classified and calculated. Several costs formulas were generated to define and control the system with models. A new computer program incorporating these models and other algorithms was developed to control total and quality costs in marble plants. Regarding to this study, it was found that quality costs vary depending on products types in range from 9 to 34% of total production costs for the three different stone types.
Quality in construction is directly related to time and cost, and vice-versa. A poor quality managed project can result in extra cost and time extensions, a poor time and cost controlled project can affect the conformance of requirement. Hamzah Abdul-Rahman (1997) conducted a pilot survey on construction professionals. There were six question asked and the sample was consisted of engineers, project engineers, project manager technical manager, quantity surveyor and estate manager. The survey was to identify the steps taken by firms to ensure quality and how professionals would react to the issue of cost of failure. Every participant agreed that it is important to collect failure cost. The results of the survey confirm that the construction industry is much concerned with the quality management.
A study conducted by Muhsin Halis and Ahmet Oztas (2002) to determine the quality costs in business organizations having ISO 9000 certificate, deriving from the application of the standards. The objectives are determine both the reasons for implementing ISO 9000 and the factors affecting costs during this implementation process, to show that quality costs provides a method that determine problems which otherwise may not be recognized. A questionnaire was prepared and sent to 1100 companies in manufacturing and service sectors that have ISO 9000 certificate. Collected quality costs data were then analyzed using a number of analysis methods. From the analysis, the direct and indirect factors affecting the quality costs were determined and have been categorized into four groups. Muhsin Halis and Ahmet Oztas (2002) suggested that the importance of quality costs is increasing especially during the decision making process and the firm which have not enough knowledge about quality costs, consideration to the quality costs and documentation could be given within the ISO 9000 standards.
Judy Oliver and Wen Qu (1999) did a study which to examine the quality management practices of Australian manufacturing firms certified to AS/NZS ISO 9000 specifically focusing on COQ reporting. Few questionnaires were proposed and it was based on an earlier Australian survey conducted by Ross (1993). Slight modifications were made to the structure of the questionnaire, specifically in relation to the ordering of questions. Questionnaires were sent to 400 Australian manufacturing firms which has certified to AS/NZS ISO 9000. They analyze the result from questionnaires and conclude that, quality is widely acknowledged as a key competitive weapon to enable firm to survive in global marketplace. Majority of respondents from the survey stated that the adoption of quality management practices was driven by the desire to gain a competitive advantage in the marketplace.
A research did by Ali Uyar (2008), to evaluate how company performance has changed after COQ system implementation, and to identify the objectives behind COQ measuring and reporting. A postal questionnaire survey was sent to the top 500 Turkish manufacturing firms. He concludes that companies implementing quality initiatives are also COQ system implementers. This is a significant sign that the companies are measuring the cost of quality-related activities. After COQ system adoption, customer complaints has decrease, rework and scrap does decreased, warranty expenditures and failure costs decreased too, and the important point is sales volume has increased. The finding indicated that the ultimate objectives behind COQ measuring and reporting in descending importance are overall quality improvement, setting cost reduction targets and so on.
Recently studies on quality management, certification and supply chain management emphasize that ISO 9000 certification is becoming a must for many companies to compete. Thus, Pietro Romano (2002) did a research to examine whether the diffused adoption or confidence in ISO 9000 quality system requirements by diverse supply chain members can really influence quality management practice. This research was examined through analysis of data gathered by means of a survey based on a sample of 100 Italian certified manufacturing companies. It was found that those firms with the most advanced internal quality system tend to buy extensively from certified suppliers and to be reliant on the quality level of their deliveries.
Collin Ramdeen, Jocelina Santos and Hyun Kyung Chatfield (2007) did a research which applies the cost of quality concept in a hotel restaurant environment using the PAF (prevention, appraisal and failure costs) model and used the percentage of sales approach to evaluate the significance of the COQ measures in the PAF model. The analysis of the COQ measures in the PAF model was accomplished through the process of interview and secondary data collection. Through this study, they concluded that the COQ measures used in the PAF model can improve the quality of food and services provided to the restaurant customers and therefore, result in improvement in overall profitability.
Chapter 3
Data and Methodology
3.1 Research Question 1
Research Question 1- Does cost of quality important to use as a management tool?
As suggested by Joseph Juran in the 1950s, there are organizations which skeptical about the real strength of cost of quality. Johnson (1995) also found a number of quality practitioners who viewed COQ systems as "administrative nightmares and as impediments to quality rather than as contributors to quality".
To overcome the skepticism that still prevails, K. Kumar and J.C. Brittain (1995) conducted an investigation on this issue and concluded that, cost of quality program could assist to improve the reliability other than reduces costs. The information was collected with the extensive survey distribute to 107 companies. However, to determine how effective cost of quality systems and why some organization still do not utilize cost of quality system, Victor E. Sower, Ross Quarles and Eric Broussard (2007) has did a research. Data was collected from survey to determine the above issues. Most frequent reasons for organizations not utilize quality cost been highlight by them which are lack of management and understanding COQ systems, absence of management interest in such cost and so on.
Furthermore, in order to enhance customer satisfaction, improving quality is considered to be the best way. Besides focus on quality improvement, product must also be done at the lowest possible cost as well to meet quality requirements. To achieving these, cost of quality must be measure. Andrea Schiffauerova and Vince Thomson (2006) did a research to determine whether any formal COQ approach could be use. Result was COQ systems should be a part of management program.
Due to there is different comment on cost of quality systems, I am here would like to test the importance of COQ systems.
3.1.1 Question: Do you agree that investment in Quality Assurance lead to improvement in staff satisfaction?
Hypothesis0: There is a correlation between quality assurances and staff satisfaction.
Hypothesis1: There is no correlation between quality assurances and staff satisfaction.
This statement would be tested as a hypothesis in order to get an answer to RQ1 of this project. "Does cost of quality important to use as a management tool?"
3.1.2 Question: TQM implementation can reduce customer's complaint to the company.
Hypothesis0: There is a correlation between TQM implementation and customer's complaints.
Hypothesis1: There is no correlation between TQM implementation and customer's complaints.
This statement would be tested as a hypothesis in order to get an answer to RQ1 of this project. "Does cost of quality important to use as a management tool?" This question is trying to draw on the fact that company who has embarked in any form of TQM program would receiving lesser complains from customer.
3.2 Research Question 2
Research Question 2 - Does quality affect customer purchasing power?
In general, quality costs fall into two major categories: the cost of achieving good quality which also known as cost of conformance, and the cost associated with poor quality products which is referred to as the cost of non-conformance, Russell & Taylor (1995)
Mine Omurgonulsen (2009) also conducted a study and concluded that non-conformance costs can be reduces by increasing conformance expenditures. Besides, negative relation found between conformance and non-conformance costs can rather be attributing to external failure costs than internal costs. This indicate that if product does not conforming to specifications and these error still remain after the product is arrive at customer's site, it may causes loss of customer goodwill. Thus, in order to ensure product's quality can achieve customer satisfaction, organization must pay more attention on cost of conformance.
Moreover, S.B Jaju, R.P. Mohanty and R.R. Lakhe (2009) did a case study to capture quality costs in a manufacturing company. They demonstrated that quality costs should be seen as solving a problem with a unique definition, but a whole space of reasonable notions of quality improvement. To succeed in this high competitive market, firms should set goals and understand customer expectations. In order to meet the desires of customers, companies should continue their migration towards a holistic quality cost management approach.
Furthermore, quality is widely acknowledged as a key competitive weapon to enable firms to survive in the global marketplace. Regarding this, Judy Oliver and Wen Qu (1999) did a study and the findings support that the majority of respondents stated that the adoption of quality management practices was driven by the desire to gain a competitive advantage in the marketplace.
Inspired by above studies, I would like to test the impact of product's towards customer purchase decision making.
3.2.1 Question: In your purchase decision making, product quality is more important than price.
Hypothesis0: Customer will focus on product quality matter more than price.
Hypothesis1: Customer will not focus on product quality more than price.
This statement would be tested as a hypothesis in order to get an answer to RQ2 of this project. "Does quality affect customer purchasing power?" This question is trying to draw on the fact that product quality could affect a person's purchasing power. Thus, in order to increased customer's satisfactions on its product, a firm should also first understand customer's requirement on product quality.
3.2.2 Question: If the quality of the product performance decline, you will not purchasing the product.
Hypothesis1: There is a correlation between product qualities and consumer purchase.
Hypothesis0: There is no correlation between product qualities and customer purchase.
This statement would be tested as a hypothesis in order to get an answer to RQ2 of this project. "Does quality affect customer satisfaction and also as a key competitive weapon?" This question is trying to draw on the fact that quality has becoming an important condition for competing in this high competitive global market. Thus, in order to gain higher competitive advantage, a firm should pay attention on their product or service quality.
3.3 Research Question 3
Research Question 3: Does ISO 9000 certification enhance customers' reliability towards the company?
Since the end of 1980s, ISO 9000 norms have been increasingly recognized and accepted as a reference model for quality assurance.
Recent studies on quality management emphasize that ISO 9000 certificate is becoming a must for many companies to compete. Regarding these studies, Peitro Romano (2002) did a research to examine whether diffused adoption or confidence in ISO 9000 quality system requirements by diverse supply chain members can really influence quality management practice. Data was collected by distribute survey to 100 Italian certified manufacturing companies. It came out a result that, only those firms with the most advanced internal quality system tend to buy extensively from certified suppliers and to be reliant on the quality level of their deliveries.
Furthermore, there is study indicate that the application of ISO 9000 is a kind of warranty which is an important step for the company. Regarding this, Muhsin Halis and Ahmet Oztas (2002) both the reasons for implementing ISO 9000 and the factors affecting costs during this implementation process, to show that quality costs provides a method that determine problems which otherwise may not be recognized. However, they suggested there are some difficulties in implementing ISO 9000 standard effectively as the firm have not enough knowledge about quality cost.
Inspired by above studies, I would like to test does ISO 9000 enhance customers' reliability towards the company.
3.3.1 Question: After receiving ISO 9000 certification, customer would more likely to trust the company.
Hypothesis1: There is a correlation between ISO 9000 and customer reliability.
Hypothesis0: There is no correlation between ISO 9000 and customer reliability.
This statement would be tested as a hypothesis in order to get an answer to RQ3 of this project. "Does ISO 9000 certification is becoming a must for many companies to compete?" This question is trying to draw on the fact that ISO 9000 certification can enhance customer reliability towards the company.
