EDP Project SEPT - 2011

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)
TEAM MEMBERS

Name
Riat Rashpalsingh Verma Manish Kumar Dhanu Taiyab Md. Kothari Manoj

Location
Pune PCBU Jamshedpur Works Jamshedpur Works Jamshedpur Works Pantnagar Works
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Definition
Cost of Quality The COQ is the cost (both Tangible and Intangible) relating to the Quality characteristics of a product or Service.

Elements of costs to determine Cost of Quality

1. Costs of conformance (Cost of control): It has two components: Prevention costs Appraisal costs 2. Costs of non conformance (Cost of failure of control): It has two components:

Internal failure costs

External failure costs
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GENESIS OF THE PROJECT

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.

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 costs and processes, and to set up a framework for the collection and analysis of quality costs.

Quality Cost

Iceberg Model - Intangible costs,

Scraps Testing costs Reprocess Customer returns Inspection costs

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

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 the plants. 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

Iceberg Model - Intangible costs,

Scraps Testing costs Reprocess Customer returns Inspection costs

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

JAMSHEDPUR FORMAT FOR CAPTURING COST OF QUALITY

S. No. 1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 3 3 4 Particulars 1.0 Prevention Costs Products/Service/Design Development Purchasing Prevention Costs Operations Prevention Costs Quality Administration Other Prevention Costs 2.0 Appraisal Costs Purchasing Appraisal Costs Operations Appraisal Costs External Appraisal Costs Review of Test and Inspection Data Misc. Quality evaluations 3.0 Internal Failure Costs Product/Service Design Failure Costs Purchasing Failure Costs Operations Failure Costs Scrap Rework Rectification Other Internal failure costs 4.0 External Failure Costs Warranty Cost TOTAL QUALITY COSTS PRODUCTION: (Eq. Nos.) Source of Data 80% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 % Share of Common Services Total expense of ADD (BC 1216936) and Sourcing World Truck (1216272) has been considered for purchasing prevention cost + 26 % Share of C.S. Cost of maintenence work + 26 % Share of C.S. Total expense of Inspection + 26 % Share of Common Services

Not Tracked Total cost of Inspection + 26% Share of Common Service PDI provision 20% of Beta Proto Shop (1216280) Revenue and ERC PTS to other location + 46 % Share of C.S.

Not Tracked Not Tracked Not Tracked Net Values of amount booked as scrap in GL 400001 & 891001& Recovery in 400101 Cost of Rectification work Centres

Warranty Provision Total Eq Veh

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LUCKNOW FORMAT FOR CAPTURING COST OF QUALITY

S. No. 1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 3 3 4 Particulars 1.0 Prevention Costs Products/Service/Design Development Purchasing Prevention Costs Operations Prevention Costs Quality Administration Other Prevention Costs 2.0 Appraisal Costs Purchasing Appraisal Costs Operations Appraisal Costs External Appraisal Costs Review of Test and Ispection Data Misc. Quality evaluations 3.0 Internal Failure Costs Product/Service Design Failure Costs Purchasing Failure Costs Operations Failure Costs Scrap Rework Rectification Other Internal failure costs 4.0 External Failure Costs Warranty Cost Retro Cost TOTAL QUALITY COSTS PRODUCTION: (Eq. Nos.) Source of Data 80% of ERC Revenue and Support Projects cost Total expense of ADD (BC 1316240) has been considered for purchasing prevention cost.(Manpower Cost) Manpower Cost for workers employed for maintenence work (data manually by area owner) and machinery spares expense (SAP) Total expense of QA (BC 1316500)+ C/s share

80% of ERC Revenue and Support Projects cost Total expense of ADD (BC 1316240) has been considered for purchasing prevention cost.(Manpower Cost) Manpower Cost for workers employed for maintenence work (data manually by area owner) and machinery spares expense (SAP) Total expense of QA (BC 1316500)+ C/s share

Not Tracked Not Tracked Not Tracked Values booked as scrap in GL 400001 & 891001 Manpower employed for Rectification work in R2 area and other direct cost centres (Captured Mannualy)

Warranty Provision Values booked in GL 445915 Campgn/RetroFit Exps Total Eq Veh

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PUNE FORMAT FOR CAPTURING COST OF QUALITY

PREVENTIVE COSTS Quality Planning & Process Control Planning Quality Planning Process Control Planning Quality Planning by functions other than Quality Control

Quality Training Other Preventive Costs APPRAISAL COSTS Test & Inspection of purchased Material Self Checking Inspection & Testing Test & Inspection Material Outside Endorsements / Approvals Maintenance & Calibration of Inspection & Test Equipments INTERNAL FAILURES Rejections Trouble Shooting 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

Salary -10 % of QA BCs + C/s share Salary 22 % of QA BCs + C/s share M/s Purchase + Projects + APL - 10 % of Salary 10 % Design of ERC & PE Bc 30 % Testing Charges of ERC Training cost - 50 % QA Balance Expenses QA Cost involved in Inward Inspection - 9510 & 9711 1 % Salary of Auto for self checking QA Cost involved in Inward Inspection - Balance salaries + C/s Allocation Estimated Rs.25 lakhs per Qtr a/c 439350 - Testing charges QA Metrology Expenses - Partial salary + depreciation Cost Rejection value of auto provided by QA - Value of Controllable Fault (CF) 5 % of salary of M1 to M5 in Auto + Foundry

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PANTNAGAR FORMAT FOR CAPTURING COST OF QUALITY

S NO I 1 a b 2 3 4 II 1 2 3 4 5 6 III 1 2 IV 1 2 V 1 P A RTICULA RS PREVENTIVE COSTS Quality Planning & Process Control Planning Quality Planning Process Control Planning Quality Planning by functions other than Quality Control Quality Training Other Preventive Costs APPRAISAL COSTS Test & Inspection of purchased Material Self Checking Inspection & Testing Test & Inspection Material Outside Endorsements / Approvals Maintenance & Calibration of Inspection & Test Equipments INTERNAL FAILURES Rejections Trouble Shooting EXTERNAL FAILURES Warranty provision for domestic vehicles sold during the period Additional Provision for previous years OTHERS Interest on Investments GRAND TOTAL ( I TO V ) % of Turnover
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Source of Data

COMPARISION OF REPORTING FOR ALL LOCATIONS

COQ Elements Lko & Jsr (Format and Reporting Same) Particulars
Marketing/Customer/User Products/Service/Design Development Purchasing Prevention Costs

Pune & Pantnagar (Format and Reporting Same) Remarks Particulars

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

Source Of data
Not Tracked

Source Of data
1. Cell indicated with red colour are totally different for cost tracking 2. Cell indicated with same colour (other than red) are showing data capturing from same source but criteria is different

80% of ERC Revenue and Support Quality Planning Projects cost Total expense of ADD (BC 1316240) has been considered for purchasing prevention cost.(Manpower Cost) Process Control Planning

Operations Prevention Preventive Costs Cost

Quality Administration Other Prevention Costs

Manpower Cost for workers employed for maintenence work M/s Purchase + Projects + (data manually by area owner) and APL - 10 % of Salary machinery spares expense (SAP) Quality Planning by functions other than Quality Control Total expense of QA (BC 1316500)+ 10 % Design of ERC & PE BC C/s share

30 % Testing Charges of ERC

Quality Training Other Preventive Costs

Training cost - 50 % QA Balance Expenses

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COMPARISION OF REPORTING FOR ALL LOCATIONS

COQ Elements Lko & Jsr (Format and Reporting Same) Particulars Source Of data Pune & Pantnagar (Format and Reporting Same) Remarks Particulars Source Of data
1. Cell indicated with red colour are totally different for cost tracking 2. Cell indicated with same colour (other than red) are showing data capturing from same source but criteria is different Purchasing Appraisal Costs Not Tracked Test & Inspection of purchased QA Cost involved in Inward Material Inspection - 9510 & 9711

Total cost of VQA (BC 1316550) + Manpower employed for Inspection Operations Appraisal Costs Self Checking work in R2 area and other direct cost centres(Manually) Appraisal External Appraisal Costs Cost Review of Test and Inspection Data Misc. Quality evaluations

1 % Salary of Auto for self checking

PDI provision

Inspection & Testing

QA Cost involved in Inward Inspection - Balance salaries + C/s Allocation Estimated Rs.25 lakhs per Qtr a/c 439350 - Testing charges QA Metrology Expenses Partial salary + dpe

20% of ERC Revenue and Support Test & Inspection Material Projects cost Outside Endorsements / Approvals Maintenance & Calibration of Inspection & Test Equipments

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COMPARISION OF REPORTING FOR ALL LOCATIONS

COQ Elements Lko & Jsr (Format and Reporting Same) Particulars
Product/Service Design Failure Costs

Pune & Pantnagar (Format and Reporting Same) Remarks Particulars Source Of data
Rejection value of auto provided by QA - Value of CF 1. Cell indicated with same colour (other than red) are showing data capturing from same source but criteria is different

Source Of data

Not Tracked

Rejections

Purchasing Failure Costs Not Tracked

Trouble Shooting

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

Internal Failure

Operations Failure Costs Not Tracked Values booked as scrap in GL 400001 & 891001

Scrap Rework

Rectification

Manpower employed for Rectification work in R2 area and other direct cost centres (Captured Mannualy)

Other Internal failure costs

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COMPARISION OF REPORTING FOR ALL LOCATIONS

COQ Elements Lko & Jsr (Format and Reporting Same) Particulars
Warranty Cost

Pune & Pantnagar (Format and Reporting Same) Remarks Particulars

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 Interest on Investments Interest on QA Net Block Interest on Inventory - 5 % held for QA 1. Cell indicated with red colour are totally different for cost tracking

Source Of data
Warraty Provision Values booked in GL 445915 Campgn/RetroFit Exps

Source Of data
1. Cell indicated with same colour (other than red) are showing data capturing from same source but criteria is different

Retro Cost External Failure

Others Inventory Carrying Cost

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RECOMMENDATIONS
Prevention Cost
Products / Service / Design Project Cost Development Expenses of ADD Expenses of SQIG PARTICULARS RECOMMENDATION All cost towards failed project to be considered All costs related to design development to be considered All Expenses of ADD team for developing new vendors to take care of quality issues Total Expenses of SQIG team as they are involved in process correction for getting quality components JSR LKW Pune Pantnagar

Purchasing Prevention Costs

Operations Prevention Costs

Quality Administration

Expenses of QA & Materials team for All Expenses of this team to be taken conducting PPAP & Training at vendors end Expenses of CFT team for Quality Improvement All Expenses of this team to be taken at vendors end All expenses for correcting old or providing Expenses for Dies/ Jigs/ Fixtures / Tools new things to be taken Maintenance of machines which are not giving All expenses for correction of machines to desired quality output be taken Online updation of Hourly Production Control Time lost due to Defect/ Repair & Waiting Chart to be started for matl for Quality issues to be taken Manpower related cost of Central Quality to be considered Manpower related cost of Divisional QA Administrative Costs persons to be considered Manpower related cost of SQA persons to be considered Cost of Training to be considered Training Related cost to be considered Cost of released Manpower to be considered All cost related to conducting internal PDI to be consirered

Other Prevention Costs PDI COST (Internal )

Not Being Monitored

Being Monitored but not taken in COQ

Being Monitored & also taken in COQ

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RECOMMENDATIONS
Appraisal Cost
Operations Appraisal Costs Testing Cost PARTICULARS RECOMMENDATION Cost related to testing of components Cost related to destructive testing of materials Self Audit Cost Pre Delivery Inspection Cost External Appraisal Costs Camps setup for Quality Check of the Vehicles CFT Team formed for study/ analysis of quality issues of vehicles in the field Testing Cost of products Review of Test and Inspection Data Test from other agencies Cost for calibration Misc. Quality evaluations Cost of checking of incoming material (Dimensional + Paint) External PDI Cost to be included Cost for setting up camps + Manpower cost CFT Cost to be included Cost of testing of vehicles on the field Cost of testing from other agencies Total cost of calibration of jigs, Fixtures, Tools & Guages Persons cost for checking of incoming components JSR LKW Pune Pantnagar

Not Being Monitored

Being Monitored but not taken in COQ

Being Monitored & also taken in COQ

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RECOMMENDATIONS
Internal Failure Cost
Rejection PARTICULARS RECOMMENDATION Cost of rejection Rejection Cost Cost of Transportation Cost of Manpower in Document Preparation Manpower cost involved in rectification Rectification Tool Room cost for rectification of jobs Rectification Cost Manufacturing cost for job rectification Cost involved in delayed supply of Vehicles Total interest paid on QA Blocked stock Interest on Investments Interest on QA Hold 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 JSR LKW Pune Pantnagar

Misc. Cost

Misc Cost

Not Being Monitored

Being Monitored but not taken in COQ

Being Monitored & also taken in COQ

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RECOMMENDATIONS

External Failure Cost

PARTICULARS

RECOMMENDATION Domestic warranty cost

JSR

LKW

Pune

Pantnagar

Warranty Cost for the vehicle

Payout of warranty cost

Export Warranty cost Market share loss Payout for the material of Retro fitment

Retro fitment Cost

Payout of Retro Fitment Manpower cost for doing retrofitment Expenses incured for training to the drivers

Training to the Drivers and Vehicle Owners

Cost of Training

Expenses incurred for training to Vehicle Owners

Not Being Monitored

Being Monitored but not taken in COQ

Being Monitored & also taken in COQ

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Thank You

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