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Towards managing quality cost: A case

study
a b c
S. B. Jaju , R. P. Mohanty & R. R. Lakhe
a
G.H. Raisoni College of Engineering , Nagpur, India
b
Institute for Technology and Management Group of Institutions ,
Navi, Mumbai, 410210, India
c
Shreyas Quality Management System , Nagpur, India
Published online: 03 Nov 2009.

To cite this article: S. B. Jaju , R. P. Mohanty & R. R. Lakhe (2009) Towards managing quality
cost: A case study, Total Quality Management & Business Excellence, 20:10, 1075-1094, DOI:
10.1080/14783360903247122

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 Total Quality Management
Vol. 20, No. 10, October 2009, 10751094

Towards managing quality cost: A case study

S.B. Jajua, R.P. Mohantyb and R.R. Lakhec
a
G.H. Raisoni College of Engineering, Nagpur, India; bInstitute for Technology and Management
Group of Institutions, Navi Mumbai, 410210, India; cShreyas Quality Management System,
Nagpur, India

One of the most effective tools for evaluating the success of a quality management
programme is the measurement of quality costs (prevention, appraisal and failure
costs). The application of the concept of quality costs originated in the early 1950s.
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A systematic approach is needed for measuring quality costs. This paper describes a
case study to capture quality costs in a manufacturing company. An appropriate
framework is proposed for capturing quality costs and statistical analysis is carried
out to characterise trends and relationships between various components. In this
paper, we have demonstrated 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.
Keywords: TQM; quality management; quality costs; foundry; manufacturing
excellence

1. Introduction
Quality management proposes that improvement of quality of product/service is an
important basis for sustainable competitive advantage. Therefore, most companies
across the globe are vigorously pursuing quality as the central customer value. Initiating
and driving quality improvement in a company requires a significant amount of expendi-
tures, which are known as quality costs. Quality costs have traditionally been defined as all
expenditures associated with ensuring that products/services conform to specifications
(Ittner, 1996). Quality costs arise from a range of activities and involve a number of
departments, all of which impinge on the quality of the product/service. Quality costs
are the costs associated with preventing, finding and correcting defective work. Many
of these costs can be significantly reduced or completely avoided. One of the challenging
functions of a quality engineer is the reduction of the total cost of quality associated with a
product/service. Deming (1996) claimed that higher quality leads to higher productivity,
which in turn leads to long-term competitive strength. Improvements in quality lead to
lower costs because of less rework, fewer mistakes, fewer delays and snags, and better
use of time and materials. Lower costs, in turn, lead to competitive advantage. With
better quality and lower prices, the company can achieve a larger market share and stay
in business providing more and more jobs (Evans, 1997). Large organisations spend
millions of dollars on implementing and sustaining quality programmes. Berry and
Parasuraman (1992) mention that companies spend 10 30% of sales revenue on quality
costs. Corporations like Xerox, General Electric and Motorola have reduced their


Corresponding author. Email: rpmohanty@gmail.com

ISSN 1478-3363 print/ISSN 1478-3371 online

# 2009 Taylor & Francis
DOI: 10.1080/14783360903247122
http://www.informaworld.com
 1076 S.B. Jaju et al.

quality costs from 30% of sales to 2% of sales, while improving the quality of their
products (Superville et al., 2003). Whatever may be the size of the company, quality
directly contributes to the profit margin. While there is consensus on the fact that invest-
ment in improving quality provides a high return, there is not yet an agreement about the
optimal level of investment on quality improvement.
Measuring the quality costs is an important step in a total quality management (TQM)
programme. Quality cost information is used to indicate major opportunities for preventive
as well as corrective actions and helps to point out the strengths and weaknesses of a
quality management system (Sui & Yeo, 1998).
Quality costs have been studied by both academia and practitioners and a vast amount
of literature exists. The purpose of this paper is to synoptically present the literature and
explain a manufacturing company case by way of modelling the quality costs and predict-
ing the behaviour of such costs.
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2. Literature review
The definition of quality costs is as important as that of quality. Unfortunately, the
definitions of quality costs and the constituent elements differ from author to author
(Mohanty & Tiwari, 2006). The earliest writing on the concept of quality costs was
found in Quality control handbook (Juran, 1951). This marked the beginning of sub-
sequent development in the field of quality costs. Juran (1989, p. 376) described the
cost of poor quality as the sum of all costs that would disappear if there were no
quality problems and presented the analogy that poor quality and its related costs are
gold in mine. He urged the companies to minimise the non-value-added costs and
waste that are associated with poor quality. Also, he emphasised the need for quantifi-
cation of the quality costs in order of importance and the potential benefits of their
reduction to be shown. Quality costs could be used for the assessment of the quality
control system and progress made by the improvement process. Juran made the first
attempt, describing the importance of the quality costs, but it was not clear how to
reduce them. Jurans concept remained as theory until the earliest articles on quality
cost systems written by Feigenbaum (1956) and Masser (1957) came about. Feigenbaum
(1956) was among the first of the few researchers to classify quality costs in todays fam-
iliar categories of prevention, appraisal and failure (internal and external) costs. The
American Society for Quality Control (ASQC, 1971, 1987a, 1987b) quality costs commit-
tee dramatised the magnitude and importance of product quality to the well being of a
manufacturing business through measurements of the cost of quality.
The concept of identifying the costs requires carrying out various functions. In the past,
this concept had not been extended to the quality function, except for the departmental
activities of inspection and testing. There were, of course, many other quality-related
costs, but they were scattered among various heads of account, especially overheads.
Thus, the typical quality cost was just revealing a small fraction in relation to the total
cost. When managers discover that the costs are pitifully low, their instinctive reaction
is to look more attentively at the possibilities of ignoring the importance of quality
actions and their consequences.
During the review of literature, we could find many models describing the relation-
ships between the major categories of quality costs. Carr and Ponoemon (1994),
Chauvel and Andre (1985) and Ittner (1992, 1994, 1996) tried to set up relationships
among quality cost components by using various statistical techniques. The basic supposi-
tions of these models are that investment in prevention and appraisal activities will bring
 Total Quality Management 1077

handsome rewards from reduced failure costs, and further investment in prevention
activities will show profits from reduced appraisal costs (Ittner, 1996). Some of the impor-
tant points are:
. Internal failure is the most expensive component of quality cost.
. The combination of internal and external failure costs is always higher than the
combination of prevention and appraisal costs.
. Prevention is the least expensive component of the overall quality cost.
. The quality reject rate steadily decreases with increased volume output.
Plunkett and Dale (1988) classified models of quality cost relationships published in
the literature into five groups. Group A models indicate the principle of reducing failure
and appraisal costs by increasing expenditure on prevention activities. In group B
models, all data are plotted against a linear time base rather than some measure of
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quality performance. In group C models, quality costs are plotted against quality develop-
ment stages. Group D models reflect accurately the relationships between the major cost
categories and the cost savings to be expected from investment in prevention or appraisal
activities. Group E models indicate that the rate of change of cost with quality is much
greater and the optimum is positioned much closer to perfection. Plunkett and Dale
(1988, p. 42) conclude, many of the models are inaccurate and misleading, and serious
doubts are cast on the concept of an optimum quality cost. Also Schneiderman (1986)
asserts that, in some circumstances, if enough effort is put into prevention, no defects at
all would be produced, resulting in zero failure costs and no need for appraisal (also
given in Porter & Rayner, 1992). Asokan and Pillai (1998) reveal the fact that major
contributors to the total quality cost are failure cost and appraisal cost. Zhao (2000)
states that the rate of change of failure cost is closely associated with the perfection
rate. Further, the author states that when the perfection rate is less, prevention and apprai-
sal cost also will be small.
Traditionally, there exist two trends of thought that normally explain in a different way
the behaviour of quality costs: quality is free and the economic school. Quality is free
establishes that quality does not have economic effects because it is not an asset capable of
being bought or sold. The cost of quality concept is summarised in Crosbys book Quality
is free (1980, p.115). He says, Quality is free its not a gift, but it is free. What actually
costs money is an un-quality thing all those actions and activities that involve not doing
the job right the first time. The classic economic model establishes that there exists an
economic relationship between the two categories of quality cost: to invest in conformity
costs will reduce the costs of non-conformity; that is to say the model obtains an optimum
total cost. The two trends of thought generate important consequences on relevance and
the use of quality costs. Wasserman and Lindland (1996 1997) have given a taxonomy
of quality cost.
Contributions made by different researchers are presented in Table 1. However, most
of the studies are based on hypothetical examples. These models mislead by suggesting
that huge reductions can be achieved at little cost. Also there is confusion on the shape
of the quality cost curves. The various models of quality costs need validation by real
data analysis (Freiesleben, 2004).
In this paper, the main focus is to study a manufacturing company from a total
quality cost perspective and to quantify by regression analysis the effect that changes in
one cost category have on other categories and on the total quality cost. This would
help to see where the money would be most prudently spent and to predict the future
quality costs.
 1078 S.B. Jaju et al.

Table 1. Contributions made by researchers.

Author/
Researcher Key focus Limitations
Feigenbaum Prevention-Appraisal-Failure (PAF) It does not include intangible quality
(1956) model. costs such as Loss of customer
Universal acceptance of PAF scheme goodwill and Loss of sales.
for quality costing.
Classification of failure costs into It ignores the positive contribution to
internal and external failure costs. price & sales volume by improved
quality.
Focuses attention on cost reduction. It does not consider process costs.
Crosby (1984) Process cost approach. It does not clearly indicate the costs
incurred when the product fails
inside the factory walls and after it is
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delivered to the customers.

It categorises quality costs into the
Price of conformance (POC) and
Price of non-conformance (PONC).
Juran (1989) It advocates a categorisation of quality
costs into tangible factory costs,
tangible sales costs and intangible
costs.
Dale and Considers the activities relating to
Plunkett supplier, company (in-house) and
(1991) customer under the PAF
categorisation.
It closely relates to the business
activities.
Son and Hsu Proposed a quantitative approach for
(1991) measuring quality costs.
It considers both manufacturing
processes and statistical quality
control.
Chen and Tang It categorises COQ into direct COQ
(1992) variables (PAF costs & quality
related equipment costs) & indirect
COQ variables (customer incurred
costs, customer dissatisfaction costs
& loss of reputation).
Planning activities are difficult to
identify.
It does not focus on the importance of
prevention activities.
Focus on process based costing is
missing.
Difficulty in identifying key process
areas costing more.
It is restricted to a simplified
manufacturing system, which
consists of only a machining area
and a final inspection area.
Here specifying the COQ variables
puts complexity for quality
practitioners.

Gryna (1988) points out several problems that have caused cost-of-quality approaches
to fail. Quality cost analysis looks at the companys costs, not the customers costs.
The manufacturers and suppliers are definitely not the only stakeholders who incur
quality-related costs. The customers suffer quality-related costs too. If a manufacturer
sells a bad product, the customer faces significant expenses in dealing with that bad
product. Every company is interested in the success of its economy. It is imperative,
therefore, that the concept of quality cost thinking and leadership is extended to the
national level. In the last 10 years we in India have witnessed the evolution of quality
systems, from production engineering-oriented frameworks into pan-organisational
activities, based on internationally accepted requirements. Quality systems are not side
or complementary activities any longer, but are integrated into business strategic thinking
and into daily organisational activities. This paper is an attempt in that direction to explain
a case example.
 Total Quality Management 1079

3. A case example
3.1 Background
The company under study is ISO9001:2000 certified with a technically diverse and chal-
lenging product range and portfolio and also with internationally acclaimed partnerships
and collaborations in foundry products and has a well-established mass-production facility
in central India. The company started with initial products as pulverised coal dusts and
coal tar pitch for use as carbonaceous additives in the green sand moulding process in
foundries for imparting smoother surface finish to castings. Some years down the line,
interacting with foundry men on site, they learnt quite conclusively that no green sand
system was the same, and foundry men never missed an opportunity to emphasise this
fact when they tried to standardise their products in green sand applications. So, learning
that they had to adapt to the sand system rather than adapting the sand system to their
products, in early 1988 they designed and created Lustron, a pre-blended lustrous
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carbon producer which tried to blend the best carbonaceous additives in the best possible
formulation to match the needs of the individual foundry green sand process of their
customers. While tailoring and applying their products to the needs of individual sand
systems, they realised that the future of marketing products like Lustron lay in understand-
ing the sand system in totality and that professional foundry services would be the thrust of
customer expectations from their vendors in the future. They trained their employees to
match these anticipated aspirations of customers. Today, their sand services profile is a
much sought out and used service by several customers. After a single product concen-
tration for almost two decades, in 2001, they widened their range of products to include
refractory coatings. ISO9001:2000 certification by BVQI has been an important milestone
in 2002 2003 to add to customers confidence. The company has a proven track record of
20 years of onsite, online applications in virtually all types, dimensions and configur-
ation of engineering and automotive castings in SG Iron & Grey Iron.
In the year ahead, they intend to strengthen the quality of their products, human resources,
manufacturing, corporate values and every aspect of company profile that will make them
vendors of choice for customers. Their efforts are based on the following building blocks:
. TQM initiative and drive.
. Innovations in product and process development.
We focus our study here only on the quality cost aspects of the TQM initiative and out-
comes. The companys vision is:
. To become a benchmark mineral and pulverising unit through research and develop-
ment for quality excellence meeting the diversified global customer requirements.
The mission is:
. To prepare the foundry base products for improving the quality of castings through
innovations and customer satisfaction.
The strategic directions are:
. Use of team processes.
. Focus on internal customers.
. Common understanding of quality as satisfying the needs of external customers.
. Emphasis on the use of the data and understanding variation in decision-making.
. Understanding of the organisational processes.
. Understanding techniques of quality improvement.
 1080 S.B. Jaju et al.

The action imperatives are:

. Pursuing a positive agenda.
. Implementing an effective customer service model.
. Establishing clearly defined roles and responsibilities for quality.
. Coordinating activity within teams and across the centre with quality as the core.
. Establishing clear assessment procedures for quality cost.
. Using resources efficiently and effectively.

3.2 Customer service policy

It is easy to make assumptions about what are the expectations of customers. Interviewing
customers provides the team with up-to-date information on customer priorities,
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clarifies likes and dislikes, and identifies emerging opportunities. The company uses
the following:
. Always talk directly to the customers never assume you know their needs.
. Prioritise customer needs above internal needs.
. Be specific, and clearly state the desired customer outcomes.
. Communicate customer needs to all employees.
The design and manufacture of products therefore have to fulfil the needs of such tailor-
made requirements of customers. The company has modern and fully automated plant
combined with in-house R&D activities ensuring customer focus. However, recognising
that designing and engineering a product has to be complemented by equally successful
introduction and application in shop-floor conditions, they have:
. A well-qualified team of shop-floor experienced technical personnel who can supply
a complete range of products in online foundry systems.
. A team of chemists who are trained in analysing sand and green sand parameters, at
their well-equipped laboratory as well as online at the customers place of work.
The company believes that continuous interaction with customers is the key to maintaining
and building business relevance and customer confidence and loyalty in the long term.
Hence, the company believes in detailed and meaningful customer feedback. To
achieve this objective the company has various resources:
. The laboratory regularly receives green sand samples from customers. This sample
analysis is catalogued on custom-made software enabling years of valuable refer-
ence on the sand system behaviour to be available on demand.
. Each analysis report is further value-added with observation and advice from their
quality personnel on aspects of sand control based on the analysed data.
. They have an extensive database gathered from years of onsite and shop-floor
experience in foundries.
. An extensive bank of reference literature on casting defect analysis and sand control.
. A Green Sand Technology Forum where a practical agenda on experiences and con-
trols in green sand technology is being developed to facilitate customers to calibrate
the skills of their sand team on-campus at the company end.
This bank of experience and knowledge base, which transcends conventional sales and
after-sales-service norms, is what constitutes the companys customer service policy.
The essence of this is captured as:
 Total Quality Management 1081

. Aiming for excellence through process control and the reduction of variations.
. Seeking constant improvement in every function in order to better meet customer
expectations.

3.3 Selection of product for study

Products of the company come with two decades of experience of manufacturing and
supplying lustrous carbon additives to the foundry industry. There is a vast network of
their own offices and depots spread over India, manned by technically qualified officers.
All of their products are backed by the considerable technical resources and knowledge
base in the application of lustrous carbon additives in foundry green systems. Out of
the wide range of products, Lustron is selected for the purpose of the study. Lustron is
a range of tailor-made lustrous carbon producers for use in green sand moulding in
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ferrous foundries as carbonaceous additive for importing better surface finish on castings.
Today, Lustron is no longer just a product but it is the experience of using a brand which,
when delivered to the customer, is backed by the following:
. Research of the requirements of the customers sand system.
. Knowledge of its introduction and application in the sand preparation and moulding
process.
. Experience of green sand system and the force acting in, on and around it, that makes
for good casting finish.
Lustron is engineered to be equally suited for application in green sand moulding systems:
. Using ordinary mullers and using intensive mixers.
. For hand moulding and for high-pressure moulding.
. For manual/mechanical handling and for pneumatic conveying.

3.4 Data collection

Abed and Dale (1987), Gibson et al. (1991), Schrader (1986) and Whitehall (1986)
concluded that industry should devise its own definition and categorisation of quality
cost within a framework of a widely accepted category of prevention, appraisal and
failures (PAF). It is a good idea to develop an industry-specific quality cost category.
Plunkett and Dale (1988) believe that quality cost categories are dependent on the structure
and technology of the enterprise. They revealed that each organisation has cost elements
that are specific to its situation and that depend on factors such as type of product,
technology and company size.
The quality cost data framework was constructed from the organisational structure, the
number of personnel working, activities of each department, the quality policy, etc.
Detailed quality cost checklists were then developed. The checklists were mainly designed
to collect man-hours spent on each activity, including monetary information. An initial
draft of the quality cost checklist was prepared from discussions with managers in the
quality, production and accounting departments. In-depth interviews were carried out
with managers from various departments, team leaders and experienced team members.
Since the first draft included all the elements relating to quality costs, it needed to be
validated with respect to data collection, collection cycle, responsible department, appro-
priateness, etc. The quality costs checklist was continuously updated. Lengthy discussions
were required to ensure that the checklist was appropriate to the company.
 1082 S.B. Jaju et al.

IS: 10708 1985 (Indian Standards Guide for analysis of quality cost) have identified
a list of quality cost elements under the PAF model. This list just acts as a guideline for
quality costing. Most elements in these lists are not relevant to a particular industry. In
order to calculate total quality cost, the quality cost elements are to be identified under
the categories of (PAF) (PC) prevention, (AC) appraisal, (IFC) internal failure and
(EFC) external failure costs. Some typical cost elements identified for the study are pre-
sented in Table 2.
The data collected over a period of three years are noted in Tables 3, 4 and 5.

3.5 Trend analysis

The data for individual cost categories and total quality cost (TQC) are plotted for each
year as shown in Figures 1, 2 and 3. From the trend of total quality cost, it is observed that:
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. It is drastically more in January and December due to expenses in conducting quality

audits. Otherwise not enough fluctuations are observed in other cost elements.
. The major component of TQC is appraisal cost.
. The internal failure cost is having a decreasing trend.
. External failure cost has decreased in 2004 and 2005.

3.6 Regression analysis

A linear regression model is used to construct the empirical relations between the total
quality cost (TQC) and individual quality cost. The equations are obtained for the
yearly data and combined. The standard error is estimated and also the correlations coeffi-
cient and coefficient of determination are found. Then, t-tests are used to ascertain the
strength and significance of relationship and to test the validity of the linear regression
model.
A summary of linear regression models of TQC with PC, AC, IFC and EFC along with
notes are shown in Table 6.

3.7 Comparative analysis of estimated and actual values of TQC

The equations of TQC are framed with PC, AC, IFC and EFC. These equations are used to
estimate the total quality cost. These values are shown year-wise in Tables 7, 8 and 9.
Graphs are plotted for the actual and estimated TQC. Individually TQC is estimated
from the equations of PC, AC, IFC and EFC. Trend line is compared. It is observed
that the TQC can be best estimated from AC and then from IFC. The graphs are shown
in Figures 4 to 6.

3.8 Comparative analysis of predictions of TQC

Equations obtained for the year 2003 2004 are used for predicting TQC. Now suppose the
values of PC are available and TQC is predicted from using the equation of PC. Compara-
tive analysis is done for other equations for predicting the TQC and summary of results
showing standard error estimate along with correlation coefficient is given in Table 10.
The following points are worth mentioning:
. On the basis of lowest standard error, it can be said that the various equations
obtained from data of 2003 2004 are giving good predictions.
 Table 2. Quality cost category wise elemental definitions.
Cost category
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Prevention costs
(a) Quality planning
(b) Calibration cost
(c) Quality audit (internal)
(d) Quality audit (external)
Appraisal costs
(a) Lab acceptance testing
(b) Overhead cost of
inspection and testing
(c) In process inspection
Definition
The work of translating product design
and customer quality requirements
into manufacturing, implementing
and maintaining quality plan and
procedures in quality control
department
Cost incurred to calibrate the test and
inspection instruments
Cost incurred in auditing the quality
procedures, which are laid down
Cost incurred in conducting the audit by
external agency as per ISO9000
guidelines
Total costs for all normal or routine
inspection and/or test of purchased
materials, products or services
Overhead cost incurred for inspection
and testing by quality control
department
Costs incurred in inspection and testing
of product during manufacturing
Quantified formula
Time spent by staff in quality control
department in hours No. of persons
concerned Average hourly wages
Calibration cost as per external agency bill
Time spent by staff in quality control
department in hours No. of persons
concerned Average hourly wages
External audit cost as per actual bills
(Time spent by inspectors in hours
Average hourly wages cost of
materials supplies Testing
m/c hourly rate m/c hrs) No. of tests
performed
Payroll cost of staff of quality control
department labour cost included in
other inspection activities
(Time spent by full-time inspections in
hours Average hourly wages cost of
materials supplies Testing m/c hourly
rate m/c hrs) No. of tests performed
Source data/methodology
(1) Staff time input and cumulative effort by
quality department staff
(2) Average hourly wage rate
(3) No. of concerned persons
(4) Data obtained from quality control department
and accounts
From accounts
(1)Staff time input
(2)Average hourly wage rate
(3)No. of concerned persons
(4)Data obtained from various department and
accounts
From accounts
(1) Salaries of inspectors
(2) Staff time input
Total Quality Management 1083
(3) Cost of materials from purchasing department
(4) Data regarding various tests performed by
quality control department
Accounts for payroll cost
(1) Salaries of inspectors
(2) Staff time input
(3) Cost of materials from purchasing department
(4) Data regarding various tests performed by
quality control department
(Continued)

Table 2. Continued.
Cost category
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(d) Set up for inspection and
test
(e) Inspection and test
materials
(f) Review of test and
inspection data
(g) Data processing
inspection and test reports
Internal failures costs
(a) Recycling cost
(b) Troubleshooting or
defect/failure analysis to
determine causes
(c) Re-inspection, retesting
of products which had
failed previously
External failure costs
(a) Complaints
administration
(b) Products rejected and
returned
(c) Returned material repair
Note: m/c machine.
Definition
Cost incurred for set up of testing and
measuring instruments
Materials consumed or destroyed in the
control of quality
Costs incurred for regularly reviewing
inspection and test data prior to
release of the product for shipment
The costs incurred in accumulating and
processing test and inspection data
used in evaluation work
The cost incurred in meeting quality
requirements where material can be
restored for use
The cost incurred for defect/failure
analysis in quality control
department
Cost of inspection of reworked and
repaired products
It is cost incurred on processing and
handling customer complaints
The costs of handling and accounting
for rejected products
Costs incurred for repair of the returned
goods
Quantified formula
10% depreciation on opening balance of
total investment on test and measuring
instruments
Cost of materials supplies
No. of inspecting personnel Time spent by
each inspecting personnel in hours
Average hourly wages
Time spent in hours Average hourly wages
(cost of stationary & printing) No. of
test reports
Labour hours spent on rework activity
Average hourly wages m/c hours
spent m/c Hours rate in Rs/hour cost
of supplies needed
Total samples analysed Cumulative cost
per test
Samples analysed as per deviation
Cumulative cost per test
No. of complaints Visit cost Time spend
Transportation cost Administrative
expenses
(Recycling cost retest cost)/Kg
Returned material in Kg
1084 S.B. Jaju et al.
Source data/methodology
From accounts
Bill of materials
(1) Staff time input by questionnaire
(2) Avg. hourly wage rate
(1) Staff time input by questionnaire
(2) Stationery costs, printing charges
(1) Amount of material to be reprocessed
(2) Payroll cost
(3) Cost of tests includes labour cost, machine
cost, power cost
(1) Cost per test
(2) Internal deviation
(3) No. samples analysed
(1) Internal deviation
(2) Samples as per deviation
(3) Cost per tests
(1) Staff time input
(2) Administration expenses
(1) Transportation cost as per accounts
(2) Administrative expenses
(1) Quantity of returned material
(2) Recycling cost from production department
(3) Retest cost from quality control department
 Total Quality Management 1085

Table 3. Total quality cost (in rupees per metric tonne (M.T.)) 20022003.
Prevention Appraisal Internal failure External failure Total quality
Month cost cost cost cost cost
Apr. 02 3.69 87.78 16.23 31.07 138.77
May 02 4.21 100.12 11.4 35.28 151.01
June 02 162.33 100.16 9.54 16.86 288.89
July 02 4.22 101.6 10.71 54.03 170.56
Aug. 02 3.77 91.98 6.16 14.85 116.76
Sept. 02 30.52 95.47 5.02 33.72 164.73
Oct. 02 4.11 97.73 6.04 16.2 124.08
Nov. 02 4.11 97.23 3.96 34.38 139.68
Dec. 02 84.07 96.39 3.24 15.87 199.57
Jan. 03 4.52 107.75 4.12 18.05 134.44
Feb. 03 4.28 102.94 1.57 16.88 125.67
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Mar. 03 24.42 81.33 3.3 41.01 150.06

Table 4. Total quality cost (in rupees per M.T.) 20032004.

Prevention Appraisal Internal failure External failure Total quality
Month cost cost cost cost cost
Apr. 03 4.3 89.36 2.94 0.00 96.60
May 03 4.17 89.04 3.32 0.00 96.53
June 03 41.78 97.59 3.42 12.21 155.00
July 03 3.61 70.1 1.8 0.00 75.51
Aug. 03 3.55 65.5 2.39 0.00 71.44
Sept. 03 25.46 64.44 1.81 5.97 97.68
Oct. 03 3.91 95.33 1.74 0.00 100.98
Nov. 03 3.23 66.93 2.47 18.18 90.81
Dec. 03 17.24 47.08 2.23 0.00 66.55
Jan. 04 11.32 69.14 2.26 20.00 102.72
Feb. 04 2.68 57.52 2.51 0.00 62.71
Mar. 04 20.26 52.5 1.61 0.00 74.37

Table 5. Total quality cost (in rupees per M.T.) 20042005.

Prevention Appraisal Internal failure External failure Total quality
Month cost cost cost cost cost
Apr. 04 3.23 80.33 2.3 0 85.86
May 04 3.23 66.23 2.6 0 72.06
June 04 35.7 50.6 2.05 12.12 100.47
July 04 2.34 61.06 1.1 0 64.5
Aug. 04 4.75 59.86 1.09 91.31 157.01
Sept. 04 19.71 62.81 1.28 0 83.8
Oct. 04 48.96 64.65 1.15 0 114.76
Nov. 04 2.32 53.81 0.72 0 56.85
Dec. 04 18.68 46.58 1.14 8.89 75.29
Jan. 05 1.75 47.33 0.54 0 49.62
Feb. 05 2.47 44.32 0.71 0 47.5
Mar. 05 17.45 64.29 1.11 0 82.85
 1086 S.B. Jaju et al.

Figure 1. Trend analysis of total quality cost and other cost categories 2003.
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Figure 2. Trend analysis of total quality cost and other cost categories 2004.

Figure 3. Trend analysis of total quality cost and other cost categories 2005.

. Comparing the various equations such as TQC versus PC, TQC versus AC, TQC
versus IFC and TQC versus EFC, it can be said that the equation of TQC versus
AC has the lowest standard error of 28.48 and hence one can say that it gives the
best predictions.
. Equations of TQC versus PC are compared on the basis of correlation coefficient. In
the year 2002 2003, highest correlation coefficient of TQC and PC is 0.953.
Similarly equations of TQC versus AC are compared on the basis of correlation
coefficient. In the year 2003 2004, the highest correlation coefficient of TQC and
AC is 0.756. Similarly equations of TQC versus IFC are compared on the basis of
correlation coefficient. In the year 2002 2004, the highest correlation coefficient
of TQC and IFC is 0.520. Similarly equations of TQC versus EFC are compared
on the basis of correlation coefficient. In the year 2002 2004, the highest correlation
coefficient of EFC and TQC is 0.549.
 Table 6. Summary of linear regression model of TQC with PC, AC, IFC and EFC.
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Corr.
Std. Coeff. Coeff. of
Relationship Year Equation Error (r) deter. (r2) t-value Remarks
TQC & PC 2002 03 TQC 132.90 0.93 PC 13.64 0.953 0.908 9.948 Relationship between PC and TQC is strong and significant
2003 04 TQC 75.84 1.28 PC 18.33 0.633 0.400 2.589 Relationship between PC and TQC is strong and significant
2004 05 TQC 71.37 0.84 PC 26.68 0.420 0.176 1.466 Relationship between PC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.17
2002 05 TQC 90.29 1.15 PC 33.61 0.715 0.511 5.966 Relationship between PC and TQC is strong and significant

TQC & AC 2002 03 TQC 79.39 0.82 AC 44.68 0.123 0.015 0.392 Relationship between AC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.70
2003 04 TQC 11.06 1.11 AC 15.49 0.756 0.571 3.658 Relationship between AC and TQC is strong and significant
2004 05 TQC 24.31 1.00 AC 27.69 0.336 0.112 1.131 Relationship between AC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.28
2002 05 TQC 19.60 1.72 AC 34.22 0.702 0.492 5.756 Relationship between AC and TQC is strong and significant

TQC & IFC 2002 03 TQC 145.48 1.95 IFC 44.29 0.178 0.031 0.574 Relationship between IFC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.57
2003 04 TQC 40.58 21.19 IFC 20.28 0.516 0.266 1.908 Relationship between IFC and TQC is weak and not

Total Quality Management 1087

significant at p 0.05. But it is significant at p , 0.08
2004 05 TQC 69.07 10.24 IFC 28.70 0.217 0.047 0.704 Relationship between IFC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.49
2002 05 TQC 81.90 8.25 IFC 39.09 0.582 0.338 4.179 Relationship between IFC and TQC is strong and significant
TQC & EFC 2002 03 TQC 164.59 0.22 EFC 44.94 0.058 0.003 0.185 Relationship between EFC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.85
2003 04 TQC 83.27 1.63 EFC 20.44 0.505 0.255 1.851 Relationship between EFC and TQC is weak and not
significant at p 0.05. But it is significant at p , 0.09
2004 05 TQC 73.89 0.93 EFC 18.12 0.787 0.619 4.039 Relationship between EFC & TQC is strong and significant
2002 05 TQC 91.02 1.42 EFC 39.45 0.571 0.326 4.064 Relationship between EFC & TQC is strong and significant
 1088 S.B. Jaju et al.

Table 7. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2003.
Month TQC_PC TQC_AC TQC_IFC TQC_EFC TQC_Actual
Apr. 02 136.33 151.37 177.13 157.75 138.77
May 02 136.82 161.49 167.71 156.83 151.01
June 02 283.87 161.52 164.08 160.88 288.89
July 02 136.82 162.70 166.36 152.70 170.56
Aug. 02 136.41 154.81 157.49 161.32 116.76
Sept. 02 161.28 157.68 155.27 157.17 164.73
Oct. 02 136.72 159.53 157.26 161.03 124.08
Nov. 02 136.72 159.12 153.20 157.03 139.68
Dec. 02 211.09 158.43 151.80 161.10 199.57
Jan. 03 137.10 167.75 153.51 160.62 134.44
Feb. 03 136.88 163.80 148.54 160.88 125.67
Mar. 03 155.61 146.08 151.92 155.57 150.06
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Table 8. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2004.
Month TQC_PC TQC_AC TQC_IFC TQC_EFC TQC_Actual
Apr. 03 81.344 110.2496 102.8786 83.27 96.6
May 03 81.1776 109.8944 110.9308 83.27 96.53
June 03 129.3184 119.3849 113.0498 103.1723 155
July 03 80.4608 88.871 78.722 83.27 75.51
Aug. 03 80.384 83.765 91.2241 83.27 71.44
Sept. 03 108.4288 82.5884 78.9339 93.0011 97.68
Oct. 03 80.8448 116.8763 77.4506 83.27 100.98
Nov. 03 79.9744 85.3523 92.9193 112.9034 90.81
Dec. 03 97.9072 63.3188 87.8337 83.27 66.55
Jan. 04 90.3296 87.8054 88.4694 115.87 102.72
Feb. 04 79.2704 74.9072 93.7669 83.27 62.71
Mar. 04 101.7728 69.335 74.6959 83.27 74.37

Table 9. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2005.
Month TQC_PC TQC_AC TQC_IFC TQC_EFC TQC_Actual
Apr. 04 74.08 104.64 92.62 73.89 85.86
May 04 74.08 90.54 95.69 73.89 72.06
June 04 101.36 74.91 90.06 85.16 100.47
July 04 73.34 85.37 80.33 73.89 64.5
Aug. 04 75.36 84.17 80.23 158.81 157.01
Sept. 04 87.93 87.12 82.18 73.89 83.8
Oct. 04 112.5 88.96 80.85 73.89 114.76
Nov. 04 73.32 78.12 76.44 73.89 56.85
Dec. 04 87.06 70.89 80.74 82.16 75.29
Jan. 05 72.84 71.64 74.6 73.89 49.62
Feb. 05 73.44 68.63 76.34 73.89 47.5
Mar. 05 86.03 88.6 80.44 73.89 82.85

. Also, the comparisons of predictions are shown in Figures 7 to 14. It is observed

from the graph that equation of appraisal cost obtained in 2003 2004 gives best
predictions. Hence for future planning, this equation is the useful predictor.
 Total Quality Management 1089

Figure 4. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2003.
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Figure 5. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2004.

Figure 6. Actual TQC and TQC estimated from the equations of PC, AC, IFC and EFC of 2005.

4. Concluding remarks
The management of quality is critical to most companies. For most it is the area of greatest
cost, consequently requiring detailed attention and control because failure can threaten the
existence of the business. This paper helps to guide on critical issues and offers some tools
to help any company with this important area of activity.
 1090 S.B. Jaju et al.

Table 10. Comparative study of prediction of TQC by equations on the basis of standard error.
Prediction
for the next Standard Correlation
Relationship Year Equations year error coefficient
TQC & PC 200203 TQC 132.90 0.93 PC 200304 56.19 0.953
TQC & PC 200304 TQC 75.84 1.28 PC 200405 29.38 0.633

TQC & AC 200203 TQC 79.39 0.82 AC 200304 50.23 0.123

TQC & AC 200304 TQC 11.06 1.11 AC 200405 28.48 0.756

TQC & IFC 200203 TQC 145.48 1.95 IFC 200304 63.56 0.178
TQC & IFC 200304 TQC 40.58 21.19 IFC 200405 32.69 0.516

TQC & EFC 200203 TQC 164.59 0.22 EFC 200304 76.68 0.058
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TQC & EFC 200304 TQC 83.27 1.63 EFC 200405 29.91 0.505

Figure 7. Comparative study of prediction of TQC by equation of PC obtained in 2003.

Figure 8. Comparative study of prediction of TQC by equation of AC obtained in 2003.

This paper provides practising managers with an overview of quality cost as an inte-
grated, cross-functional effort that focuses on customers and strives for business success.
Further, the paper provides managers with a set of actions to guide implementation and a
set of metrics to measure performance of TQM initiative. To control expenditure and
improve efficiency in production, it is essential for a company to measure its activities
regularly. This measurement allows progress to be monitored and compared with
the companys budget targets and with general benchmarks. The measures are also the
 Total Quality Management 1091

Figure 9. Comparative study of prediction of TQC by equation of IFC obtained in 2003.

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Figure 10. Comparative study of prediction of TQC by equation of EFC obtained in 2003.

Figure 11. Comparative study of prediction of TQC by equation of PC obtained in 2004.

Figure 12. Comparative study of prediction of TQC by equation of AC obtained in 2004.

 1092 S.B. Jaju et al.

Figure 13. Comparative study of prediction of TQC by equation of IFC obtained in 2004.
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Figure 14. Comparative study of prediction of TQC by equation of EFC obtained in 2004.

basis for sound planning and product costing systems, and should spotlight for managers
those areas of the business that most urgently require their attention.
In this paper, we have demonstrated that quality cost should not be seen as 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.
We also presented an exhaustive categorisation of quality costs that can be employed
to prepare a data framework. We also showed that it is possible to characterise the relations
between the various categories of costs.
The analysis presented in this paper was intended to provide a methodology and
approach in a very efficient, accurate and objective manner for:
. A manufacturing company pursuing TQM in their ability to identify the costs
actually caused by each activity, department, product, cost and organisation unit.
. The management of business processes to understand clearly and to try to measure
all intangible quality costs (consequential cost of failures) that have a greater impact
on the companys performance image in the eyes of its customers.
. Internal departments and supplier performance promotions by identifying areas of
non-performance along with the responsibility for corrective actions. This analysis
also helps identify cost savings opportunities.
. How to link the quality cost measurements to ISO9000 for implementation.
Manufacturers are facing new challenges as global competition accelerates and quality
management intensifies (Feigenbaum, 2001). Customers are demanding exceptional
quality and short delivery times for customised products with high performance.
To respond, firms are examining their strengths and weaknesses and considering how
 Total Quality Management 1093

to change their practices and capabilities to be effective world-class competitors. This

paper provides managers with another view of world-class manufacturing, describes an
approach to implement quality cost concepts, and discusses building commitment for it.
To succeed, firms should set goals and understand customer expectations, define the
essential competencies needed to achieve those goals. As customers become more
demanding and global competition intensifies, manufacturers feel the pressure to meet
tighter quality cost targets. To effectively respond to these challenges, many manufac-
turers are striving to become world-class competitors. To meet the desires of the custo-
mers, companies should continue their migration towards a holistic quality cost
management approach. Implemented correctly, it can create an environment where a
business can give customers what they want, and allows businesses to identify their
best customers and deepen the relationships with them. But it does not just happen. It
takes focused customer service leadership to implement successfully. It takes a
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company dedicated to technology, environment and innovation.

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