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Autor: anton 06 November 2010
Words: 2251 | Pages: 10
Costs of Total Quality Management
Submitted By: August 4, 2004
Morris De Rosa
Total Quality Management or TQM is a management strategy to embed awareness of quality in all organizational processes. The philosophy of TQM goes back to the 1940's when Dr. Deming started his quality endeavors in Japan. TQM is an approach for continuously improving the quality of goods and services delivered through the participation of all levels and functions of the organization. TQM aims to do things right the first time, rather fix problems after they emerge or fester. Ð’â€˜TQM is a management philosophy which seeks to integrate all organizational functions (marketing, finance, design, engineering, production and customer serviceÐ’â€¦) to focus on meeting customers' needs and organizational objectives)' (Hammett 1). TQM may operate within quality circles which encourage the meeting of minds of the workforce to improve production and reduce waste. In a manufacturing organization, TQM generally starts by sampling a random selection of the product. The sample is then tested for things that matter to the real customers. The causes of any failures are isolated, secondary measures of the production process are designed, and then the causes of the failure are corrected. The statistical distributions of important measurements are tracked. When parts' measures drift out of the error band, the process is fixed. The error band is usually tighter than the failure band. The production process is thereby fixed before failing parts can be produced. It's important to record not just the measurement ranges, but what failures caused them to be chosen (Barfield 306). In that way, cheaper fixes can be substituted later, (say, when the product is redesigned), with no loss of quality. After TQM has been in use, it's very common for parts to be redesigned so that critical measurements either cease to exist, or become much wider. It took a while to develop tests to find emergent problems. One popular test is a "life test" in which the sample product is operated until a part fails. Another popular test is called "shake and bake." The product is mounted on a vibrator in an environmental oven, and operated at progressively more extreme vibration and temperatures until something fails. The failure is then isolated and engineers design an improvement (Packard 1).
If a gearbox wears out first, a typical engineering design improvement might be to substitute a brushless stepper motor for a DC motor with a gearbox. The improvement is that a stepper motor has no brushes to wear out, and no gears to wear out, so it lasts ten times longer or more. The stepper motor is more expensive than a DC motor, but cheaper than a DC motor combined with a gearbox. The electronics is radically different, but equally expensive. One disadvantage might be that a stepper motor can hum or whine, and usually requires noise-isolating mounts. Often a TQMed product is cheaper to produce (because there's no need to repair dead-on-arrival products), and can yield an immensely more desirable product. TQM can be applied to services (such as mortgage issue or insurance underwriting), or even normal business paperwork. TQM is not a focused improvement approach. The customer desires and product tests select what to fix. Theoretical constraints are not considered at all (Packard 2). The basic objective of TQM is to do the right things right the first time and every time. "Quality is a moving target. It requires commitment towards sustained continuous improvement" (Hammett 1).
The definition of quality is subjective; it is determined by the customer evaluating the component or process it relates to how well the product meets their needs. For many individuals quality is simply receiving a product that is worth its expense and performs as expected, whether it is an automobile that is reliable and trouble-free or a power saw that cuts true straight cuts. "Thus, a fairly all-inclusive definition of quality is the summation of all the characteristics of a product or service that influence its ability to meet the stated or implied needs of the person acquiring it". Truly quality is something that relates to both performance and value from the customers perspective (Barfield 304). TQM is about building quality in from the beginning and making quality everyone's concern and responsibility. Consumers are willing to pay a premium for higher-quality goods and services. Organizations that employ TQM (or a similar philosophy) work on the premise that any product or service can be improved upon and this improvement equals reduced cost, better performance and higher reliability. The basic goal of TQM is simply understanding and meeting the customers' expectation every time. Understanding and meeting customer expectations is a challenging proposition and requires a process that supports continuing progress toward the goal of meeting customer expectations the first time, every time. A TQM program also has the goal of instilling confidence to management the intended quality level is being achieved and will continue to be maintained. The process employed must demonstrate repeatability and consistent results time after time. Finally, the customer must have confidence that the intended level of quality will be achieved in the delivered product or service (Barfield 313).
More than any other subject of interest to business people the world over in the past decade, Quality has become a focal point of activity. But unfortunately, the most reliable and accurate measure of that "elusive" attribute, namely, the Cost of Quality, is still unclear. I will attempt to explain the Costs of a Quality Program as I see them. The financial costs of poor quality are numerous. Obviously, a product or a service that does not meet the agreed upon requirements of the customer cannot be said to have Ð’â€˜quality'. Therefore, a fundamental definition of quality is Ð’â€˜conformance to requirements'. Furthermore, a system employed to achieve quality cannot rely on the old classic approach of appraisal alone. The key to achieving Ð’â€˜Quality' is prevention, not appraisal. The difficulties with appraisal alone are many and here are three of the main ones:
1. It is after the fact: the damage has already been done.
2. It is very costly to spend our resources discovering errors, correcting them, or discarding the items and redoing it all over again.
3. There is absolutely no guarantee that we will catch all the errors.
The costs of an effective quality program can be broken into two different sections. The first is compliance or assurance costs. The second is the cost of noncompliance or quality failure. These costs can be subdivided into the following categories. Prevention costs, appraisal costs, and failure costs (Barfield 314). Prevention costs are the cost incurred to prevent defects that result from a dysfunctional process. Investment in improved production equipment, training, and engineering and product modeling are considered prevention costs (Barfield 313). Improvement in a production process by automated equipment, which eliminates the human error factor, can prove to be a sound investment from a quality standpoint. An automated process provides consistent repeatability. Producing an exact component time after time, one that meets engineering requirements for tolerance will prove/provide repeatability thus meeting one definition of quality, consistency.
Appraisal costs are another of three types of costs associated with a quality program. Although appraisal costs cannot stand alone as the sole prevention component of a sound quality program, they do complement prevention costs and help ensure a quality product. Barfield further explains these costs by the following statement:
Appraisal costs, which represent costs incurred for monitoring and compensate for mistakes not eliminated through prevention activities. Both of these types of costs will cause a reduction in failure costs. These costs represent internal loses, such as scrap or rework, and external loses, such as warranty work, customer complaint departments, litigation, or defective product recall. (313)
The costs associated with a sound quality program will reduce an entity's overall cost for production or providing a service. Some benefits received will be in the form of repeat customers, a reduction in expenditures for production, and less returns/complaints from customers. When I was young I recall my father having a sign posted in his work place that said Ð’â€˜The bitterness of poor quality remains long after the sweetness of low price'. "TQM philosophy indicates that total costs will decline rather than increase, as the quality of the products are improved within the organization" (Barfield 314). GE's quality process at the Greenville plant has evolved to the point where they no longer utilize a Quality Control Inspector (QC) to verify the completion of a critical operation. Certain members on a production team have been certified to verify the process is complete and in accordance with the drawing. This has eliminated the expenses associated with having only a few individuals certified to verify an operation. The costs savings is in the form of a reduction of paying a special pay rate to QC inspectors and the time loss associated with waiting for a QC inspector to verify the work. The success of this program has been established by the fact they no longer test run every unit prior to shipment to the customer. The cost reduction of eliminating a test run on every unit approaches several hundred thousand dollars and reduces the production cycle time by several days. GE still offers the option of a test run to the customer, but there is an additional charge of $550,000. Granted, an additional $550,000 is small when you consider the price of a unit can approach $80 million depending on how it is configured. For the customer who elects to purchase a unit without a test run any production Ð’â€˜bugs' are ironed at the final installation site prior to unit being released to the customer. This is an example of empowerment of the workers and having a sense of ownership for the product produced. A basic objective of TQM is a commitment from all levels of the organization. Pride of ownership is a good example of how empowerment of the workers can help produce a quality product.
Barfield states on page 316 "the cost of quality is often Ð’â€˜buried' in a variety of general ledger accounts". This indicates the real Ð’â€˜costs' of a quality or lack thereof is often unknown to management. The costs of providing Ð’â€˜quality' are difficult to quantify for several reasons. Chief among them is not knowing the total costs associated with the loss of a customer. Often when a customer elects to no longer purchase a product because of poor quality or service they will communicate that decision to as many others as possible. The costs of a lost customer are greater than the loss of a single sale; each lost customer often equates to several others that may have elected to try a product or service prior to hearing information concerning the lack of quality (Hammett 5). On the other hand, a system in which the costs associated with Ð’â€˜quality' are easily determined can provide management with useful information that is beneficial to making spending decisions. The costs which yield the highest cost-benefit relationships are where management should direct the funds (Barfield 316).
Continuous improvement is another critical aspect of the TQM program. Managers and employees must be constantly on the lookout for any type of indication of a failure in the production process. If discovered they must take steps to eliminate and correct the malfunction to reduce costs. Elimination of problems will reduce future prevention costs. On page 317 Barfield states:
Theoretically, if prevention and appraisal costs were prudently incurred, failure costs would become zero. However, prevention and appraisal costs would still be incurred to achieve zero failure costs. Thus, total quality costs can never be zero. This is not to disregard the knowledge that the benefits of increased sales and greater efficiency should exceed all remaining compliance quality costs. In this sense, the cost of compliance quality is free. Management should analyze the quality cost relationships and spend money for quality in ways that will provide the greatest benefit. Such an analysis requires that the cost of quality be measured to the extent possible and practical and the benefits of quality costs be estimated.
Other costs associated with poor quality are opportunity costs, including lost future sales and a measure of the firm's loss of reputation. Opportunity costs are real, but like other costs that cannot be quantified are not recorded in an accounting system (Barfield 318). The costs of a quality system must be managed so a reasonable value-to-price-relationship can be achieved. High quality will help a company increase profits through lower costs. It is critical that management focus on long term objectives instead of taking a limited outlook on growth and market share. The strategy of focusing on the customer and quality will equate to greater market share and higher profits. Reducing costs should be part of the continuous improvement process. Strategic cost management is the process of utilizing cost information to formulate and communicate strategies to all levels of the organization. A balance must be obtained to provide the customer with a quality product at a cost that provides for a profit for the company. The potential customer is becoming more and more conscious of quality. It makes sense for a business to cut their costs by improving the quality of the product thereby enhancing the appeal of a product or service in the market place. The challenge is for each business to strive for the kind of business culture that will succeed in spite of the unknown and the unknowable. The quality management philosophy searches for this culture.
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