The basic fundamentals to implement a Quality Cost Management and Evaluation System (SEGECA) are presented at Comercializadora Escambray, considering the requirements of Quality Management Systems (QMS) under ISO 9000, adapted to the characteristics of a company marketing company and with the participation of staff.
quality-cost-system-in-a-trading-companyThe use of quality costs as indicators of the improvement processes and as a motivating factor in the process of change towards the QMS in the company is emphasized. A classification of the cost categories is established for the unification of criteria at the company level, which facilitates the comparison between the different projects that the company can implement, presenting a conceptual model for the structuring of the system. Goals or ideals are proposed for total quality costs as percentages of net sales, also for the distribution of the percentages relative to each subcategory. Thus, the implementation of QMS will no longer be seen as a competitive advantage in the short term, to become a fundamental requirement to compete efficiently, effectively and effectively.
1. Introduction
The objective of implementing a Quality Management System (QMS) within the Company is to develop a system that ensures that the goods or services that it produces meet customer requirements at a minimum cost, and can positively influence the execution of clients' projects, creating, in them, enough confidence to select the services of the organization before different options.
This objective can be achieved by minimizing the costs associated with failures or non-conformities, for which the correct identification and evaluation of them is necessary, in order to prevent them from occurring.
The identification and systemic and systematic control of quality costs, as well as their differentiated identification by processes, departments and work areas, is a parameter that allows evaluating the successful or not performance of the QMS. As human capital becomes aware of the new way of considering costs and their incidence, it is predisposed to react positively and adopt preventive and corrective actions, concentrating attention on priority or critical areas according to this criterion.
A common definition among various authors of quality costs is the following: “the difference between the current cost of developing, producing and marketing a product, and the lowest cost that should be possible to obtain if there were the possibility of not making mistakes in the development, production, commercialization or use of the product ”.
It can be seen that quality costs are a very broad concept, therefore it is convenient to discriminate and classify the different elements that compose them.
However, it is appropriate to comment in advance on the need for a coordinated and precise work sufficiently in advance of this implementation, associated with the adjustments required to the financial accounting system to guarantee the implementation of the proposal made here.
2. Brief description of the Escambray Trading Company.
The activities carried out are fundamentally of a Technical - Commercial nature. It has offices, warehouses, Expo-sales rooms and others, constituting an exceptional point of reference for clients, designers and investors; The latter also have the facilities provided by communication with the Logistics department, which has highly professional staff to be oriented to the best use of materials, equipment and tools for construction. The fundamental activities of the Warehouse Bases is the provisioning, storage and safeguarding of the resources to be distributed and commercialized by the Territorial Trading Units (UCT).
The Comercializadora Escambray constitutes the marketing channel of the Ministry of Construction (MICONS) of construction materials and others, contributing to the investment process of the country the commercialization on integral service parameters, which represents an element of balance in delivery times to investments and constructive maintenance in the country. Its UCTs are conveniently distributed throughout the country, as shown in Figure 1.
The operation of the organization is managed by Processes, as shown in figure 2. This also summarizes the documentation associated specifically with each Process.
For this reason, the proposal made here is based on a process management.
3. Classification of Quality Costs
The total quality costs can be seen as the sum of two categories: the compliance or quality costs and the failure or non-quality costs, with their corresponding subcategories: prevention and evaluation, and internal and external failures respectively. as can be seen in Figure 4.
The definitions given by the different authors for the different categories and subcategories of quality costs are similar, but they are general for any type of activity. Therefore, it has been tried to adapt them to the marketing industry, which are shown below:
CONFORMITY OR QUALITY COSTS: It is the total price of all efforts to achieve the quality of the product or service.
Prevention Costs: These are the costs incurred in planning, documenting, implementing and maintaining the quality system to achieve conformity with the quality requirements.
Evaluation Costs: These are the costs that occur in the development of measurements and audits in processes, products, components and materials to establish the degree of conformity with the quality requirements in a stage prior to the delivery of the product to the customer.
COSTS OF FAILURES OR NON-QUALITY: These are the additional costs that are produced by not complying with the clients' requirements and that do not contribute to providing a quality product or service. These can be divided into costs of internal and external quality failures, according to the moment they are detected with respect to the delivery of the product to the customer.
Internal Failure Costs: These are the costs incurred to correct a non-conformity or fault identified before the customer receives the product or service, or a part of it.
External Failure Costs: These are all costs related to repairs due to errors or failures produced after the delivery of the product or service, or a part of it to the client. Although they can include the same kinds of costs as in internal failures (redone work, extra storage of materials and others), because they are detected after the customer has taken possession of the products, errors at this stage have an incidence greater both in economic value and in the image of the Company.
Table 1 shows in summary form the composition of each of the cost subcategories, with their respective items, the codes assigned for processing, the type of cost they produce, the place where they apply (P = in Process and D = in Direction), and also the measurement criteria in each case.
These costs must be considered in a period of time that can be comparable, for example: annual, monthly costs or throughout the life cycle of the entire project executed by the client, if applicable, or any other previously defined.
If each cost category is considered separately, it can be seen that they have an inverse behavior as quality levels are increased. In other words, Compliance Costs (prevention and evaluation) should increase, while Failure Costs should decrease.
Traditionally and theoretically, the Total Quality Costs shown in Figure 5, that is, the sum of both categories, should give an Optimal Quality Cost, beyond which it would not be convenient to invest, which contradicts the principle of Continuous Improvement.
According to the new vision, if it is considered that operational costs are not constant, and can decrease from the systematic improvement processes carried out within the framework of the QMS, it is possible to continue investing in quality since there are always opportunities for improvement. However, the authors share the criterion that it is possible in each case to determine an Optimal Quality Cost, having as a restriction of the optimization model the real possibility of investing in continuous improvement.
For this, it is a necessary condition that an evaluation and monitoring system of said costs be established, and, in principle, that the improvement processes be selected on the basis of the processes that have the highest failure costs in the different areas. Of course, in no case is it possible to ignore the criteria of the management team and the concepts associated with the available budgets to guarantee said improvement.
4. Data collection
Each item in each cost subcategory has its peculiarities and / or difficulties for its determination, according to its possibility of detection or its registration and accounting. This criterion linked to accounting is of vital importance.
The items in the prevention and evaluation subcategories, in general, are not easy to detect due to the great dispersion in the different departments and levels and because many activities are considered as part of normal work. The latter makes such precision truly important and, at the same time, seriously complex throughout the implementation.
For their registration, individual reports can be used, such as the one shown in Figure 6, as an example, where the activities carried out in the specified week or period can be specified, with their corresponding costs. Once each worker submits their reports, they are easy to post to the corresponding accounts or cost centers.
However, this proposal requires a rigorous preliminary preparation of human capital to guarantee their active and conscious participation, discipline, development of skills and work habits. An implantation attempt without the aforementioned guarantees related to human capital leads in most cases to an “iso facto” rejection of the idea.
In turn, the costs of external failures are a little more difficult to detect, but they are easy to assign since they can be recorded in a cost center that is opened once the relationship with the client or supplier has begun. It is essential to establish work methods and procedures that facilitate the detection of costs due to external failures.
A great difficulty also arises in internal failures, which do not occur exclusively in the direct provision of customer service, but from the very conception and planning of the logistics associated with the provision of the same and the internal functioning of the organization, but also, derived from the physical product supplied to the client and accepted by the company from the suppliers, which may not meet its expectations, whatever the associated causes. At the same time, due to the large number of activities and inputs that arise during commercial management in its wide spectrum associated with the concept. That is why it is proposed to individually assess the cost associated with non-conformities according to the implemented Quality System, as indicated in the diagram in Figure 7.
This system is based on the management of Checklists for each sector or unit and by games, in which the items of Reception (from previous games or that have to be carried out before starting the task), Execution (own of the activity) and Delivery (with which it is necessary to comply with subsequent items).
When any of the items does not conform to the previously defined specifications or tolerances, the Non-Conformity Report is completed (which is generally placed on the back of the Check List). These reports must be periodically reviewed by the Representative of the Directorate for the Quality Management System (RDSGC) and by the Director, and when relevant, the Corrective and Preventive Action Reports are generated by each Head of Process. In addition, the costs associated with non-conformities must be evaluated, which must also be recorded.
In the departments and work areas, it will be the responsibility of each employee to deliver their Cost Report in the specified time associated with quality to their immediate superior and these to the Heads of Processes, who must review them and deliver it to the Process Management or to the Representative of the Directorate for the Quality Management System for processing.
In the Territorial Marketing Units (UCT) of Escambray, the control of reports and cost evaluations of non-conformities and the operation of this part of the Quality System, are the responsibility of the directors and Heads of each Process. The RDSGC of each UCT and the Central Office will be responsible for processing and sending the information to the Director.
5. Processing, recording and analysis of information
Once the data is collected, it must be processed to at least obtain the following reports:
Report of Non-Conformity for Processes.
For each Non-Conformity that occurs, there must be a record that contains:
- Area, Department, Directorate, Process Labor Costs Materials and Supplies Costs Machinery and Equipment Costs Re-inspection and reworking Costs Costs associated with Planning
These reports are analyzed by the RDSGC and are summarized in the Quarterly Reports to be presented and analyzed in the meetings of the Board of Review by the Management. (CRD), as appropriate per Thematic Plan.
Quarterly Report by Processes.
It is the responsibility of the Head of Process (JP) of each UCT, to hold a Quarterly meeting, which allows obtaining and specifying all the information required to present a report that contains at least:
- Total number of non-conformities produced Number of non-conformities produced by area Causes Corrective actions Status of non-conformities Summary of costs by subcategories
On a quarterly basis, you must send a copy of this report to the Directorate of Processes and the RDSGC.
The RDSGC must prepare a report for the director of the UCT and the RDSGC of the Central Office, as the case may be, specifying:
- Number and distribution of non-conformities Total costs by subcategory Relative percentage of each subcategory
Report at the company level.
The JP is in charge of collecting the information from all areas of its process, and the RDSGC from all processes, preparing, in each case, a report that contains for each area and process, as appropriate:
- Total costs by subcategory Percentage relative to each subcategory Comparison between Processes (Total quality costs / Net sales) Distribution of total costs of the entity with respect to the ideal
The processing of these reports will be carried out preferably in digital format, by the methods established by the Directorate of Processes.
This information will be evaluated, reviewed and signed by the Director of the corresponding UCT, who together with their representative for quality will be responsible for its quarterly shipment, to the Central Office for processing, analysis, filing, evaluation and proposal of new actions. corrective and preventive, if deemed necessary.
In all cases, and as with the Quality System in general, the commitment and honesty of the personnel involved is needed to objectively evaluate the operation of the proposed system, beyond the accuracy or precision of the data obtained.
Equally important is the implementation of a system to evaluate quality costs, first of all because they are big, very big. The main objective, obviously, is to decrease the relative percentage of total quality costs with respect to operational costs (or net sales). Several authors agree that for any industry in general, these average percentages vary between 10 and 20%, while others suggest between 20 and 40% of net sales. In an investigation carried out in various construction projects in the USA, it was determined that the total quality costs on average oscillated around 12% of the costs of the projects studied.
Second, 95% of costs in quality are generally related to valuation and defects. These expenses add very little to the value of the product or service; the expense of defects, at the very least, can be considered avoidable. Reducing the costs of defects by eliminating the causes of non-compliance can also result in a substantial reduction in valuation costs.
Third, unnecessary and avoidable costs make goods and services more expensive. This in turn affects competitiveness and, in the long run, wages and standards of living.
Fourth, it is clear that the costs and economics of many quality-related activities, including investments in prevention and evaluation activities, are unknown to companies, despite the fact that such costs are considerable and that a substantial part of them is avoidable.
In the first instance, it may be advisable to adopt as an ideal percentage of total quality costs 20% of net sales, taking into account the specific activity of Comercializadora Escambray.
Additionally, the percentages relative to each cost subcategory should be measured, and concrete actions (mostly prevention actions) should be proposed to minimize the costs of failures and evaluation, in order to get closer to the ideal distribution, which shown in Figure 8.
In turn, the results obtained over time must be graphed, as shown in Figure 9, in order to verify their evolution and objectively visualize the QMS implementation process. In addition, the approximate moment from which the benefits of the implementation of the QMS will begin to be perceived could be projected.
6. Conclusions
- Improving quality can reduce costs, but isolated cost reduction efforts can rarely improve quality. What is not measured cannot be improved; Therefore, it is necessary to establish a Quality Cost Monitoring and Control System, which serves as a performance parameter of the QMS implementation process. It is necessary to develop a Consultation Guide for personnel, in order to define, clarify and standardize throughout the Company the classification of the different costs, their measurement and the way in which they are processed. Likewise, a system for data collection and processing must be previously provided, trying to take advantage of the facilities provided by some conventional computer programs. at present.For the successful implementation of the cost system,The need for a mature Quality System is emphasized, with trained, motivated, and committed personnel that not only participate but are capable of getting involved. Finally, several authors agree that quality costs are the best and most comprehensive performance parameter to measure the QMS implementation process, as well as to select the improvement processes.
