Audit finding - "Cost of Poor Quality" reporting - Confidentiality Issues

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SteelWoman

This is just a "how do YOU guys do it" question:

We just had our first surveillance audit to TS and had a finding regarding our "Cost of Poor Quality" reporting to our MRT. We have always reported our customer claims and vendor rejects as our Cost of Quality - this isn't just OUR ignorance, it's the way our other divisions have always interpreted it as well as our registrar. Well, the auditor told us that in a recent IAOB witness audit they got dinged for not requiring clients to report it in the more traditional, all-encompassing CofQ type calculations. News to them, now news to us.

Anyway, in sitting down with this to address the finding, we started looking at traditional things like the cost of Internal Holds, cost of people's time who process claims, cost of shipping costs we eat in association with claims, etc, etc, ad nauseum. Anyway, I ran into a little blip when I went to ask Plant Management/Personnel for some information to calculate some of these costs - how do I arrive, for instance, at the cost of the person's time who processes claims without having someone tell me what that person makes, which is normally confidential? We have about 10 people's time involved in several different factors we are calculating. I offered to let personnel totally calculate the CofPQ for me and just give me the end figure, but they're currently overwhelmed with work and aren't going to take that on. Personnel hasn't refused to give me this info (yet) but I'm tiptoing my way into even asking for it, 'cause frankly I don't WANT it (one of the figures involves my boss!!)

Have any of you figured out a way to assign a dollar value to individual's time without actually KNOWING the real value?
 

Cari Spears

Super Moderator
Leader
Super Moderator
I am the one who tracks the cost of non-quality here. When one of the machinists is finished reworking a part, he puts his time on the red tag for me so I know the rework manhours - same for reinspection time. We have machinists and inspectors being paid anywhere from $10.00/hr up to $20.00+/hr. What I use is the manhour rate that we use to quote work to our customers - so no matter who performs the rework, it's the same dollar amount per hour. I also add one hour at this rate for each red tag to cover the soft costs - like the time it takes me to log in the red tag and investigate costs, etc.

Can someone just give you a flat hourly rate to use?
 
S

SteelWoman

Yeah, for the hourly people it's really not that much of a problem, we also have a fairly set range for that. But where it's trickier is with professional level people - my boss, the plant manager, territory managers, etc. There's a good degree of variance there, even within the individual job descriptions. The company is traditionally pretty closed mouth about what anyone other than hourly/production people earn.

Our plant manager has queried corporate accounting to see if he can come up with an "average" rate for employees, but geeze given the potential (I assume?) difference between what a production guy makes versus the top management, I'm not sure any corporate calculated "average" is really going to be that useful?
 
S

Sam

SteelWoman said:
Yeah, for the hourly people it's really not that much of a problem, we also have a fairly set range for that. But where it's trickier is with professional level people - my boss, the plant manager, territory managers, etc. There's a good degree of variance there, even within the individual job descriptions. The company is traditionally pretty closed mouth about what anyone other than hourly/production people earn.

Our plant manager has queried corporate accounting to see if he can come up with an "average" rate for employees, but geeze given the potential (I assume?) difference between what a production guy makes versus the top management, I'm not sure any corporate calculated "average" is really going to be that useful?

Now you know why Juran says that 85% of all problems in the company are caused by management. They are never held accountable. :lol:
Cost related to quality, good and bad, is an accounting function for the very reasons you state;variances and confidentiality. Give them the hard data and let them crunch the numbers.
 
D

D.Scott

SteelWoman said:
Yeah, for the hourly people it's really not that much of a problem, we also have a fairly set range for that. But where it's trickier is with professional level people - my boss, the plant manager, territory managers, etc. There's a good degree of variance there, even within the individual job descriptions. The company is traditionally pretty closed mouth about what anyone other than hourly/production people earn.

Our plant manager has queried corporate accounting to see if he can come up with an "average" rate for employees, but geeze given the potential (I assume?) difference between what a production guy makes versus the top management, I'm not sure any corporate calculated "average" is really going to be that useful?

My two cents worth on this is that it doesn't really matter if you have a "perfect" dollar amount allocated. The whole idea of CoQ in my mind is to use it as a tool to determine your trends in quality cost. If you use the same number every time for your "labor cost" you will have a direct comparison month-to-month which will be a good management tool.

I have attached a CoQ worksheet that I use here which might give you some idea of how I report and track my CoQ. The spreadsheet can be opened to insert whatever dollar amounts you feel would be appropriate for your company. Also, you could add or remove any of the line items you wish to.

I hope this gives you some ideas.

Dave
 

Attachments

  • Cost of Quality Worksheet.xls
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SteelWoman

I really like the format on that - thanks!

I agree that if push comes to shove ANY number is good - for the reasons cited.

I can throw the entire table to Corporate and ask them to calculate it all for me.... but I'm pretty sure the registrar deadline for replying to findings makes waiting FOREVER out of the question! :lol:
 
D

D.Scott

Plug some numbers in Steel. The form does it's own calculations then just print it out and give it to management at your monthly meetings. Run a chart on the category totals for a comparison on the 4 areas of cost for your management review. Set your goals and objectives on percentage of improvement.

Dave
 

RoxaneB

Change Agent and Data Storyteller
Super Moderator
For us, we do a straight $/hr value for all variables. HR knows the average salary and adding in benefits, etc., they provide accounting with our "true" average wage.

So, let's say it costs us 15 minutes to process a nonconforming load and we receive 8 in one month and our $/hr average is $35/hr...then 0.25 X 8 X 35 = $70 to process nonconforming loads that month.

Perhaps a tad simplistic, but it allows to easily spot trends in particular areas without worry about salaries, overtime, etc.
 
S

SteelWoman

Just to update, corporate was able to provide an "average wage" for the facility, which I plugged into spreadsheet at multiple points. That'll work!
 
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