CIMA P2 Syllabus A. Managing The Costs Of Creating Value - Total Quality Management (TQM) - Notes ^{1 / 10}

Total Quality Management (TQM)

It is all about quality of products made or services provided

Some companies thought that quality is an additional cost of manufacturing, but recently they have begun to realise that quality saves money.

Mark Lee Inman listed 8 requirements of quality:

1. The customer is the most important

2. The customer-supplier relationship is crucial

3. Stop inspecting quality and start preventing the cause of the defect in the first place

4. Each employee must be personally responsible for defect-free production or service

5. Any level of defects is unacceptable

6. Try to get things right first time

7. Quality certification programmes should be introduced

8. The cost of poor quality should be emphasised as good quality generates savings

The basic principle of TQM is:

• Costs of prevention (getting things right first time) are less than the costs of correction.

• Therefore companies should focus on getting things right first time (zero defect) and then getting them better next time (continuous improvement).

• Real participation by all

• Commitment of senior management

4 types of Quality costs

1. Prevention Costs

   are the costs incurred in preventing the production of quality products

   They include the costs of:
   - preventive maintenance
   - quality planning and training
   - the extra costs of acquiring higher quality raw materials
   - quality circles

2. Appraisal Costs

   are the costs incurred to ensure that materials and products meet quality standards. 

   They include the costs of:
   - inspecting purchased parts
   - work in process and finished goods
   - quality audits
   - field tests

3. Internal Failure Costs

   are the costs associated with materials and products that fail to meet quality standards. 

   They include costs incurred before the product is dispatched to the customer, such as:
   - the costs of scrap, repair, downtime
   -  work stoppages caused by defects.

4. External Failure Costs

   are the costs incurred when products or services fail to meet requirements or satisfy customer needs after they have been delivered. 

   They include the costs of:
   - handling customer complaints
   - warranty replacement
   - repairs of returned products
   - the costs arising from a damaged company reputation

   Costs within this category can have a dramatic impact on future sales.

Costs of compliance (conformance)

• These are Prevention and appraisal costs.

  Their aim is to eliminate the costs of failure.

Costs of non-compliance (non-conformance)

• These are Internal and external failure costs 

  Costs of non-compliance are the result of production imperfections and can only be reduced by increasing compliance expenditure.

Empowerment is the aspect of TQM that provides for the participation by selected employees in quality improvement and is concerned with giving decision making powers to employees.