Establishment of quality cost system in scancom

7 TABLE OF FIGURE , APPENDIX 1 Figure 1 ScanCom’s top 10 customer claims review 10 2 Figure 2 In-line quality inspection reported by the Figure 9 Quality Cost Categories Applied in Scan

HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES

SOLVAY BRUSSELS SCHOOL OF ECONOMICS & MANAGEMENT

MBQPM5

DONG VAN TIEP

ESTABLISHMENT OF QUALITY COST

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STATEMENT OF AUTHENTICATION

This final report has not been submitted for a degree or diploma in any other universities To my best knowledge and belief, the report contains no materials previously published or written by another person except where due reference is made in the report itself

Signature of Student

Dong Van Tiep

Date: 23 April 2016

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ACKNOWLEDMENT

This is the final report for Master in Business Quality and Performance Management – Solvay Brussels School of Economics and Management The aim of this final report is to establish the quality cost system in ScanCom Vietnam The report is the combination of practical experiences of furniture industry and quality subject studies

I would like to take this opportunity to thank our Managing Director – Mr Edwin Van De Sloot who has supported me in providing me the important data in cost management and as well as strong support from him to the team to make the program moved forward

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CONTENT

1 INTRODUCTION 9

1.1 Background 9

1.2 The case of ScanCom 10

1.2.1 Introduction to ScanCom 10

1.2.2 ScanCom’s General Quality Management Process 10

1.2.3 How quality performance is reviewed and measured in ScanCom? 11

2 COST OF QUALITY 15

2.1 Quality 15

2.2 History and Definition of Cost of Quality (COQ) 16

3 IMPLEMENTATION OF QUALITY COST PROGRAM IN SCANCOM: 22

3.1 Delimitations 22

3.2 Challenges/difficulties anticipated during the implementation of Cost of Quality System in ScanCom: 23

3.3 ScanCom Goals for the implementation of Quality Cost Program 23

3.4 Implementation steps for the Cost of Quality Program in ScanCom 24

3.4.1 Gain top management commitment 24

3.4.2 Constitute the Quality Cost Team: 26

3.4.3 Quality Cost Categories 26

3.4.4 Data collection 27

3.4.5 Collecting Quality Cost Data 28

3.4.6 Quality Cost Data Analysis 31

3.4.7 Build up an improvement proposal plan 32

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3.4.9 Kick-off Meeting for the Implementation of Quality Cost

System 32 3.4.10 Quality Cost Training 33 3.4.11 Periodic review of quality costs 33

REFERENCES

APPENDICES

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TABLE OF FIGURE , APPENDIX

1 Figure 1 ScanCom’s top 10 customer claims review 10

2 Figure 2 In-line quality inspection reported by the

Figure 9 Quality Cost Categories Applied in ScanCom 25 Figure 10 ScanCom example of standard rework cost 27 Figure 11 the maturity level of Quality Cost 29 Figure 12 the monthly quality cost report to be presented in

QA Monthly Update

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Figure 13 an example of future quality report for the quality

cost categories in ScanCom

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Figure 14 Multiple-Period Trend Graph of individual quality

cost categories

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Appendix 1 flow chart of ScanCom Quality Assurance

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Appendix 4 Loss analysis form used in factories of ScanCom 41 Appendix 5 internal failure cost flowchart for in-line control 42 Appendix 6 internal failure cost flowchart for final control 43 Appendix 7 performance quality measurement in ScanCom 44

“If we can define it – we can measure it;

If we can measure it – we can analyze it;

If we can analyze it – we can control it;

If we can control it – we can improve it”

(Dahlgaard et al., 1998, in Krishnan, 2006, p 99)

In the outdoor furniture market today with more and more competition, most furniture manufacturers are challenged to offer the high quality product to their customers at the low cost

Previously many companies had believed that high quality means high costs, while actually it is the poor quality that costs Therefore, the term of Quality Cost becomes more and more important

Since ScanCom was established in 1995, the quality cost has not been measured, collected and reported in a correct way Also ScanCom has a very limited knowledge on Quality Cost; therefore the understanding of context is unknown

It is difficult for us to benchmark the goals of our Quality Cost Program as when looking into other companies in the same industry in Vietnam; we realize that most of companies have not implemented the quality cost management system

According to the quick survey done in March 2016 by ScanCom Quality Assurance Department for 8 outdoor furniture companies in Vietnam, 100% says the knows about Quality Cost, 62.5% says they are applying a Quality Cost System and 37.5% says they are not, 50% thinks their quality cost is less than 10% of total production cost and 50% believes their quality cost is from 15%-20% of total production cost 100% says they are going to apply the Quality Cost System in the future; however, none of them has a full understanding of what the quality cost is

ScanCom owned sales offices can be seen in Denmark, United Kingdom, Germany, U.S.A and Vietnam with manufacturing sites in Brazil, Indonesia and Vietnam

We credit our achievements to attractive designs, high standards of quality and social responsibility combined with precise delivery planning and competitive prices Always an active and responsible partner, ScanCom is guided by a firm set of principles that guides us in everything we do

Source: http://scancom.net/AboutScanCom/

There are five main processes in ScanCom Quality Assurance Management Process 1: Incoming Control

- Evaluating and selecting suppliers

- Incoming material inspection

- Auditing suppliers

- Equipment Calibration

Process 2: In-line Control

 Participating in making production processes

 Reviewing and auditing production processes

 Inspecting products before packing

 Conducting training to QC inspectors and production staff

 Making proposals for improving product quality and productivity

 Following up on Corrective and Preventive Actions (CAPAs)

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Process 3: Final Control

 Reviewing and updating quality handbook

 Designing Final Control Plan

 Conducting training to FC inspectors and relevant departments

 Conducting pre-shipment inspection

 Following up on CAPA

Process 4: System Audit

 Conducting training on quality management system (QMS)

 Being in charge of internal/external audits

 Reviewing and updating key QMS procedures

 Following up on CAPAs

Process 5: Quality Improvement

 Conducting random audits for critical processes in mass-production

 Suggesting product quality improvement during prototype meeting

 Following up on FMEA implementation

 Raise CAPAs for customer complaints

1.2.3 How quality performance is reviewed and measured in

The purpose of this meeting is to follow up the quality performance of all factories, the major quality problems happening in the month and what corrective action and preventive action which have been done to correct the problem as well as to prevent the problem from happening again in the future The quality problems include quality issues happening in the factories and quality claims received from customers

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The meeting also is to highlight the major quality systematic problems in ScanCom and propose action plan for them if any Normally the quality systematic problems are found during internal audit program or random audits of production processes

Besides, the supplier quality performance is also reviewed in the meeting Quality Incoming Manager is responsible for monitoring the quality performance of suppliers and proposes the action plan to enhance their performance

Group Quality Review

This meeting is conducted quarterly and chaired by Group CEO The attendees include Group CEO, Group Finance Director, Group Commercial Director, ScanCom Managing Directors, and Group QA Senior Manager

In the meeting, Group QA Senior Manager will report the quality performance of ScanCom to the executive team Top ten customer claims will be discussed in a detailed way; the executive team always requires detailed corrective action and preventive action for each quality problem complained by customers

Figure1: ScanCom’s top 10 customer claims review

Source: ScanCom Quality Assurance Department

Figure 2: In-line quality inspection reported by the factories

Source: QA Monthly Report, Quality Assurance Department, ScanCom Vietnam

 Final inspection (AQLsample size: Critical 0.0, Major 1.5, Minor 4.0): The formula for defect rate is the amount of defective batches found divided by the number of total amount of batches inspected For example, if 03 batches out of 100 inspected batches are defective, the defect rate is 03/100 = 3% The failed batches must be analyzed

in details (percentage of reject points and improvement points) to set

up a proper rework plan

Figure 3: Final quality inspection reported by the Final Control Inspector

Figure 4: In-line quality inspection reported by the factories

Source: QA Monthly Report, Quality Assurance Department, ScanCom Vietnam

Source: Group Quality Review, Quality Assurance Department, ScanCom Vietnam

In conclusion, in the past 21 years since it was established in 1995, ScanCom has not approached and implemented any Quality Cost Program which is to improve the bottom line or to increase the company’s competitive advantage

The outdoor furniture market becomes more and more competitive in term

of pricing, our customers always ask for the high quality product with same

or even cheaper price Another challenge for ScanCom is that there are more Chinese furniture manufacturers who are capable of supplying good quality products with cheap prices due to their proactive investment in advanced technology of furniture manufacturing

According to the Business Strategy (Period 2016-2018) presented by ScanCom Managing Director in Jan 2016, one of the key action plans is to improve the cost competiveness through continual quality improvement

Therefore, one of the most important tasks before getting the Quality Cost program implementation is to train the relevant on the awareness of quality cost and their categories

2 Cost of Quality

2.1 Quality

How quality is defined in ScanCom today?

We follow the philosophy of H.L Gilmore (defined in Product Conformance Cost Quality progress June 1974)

“Quality is the degree to which a specific product conforms to a design or specification" and the defect is categories into three different levels

 Critical defect: A defect that is likely to result in a hazardous or

unsafe condition for an individual using the product, or is

contravening mandatory regulations

 Major defect: A defect that seriously affects the appearance,

performance, durability, or functionality of the product and will result in customer dissatisfaction – and very likely a claim

 Minor defect: A workmanship defect which is beyond the defined

quality standard – it does not reduce product usability, but affects appearance, performance or durability, and may affect salability at

full price

Definition of Quality according to “Quality Gurus”

Quality consists of the capacity to satisfy wants

(C.D Edwards, "The Meaning of Quality", in Quality Progress Oct.1968) Quality is fitness for use

(J.M Juran, ed Quality Control Handbook 1988)

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Quality is the degree to which a specific product conforms to a design or specification

(H.L Gilmore: Product Conformance Cost Quality progress June 1974)

Quality means conformance to requirements

(P.B Crosby: Quality Is Free)

Quality is the degree of excellence at an acceptable price and the control of variability at an acceptable cost

(R A Broh: Managing Quality for Higher Profits, 1982)

2.2 History and Definition of Cost of Quality (COQ)

COQ History

Philip Crosby once said “Money is the language of management; you need

to show them the numbers.”

This was true when he first said it many years ago & it’s even truer today as industries have become more competitive & complex

Joseph Juran also understood the important link between Money & Quality when he introduced the concept of Quality Cost in his first edition of the Quality Control Handbook published in 1951

The concept was further expanded on by Armand Feigenbaum in his 1956 Harvard Business Review essay Total Quality Control when he introduced the 4 Quality Cost Categories that are commonly referred to today

Since then, the Cost of Quality concept has been continuously improved into a fully developed financial model that has many strategic benefits

COQ Definition

According to Juran’s Quality Control Handbook:

Quality costs are the costs associated with preventing, finding, and

correcting defective work These costs are huge, running at 20% - 40% of sales Many of these costs can be significantly reduced or completely avoided One of the key functions of a Quality Engineer is the reduction of the total cost of quality associated with a product

Source: Gryna, F M “Quality Costs” in Juran, J.M & Gryna, F M (1988, 4th Ed.), Juran’s Quality Control Handbook, McGraw-Hill, page 4.2

According to Harrington (1987, p 5):

COQ as “all the cost incurred to help the employee do the job right every time and cost of determining if the output is acceptable, plus any cost incurred by the

Over the last several decades, quality costs have been divided into several categories The most commonly accepted and comprehensive definitions have categorized quality cost as prevention, appraisal and failure costs Failure costs are usually split into internal failure costs and external failure costs, bellows are specific definitions of these terms:

 Prevention Cost – costs associated with activities specifically designed to prevent poor quality in products

 Appraisal Cost – costs associated with activities specifically designed to measure, inspect, evaluate or audit products to assure conformance to quality requirements

 Internal Failure Cost – costs incurred when a product fails to conform to

a quality specification before shipment to a customer

 External Failure Cost – costs incurred when a product fails to conform to

a quality specification after shipment to a customer

The Total Quality Cost then is simply the sum of all these cost categories; Prevention, Appraisal, & Failure Costs (Internal & External)

Visible and invisible Cost of Poor Quality

CoPQ can be more or less difficult to identify (Krishnan, 2006), therefore Feigenbaum (1991), Gryna (1999), Dale and Plunkett (1991) and Giakatis et al (2001) separate the CoPQ into visible and invisible costs regardless of classifications, stating that visible CoPQ are easy to identify and measure while invisible CoPQ is difficult to identify and measure Stated by Krishnan (2006)

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visible and invisible CoPQ can be visualized as an iceberg, where only a little amount of the costs can be seen and the rest is hidden under the water, see figure 3.2 Most often, only visible CoPQ are taken into consideration when talking about poor quality, thus omit the other costs (Krishnan, 2006) However, when the data for invisible costs are credible or manageable, and where estimations can be done, those costs should be included as visible costs (Gryna, 1999)

Figure 6 – The iceberg of visible and invisible costs (Krishnan, 2006)

In 1999, Juran published the 5th addition of Juran’s Quality Handbook In it

he included the following depiction of the Quality Cost Curve

Figure 7: Juran’s Quality Cost Curve

This is super important – so the X-Axis is the Quality Level which moves from 0% conformance on the left to 100% conformance on the right

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As you move from 0% conformance to 100% conformance the Prevention

& Appraisal Costs increase linearly Similarly, the Failure Costs (Internal + External) begin decreasing sharply

Then, the Total CoQ (Cost of Quality), which is a sum of these two other curves also decreases sharply

One key conclusion that Juran is communicating with this graph is that the Total CoQ is the lowest, when conformance is 100% At this point, the Total CoQ simply equals the Cost of Prevention & Appraisal

Usage of Quality Costs

Quality costing can be u s e d as a lever t o gain top management commitment to initiate an improvement project Top managers tend to be influenced by data expressed in monetary terms rather than technical data such as defect rates Their main area of interest can be reflected as a strategic business objective in a company Their commitment is decisive for the success of a TQM initiative because many r e s o u r c e s should be invested in quality improvement projects In addition to providing a communicating bridge between line and top management, quality costing can provide an overall index for managers to evaluate and monitor the economics, effectiveness and efficiency of quality activities in their organization Quality c o s t i n g integrates all the separate quality activities into a total q u a l i t y system It forces the entire organization to examine the performance of each quality activity in terms of costs Moreover, quality costing c a n be used as a starting point i n setting

up a quality system except where an organization already has one

It should be also noted that the usefulness of CoQ reporting does not have c o n s e n s u s in the literature Three noted authors on quality management (“gurus”), namely Deming, Crosby, and Juran, each have a different attitude to CoQ reporting Deming’s view is that cost analysis for quality is a misguided waste of time and measuring quality costs to seek optimum defect levels is evidence of failure

to understand the problem Crosby argues that q u a l i t y costs need to be me as ur e d , not f or management control, but f o r the development of “quality” thinking within the organization The more popular approach is that of Juran who advocates the measurement

of costs on a periodic basis as a management control tool

Implementation status of Quality Cost System in Mananufacturing firms

Despite the interest of the academic community and the quality consultants in CoQ models, the situation in the real world is

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different The results of numerous industry surveys or research studies conf irm that CoQ i s not a widely used c o n c e p t Quality cost calculations are n o t c o m m o n even among the r e c i p i e n t s of

th e M a l c o l m Baldridge National Quality Award On the other hand, most examples confirm that quality improvement and cost measurement processes bring about a huge reduction in a company’s CoQ

In a research concerning Australian manufacturing firms, it is indicated that of the

136 respondents, 35 firms (25.7%) currently measure the cost of quality in some firms Among the remaining 101 firms which did not measure cost of quality, 37 firms (27.2%) indicated that they plan to implement a CoQ reporting system in the future, and a further 64 firms (47.1%) had no plans to implement CoQ reporting in the future

In an earlier empirical research, Porter & Rayner studied twenty quality-oriented manufacturing firms in the North of England The survey revealed that only seven (35%) of the sample made any attempt to monitor quality costs Only “failure” or

“tangible factory” costs were recorded and all figures given appeared to involve

an element of estimation Estimates ranged from 0.8% to 3% of turnover with a mean of 1.9 % of turnover Six companies estimated that such costs had fallen,

in one case from 6.5 % to 1.75 % of turnover One firm claimed that failure costs had increased from 0.5% to 0.8% of turnover since gaining certification This had been caused by the adoption of tighter specifications, resulting in more internal rejections

In 1995 a similar research was performed in 250 companies, in the manufacturing sector, having a minimum of 50 employees The situation concerning CoQ was improved; 86 % of the companies responded, noted that they did not use BS 6143 standard, however, 78% provided information about the perceived total cost of quality within their company It is also interesting to note that only 59 % of the companies stated that they presented quality cost information at management review meetings

In general, very few studies establish an effective empirical relationship among quality cost components and quality This is because it is very difficult to observe the quality data for a particular industrial segment unless firms agree to provide the required data

In 1994, Carr & Ponoemon study the relationships among quality cost components by using 46 paper and pulp manufacturing mills in USA for a period

of 48 months They observe the following relationships: internal failure is the most expensive and prevention is the least expensive quality cost component, the combination of internal and external failure costs is always higher than prevention and appraisal costs, and the quality reject rate decreases with increased volume output Moreover, this study suggests that only internal failure and external failure costs have a statistically significant correlation with the level of quality At the same time, B e l l et al

The Goal & Benefits of a COQ Program

The ultimate goal of a COQ System is to reduce the total cost of quality – which will result in increased profitability & quality for the organization This end goal is the foundation for all things Continuous Improvement

A COQ Program can contribute to the overall increased profitability in the following ways:

 A COQ Program provides cost-benefit justification for needed Corrective Actions & Improvement projects

 A COQ Program assists you in quantifying the costs associated with inefficient or incapable processes that result in unwanted variation & waste

 A COQ Program highlights the importance of Prevention activities as an investment in cost avoidance, and as a method to reducing quality costs

 A COQ Program Prioritizes & aligns your quality efforts & activities with your company’s financial goal of profitability

 A COQ Program highlights strengths & weaknesses of the Quality & Manufacturing System

 A COQ Program reframes improvement opportunities into financial benefits for ROI analysis

 A COQ Program exposes waste & other opportunities for improvement

 A COQ Program reminds all employees that their actions are always contributing to the organizations Bottom Line, either positively or negatively

 A COQ Program drives a holistic perspective to Continuous

Improvement by ensuring that the overall benefits of an improvement project do not result in unintended consequences somewhere else in the business

Souce:http://www.cqeacademy.com/cqe-body-of-knowledge/quality-system/cost-of-quality/

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Difficulties during the implementation of COQ

Lack of data or difficulties in collecting data, lack of cooperation from top management and lack of understanding of COQ principles are common difficulties identified during the implementation of COQ reporting (Rodchua, 2009; Bamford and Land, 2006 and Elridge et al, 2006) Roden and Dale, (2001), detailed out difficulties in collecting COQ data as below:

 Firm culture and employee attitudes towards COQ system is not conducive

 Lack of information and accountability makes it difficult to collect COQ data

 Complexity in existing accounting system which unable to sort data according to various divisions also make it difficult to measure COQ data

Meanwhile Wan and Dale (2002) stressed the importance of employees as well as firm culture in the implementation of COQ reporting This supported earlier findings by Roden and Dale (2001) that employee responsiveness as well as the culture of the firm played important roles in the success of COQ implementation A study by Arvaiova, M., Aspinwall and M.E., Walker, S.D (2009) revealed that the main difficulty faced by telecommunications organizations in the United Kingdom during the setting up of COQ reporting system was to identify new quality improvement opportunities Interestingly, Bamford and Land (2006) proposed some guidelines to ensure the success of COQ implementation The substance of the guidelines is as follows:

 Senior management commitment is vital for the success of COQ project and must be in place before it the implementation begins

 Use existing systems instead of trying to invent new methods for COQ data collection

 Link COQ to other measures which give more relevance and impact

 Continually improve the COQ reporting system

3 IMPLEMENTATION OF QUALITY COST PROGRAM IN SCANCOM: 3.1 Delimitations

This final report delimits to only focus on factories of ScanCom Vietnam Therefore, none of the other factories in ScanCom Group were analyzed

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The scope of this final report is to investigate the quality cost of outdoor furniture manufacturing Further, the scope is defined from delivery of a component from a supplier until the finished goods is passed to the Logistics Warehouse for shipping to the customers The supporting functions in terms of

HR and finance will not be included

Further, the scope of the final report is to construct and test the given model from the analysis The final report can therefore be seen as “Pilot Quality Cost Program” for further Quality Improvement Projects at ScanCom in the future

Therefore, the final report delimits from providing the actual quality cost data as well as a comprehensive evaluation for the suggesting implementation plans

3.2 Challenges/difficulties anticipated during the implementation of Cost of Quality System in ScanCom:

 Lack of cooperation with other departments

 Difficulties in accessing to financial data

 Difficulties in standardizing a corporate quality cost system

 Lack of benchmarking opportunities and consultancy services

 Lack of top management support

 Difficulties in indentifying new quality improvement opportunities

 Identification of activities that relate to quality

 Difficulties in analyzing the data collected

 Identification of quality cost items

3.3 ScanCom Goals for the implementation of Quality Cost Program

ScanCom determines that reducing the cost of quality is one of effective way to improve the company’s profit By establishing a measurable and manageable quality cost system, we can provide a mean to correctly report the quality cost to ScanCom top management and also to know where the focused areas for prioritized action plan

During the implementation of quality cost system, prevention cost many increase, total quality cost will decrease by the reduction of the internal failure and external failure cost

“The core concept here is that more spending in the prevention area results

in lower spending in failure costs; lowered spending in prevention drives higher failure costs (otherwise known as cost of poor quality or COPQ) To date, the authors have found no companies where prevention and failure costs correspond on a 1-to-1 basis The usual finding is an 8-to-1 ratio, a

This strategy is based on the premise that:

 For each failure there is a root cause

 Causes are preventable

 Prevention is always cheaper”

Source: Principles of Quality Cost – Forth Edition – P9 – Douglas C.Wood

3.4 Implementation steps for the Cost of Quality Program in ScanCom

3.4.1 Gain top management commitment

Understanding the importance of top management commitment like other improvement program, the cost quality will never be successful from the bottom or middle of the organization, the presentation was prepared to give

a little knowledge on Cost of Quality and its benefits when being applied in the organization Besides, the presentation included some initial major quality costs and revealed a lot of opportunities for improvements, which should be sufficient to sell top management on need for implementing the quality cost program

The only measurable quality cost that ScanCom has been following up in the past 05 years is external failure cost which is targeted as 0.5% of sales turnover Looking into more details of external failure, the improvement opportunity is very obvious The proposed action plan with deadlines was also presented

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Top Management Group (TMG) was convinced and fully agreed with the proposals of kicking off the quality cost program in ScanCom and has nominated Group QA Senior Manager to take the lead in coordinating with relevant departments to make it happen TMG was really interested in the monetary terms rather than quality data such reject rate during in-line control or final control

“Companies not already engaged in quality cost programs are unaware of the magnitude of the quality cost dollar and its direct impact on their total business Most businesses are profitable, and the management may believe that if business is profitable there is little need to look more closely

at expenses” Principles of Quality Cost – Forth Edition – P47 – Douglas C.Wood

One of the objectives of the quality cost program is to understand where ScanCom is today with Cost of Quality Below is Six Sigma value chart which shows the Cost of Quality Level equivalent to the organization capability

Edwin Van De Sloot – ScanCom Managing Director fully supported the program and motivated it to be implemented in ScanCom However after the presentation, he came directly to the office of Group Senior QA Manager and said that: “I actually like your presentation very much but I cannot imagine that we are spending more than 10% of Sales Turnover (more than

90 USD millions) for quality costs, can you please prove that I am wrong”

SIGMA DPMO COPQ CAPABILITY

6 Sigma 3.4 <10% of sales World Class

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3.4.2 Constitute the Quality Cost Team:

As the leader in the Quality Cost Project, Group QA Senior Manager is allowed to select qualified members from different functions to join the team The cross-functional team includes Group QA Senior Manager, Factory QA Managers, Chief Accountant, Incoming Control Manager and Quality Improvement Manager There are many requirements necessary for the team:

 Knowledge of quality-related activities

 Understand the financial statement/profit and loss

 Willingness to take the challenges

3.4.3 Quality Cost Categories

The next is to allocate the existing costs to the COQ categories which are prevention, appraisal, internal failure and external failure costs The current accounting system used in ScanCom today collect the cost data more than

is needed for calculating the total quality cost Therefore ScanCom does not require accounting system changes But it is necessary train accounting department on the knowledge of Quality Cost so that the particular cost can

be placed in the correct category identified in the Quality Cost System It is very important to make clear the role of accounting department In the

“Executive guide to understanding and implementing Quality Cost Program”, Douglas Wood highlighted the role of accounting in page 15 as below:

 Match the quality cost definitions to other company cost structures

 Ensure that methods of estimating costs are sound

 Keep the quality cost system synchronous with other cost systems

a changes are made

 Manage report production in an area that focuses on cost reporting

 Help establish an internal quality cost procedure that maintain year-to-year consistency

More importantly, running the quality cost program from the accounting will:

 Provide the stamp of financial validity to the program

 Assure that collection costs remain within practical limits

 Set up a regular opportunity for dialogue between the accountings, operation and the traditional quality function It will help put both the quality manager and the accounting in the flow of communication to help the operations manager reduce the cost of quality

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3.4.4 Data collection

All data of related quality costs will be selected and classified by Accounting Department with the support from Quality Assurance Department so that the particular cost will be allocated into a right category Below is the quality cost elements which were discussed and agreed to implement in ScanCom:

Quality Cost System Elements Applied ScanCom Vietnam

By studying different sources of materials regarding Quality Cost Categories, Group QA Senior Manager has together with the team listed down all the quality cost elements which will be inputted for producing the total quality cost in ScanCom

Figure 9: Quality Cost Categories Applied in ScanCom

By reviewing the data in accounting system, we realize that the external failure cost is available and well-managed by Axapta System The prevention cost is placed in different functions in ScanCom such as R&D Department, Commercial Department and Central QA Department The

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Appraisal cost is more complicated as it is registered in many different cost centers from 04 different factories and other departments in main office The most difficult one is collection of internal failure cost as ScanCom has not established an official standard procedure for internal failure cost But it is just a very small of it is being maintained and reported to Accounting Department for monthly follow-up, this rework cost for finished products which are rejected at Final Control Because it is stipulated in the Final Control Procedure that the rework plan and work cost must be prepared and approved before re-inspection and moving finished products to the

warehouse

3.4.5 Collecting Quality Cost Data

When all data related to quality costs are selected, they will be into four categories of cost quality:

 Prevention cost

 Appraisal cost

 Internal failure cost

 External failure cost

Guidelines for Quality Cost Data Collection in ScanCom:

It will already have been discovered that many of the needed quality cost data are not readily available from the cost accounting system Like in ScanCom, many prevention and internal failure costs are considered as a normal part of operations Therefore, these costs are not separated and made available for use when needed Besides, what is recorded in the accounting books may not be the same as the defined quality cost category For example, rework in mass-production may be accounted for as a variance against a standard allowance As a result, ScanCom needs to set

up a detailed internal quality cost procedure

Collection of Prevention and Appraisal Costs:

COQ data already exist in the accounting system; however they are currently registered by many different cost centers in ScanCom, and not separated according quality cost category The Finance/Accounting Manager will review the whole accounting once agreed with Group QA Senior Manager on the terms of quality cost applied in ScanCom Then she will collect them and allocate them to another separate area which she registers for following the quality cost on monthly basis