Quality Management

Systems, Standards, and

Benefits/Costing

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QMS
A quality management system (QMS) is a system that
defines operations to achieve consistency and
creditability with customers
QMS refers to what the organization does to manage
its processes, or activities in order that the products
or services that it produces meet the objectives it has
set itself (ISO, 2004)
ISO 9000 series (International Standards
Organization standard on quality management)

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ISO 9000
ISO 9000 is a generic standard - means that the
standard can be applied to any organization, large or
small, whatever its product in any sector of activity
ISO is an auditable system – organization may be
certified to a market standard by outside agency
(Weigers, 2001)
ISO 9000 predominant QMS today – adopted by 149
countries/economies (ISO, 2004)

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General Introduction
Quality Management Principles of ISO 9000:2000 (ANSI, 2000; ANSI,
2000a)

Customer focus

Leadership

Involvement of people

Process Approach – A set of interrelated activities which transforms inputs

into outputs

System approach to management – Manage set of interrelated processes

Continual Improvement

Factual approach to decision making

Mutually beneficial supplier relationships 4

Growth of ISO 9000
CURRENT: 1M ISO certs.
Top 10 countries for
registrations:
China (approx. 27%)
Italy
UK
Japan
Spain
USA (approx. 9%)
Germany
Australia
France
South Korea

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ISO 9000 Characteristics
Leadership demonstrates commitment to customer
requirements.
Policy and measurable quality objectives are set and
renewed.
Processes are identified, analyzed, and
managed.
Customer satisfaction is measured.
Data are collected, analyzed, and used.
System effectiveness is continually improved.

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ISO Process Approach
Company must identify
and manage numerous
linked activities.
An activity uses
resources, is managed
in order to enable the
transformation of inputs
into outputs.

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Timeline for Standard Development
New Work Item
1 PROPOSAL
NWIP

2 PREPARATORY Working Draft

WD
Committee Draft
3 COMMITTEE
CD

Draft International Standard

4 ENQUIRY
DIS

Final Draft International Standard

5 APPROVAL
FDIS

6 PUBLICATION Publication-International Standard

IS
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Key Aspects of ISO Participation
Timely – prompt response to enquiries within the
accepted timeline
Consensus – all points of view are accepted in
forming the TAG position, majority support for the
position
Transparent – activities of the committee are open
and may be inspected by all interested parties
Traceable – all items must be accompanied by a
voting record

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Dual Roles for ISO 9000/9004
QMS for fulfilling customer, regulatory, etc.,
requirements (ISO 9000)
“Management should consider development of
innovative financial methods to support and
encourage improvement of the organizational
performance” (ISO 9004 – Guidelines for
performance improvements)

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Allocation of Costs: Process Approach
Early methods of tracking quality costs was too
limited “focus on cost of non-conformance i.e.
external and internal failure costs”.
Process-cost broadens economics of quality by
classifying cost of non-conformance and cost of
conformance I.e. “costs incurred when a process is
running without failure”

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Process Approach: Added
Benefits
Utilize cost of non-conformance (often called
Cost of Poor Quality) and cost of
conformance = greater cost saving
opportunities may be available in reducing
cost of conformance

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Process Costing
Allows the tracking and reduction of costs
normally associated with efficiency in addition
to effectiveness (quality)”
Process simplification in addition to reduction
of errors become objectives
Relate the economics of quality to the
amount of activity performed

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Process Costs i.e. Costs of Inefficient Processes
Examples
Variation of product characteristics from optimum
Unplanned downtime and/or loss of
processing/storage capacity
Inventory shrinkage
Variation of process characteristics from ‘best
practices’ (cycle times from to start to finish of
activities)
Other non-value added activities
NOTE: Improvement is also an objective

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Don’t Ignore Quality Failures
Cost of Poor Quality

Cost of non-conformity: Cost of conformity: Cost of lost

Internal failure costs process approach opportunities for sales
External failure costs revenue

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Internal Failure Costs Examples
Labor and material overhead spent on defective
product – spoilage, defectives, scrap etc.
Correcting defectives in physical or service products
i.e. reworking product
Sorting bad/good product
Re-inspection, retest of product
Changing processes to correct deficiencies (CAR’s)
Downgrading product

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External Failure Cost Examples
Costs involved in replacing/making repair for
warranty product
Investigation and adjustment costs to justified
complaints of quality defective product
Returned material
Concession costs due to substandard product
accepted by customer
Correcting errors on external supporting processes
Revenue losses in support operations
(Gyrna)

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Allocation of Costs
The company must decide what to measure
depending upon circumstances, objectives,
etc.
However,
The overall idea is to “allocate costs and not
to absorb such costs into overhead” (ISO/TR
10014)

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Deriving Benefits
Reduction of failures due to QMS
Improvement of process efficiencies due to QMS
Pre and post measures of implementation
However, improvements should be done as identified
Using quality tools such as flowcharting, value add
analysis, cycle time reduction, process
simplification, root cause investigation, etc.

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