Economic Indicators of Quality and Their Influence on Cost Effectiveness

Abstract

Purpose: Economic optimum of quality is to find a balance beetween quality and costs of quality, therefore it is very important to monitor quality costs and economical indicators for valuation of cost effectiveness. All economic indicators can provide information to the company in terms of quality costs trend. All indicators are important for to improve TQM performance and for continual improvement of quality. The relative importance of economic indicators brings knowledges for managers to value cost effectiveness. Methodology/Approach:In this paper we use economical and statistical indicators for quality costs. We use in this paper model PAF, that it include prevention costs, evaluation costs, internal errors costs, external errors costs. We used these statistical indicators: Total costs, Individual simple cost index, cost ratio and cost structure.Findings: All these economic indicators can provide information to the company in terms of quality costs trend and their constant monitoring and management. Quality costs in relation to the profit participate with low percentage ie. the costs relative to quality significantly affect the generation of profits as their share of unit sales is too low, which is the most positive indicator of profit. While an index of costs in the monitored period decreases, which is in terms of this indicator positive phenomenon and it is not necessary to optimize the costs of the quality in relation to the reported sales.Originality/Value of paper: Cost effectiveness helps to improve TQM performance. TQM is a major business strategy for the company. Cost of quality influence to profit in the industrial company and profit is very important indicator for next business activities.

New Approach of Costs of Quality According their Trend of During Long Period in Industrial Enterprises in SMEs

“…All these economic indicators are factors that influence the performance of enterprises and their competitiveness in the market (Table 4). [22].…”

“…Authors considers that for the evaluation of economic and statistical indicators of quality and their classification is model PAF one of the best. Model PAF was created by the American company General Electric and is part of the British standard BS 6143, which divides the costs of quality to the category of the costs of prevention, assessment costs, costs of errors [6,22]. These costs groups include: Prevention costs -(efforts to avoid disagreement) the costs of any activity relating to the investigation, prevention, or reducing the risk of error, as well as the costs of quality improvement based corrections.…”

“…External failure costs -(external failure) the costs arising outside the company after delivery to the customer (user), arising from failure to meet user requirements on quality. They arise during use of the product as a result of poor quality of supplier's work [6,22]. For evaluation of economic and statistical indicators we will use exactly this approach in the assessment of quality costs, because the following indicators are based precisely on the model of the PAF.…”

“…Implementation of quality cost control is very important instrument for improving in area of quality management and quality cost [4]. This approach creates framework for measuring and evaluating quality costs [22]. Bamford and Land (2006) presented measurement instrument for costs of quality for business improvement in an industry company with direction on Footwear Company.…”