ASQ CQE Certified Quality Engineer – Section II – The Quality System (16 Questions) Part 5

17. 2D-4 Audit reporting and follow- up

Previously we looked at the steps which were done during the audit process, starting with the planning till the closure and follow up. Now in this video we will be talking about three main aspects of that cycle. Here we will be talking about reporting. Here we’ll be talking about the closing and follow up. Let’s start with audit report. Here we will look at what are the quality piece of a good audit report. An audit report needs to be accurate and free from error and distortion.

That’s very important. Whatever you put in the audit report, first thing is that should be traceable back. Let’s say if you have seen a drawing number, let’s say one, two, three, that’s a drawing number. Revision two dated this. So whenever you report that, make sure that you accurately and precisely report that you looked at drawing number one, two, three, revision two dated 22 August 2017. That way the report will be traceable and accurate. Nobody can challenge that. The report needs to be objective, fair, impartial and unbiased. So whatever you are reporting should be fact based rather than your opinion.

For example, there’s no point of saying in the report that the audit need to have more people to do a good job. That doesn’t make any sense, that doesn’t mean anything objective. What you could say is that as per plan, there were ten people required in this particular process. However, during the audit you observed that only four persons were doing that job.

That is something which makes sense, that is something which is objective, rather than just giving a general generic statement that more people need to be hired or that sort of thing. So make sure that whatever you put in the report is fair, unbiased and objective. It has to be clear and easy to understand. So make sure that whatever you are reporting is logical, it makes sense, people can understand this because whatever you are reporting, someone who was not part of audit will have to see that.

So that particular person who was not part of the audit, that person should be able to understand what you are reporting. Another important aspect of reporting is that this needs to be concise. You might see that this might look a little bit of contradictory, that you want to explain everything, but then you don’t want to explain too much. Like you don’t want stories in that report. So make sure that your report is concise, because if management has to look into that, make sure that whatever is relevant, that only goes into the audit report to the point without unnecessary details. Rather than generally criticizing, make sure that whatever you are reporting, you are reporting in a constructive way.

You are reporting in a way which helps audit to take some action rather than generally criticizing. So make sure that whatever you are reporting is giving a constructive feedback to the audit. And also, as we earlier said, that this needs to be complete. Give all the relevant facts, just the relevant facts, not too many things, but you don’t miss the relevant facts from the report. And most important thing is that you need to submit this report timely. Well, in time you complete the audit and for next two months if you are not issuing the audit report, then that doesn’t mean anything.

So make sure that when you do audit, you submit the report in a timely fashion so that the audit can take some action. Many times you would even give them a tentative or interim report or a handwritten report or some guidance at the end of audit during the closing meeting itself. So that even if you might take two, three days to complete and formally issue the report, auditor should be able to take action based on your audit. So timely issuing the report is important. So this was about the audit report. The second aspect which we want to discuss here is audit follow up. Just by issuing the report doesn’t end the role of the auditor. Auditor needs to follow up and make sure that whatever recommendation, whatever findings are part of that report are taken care of. Depending upon the type of finding, there might be a need to do some correction, take some corrective action or some preventive action. So depending on the situation, the audit need to do any or more of these items. So if there is a non conformity, the audit might need to do correction. In correction, the audit will make sure that the situation which was wrong is corrected.

And then the corrective action would be to avoid the recurrence of that particular finding. Recurrence of that particular nonconformity. That will be corrective action. And preventive action will be to avoid the occurrence of something in the first place.

So if there’s a potential of something going wrong, take preventive action to avoid that particular problem happening in the first place. So this will all depend on the type of finding. Then it is the responsibility of the audit to keep the audit team informed about what all action the audit is taking. And then audit team, the auditor or the lead auditor might want to verify the effectiveness of the action which are taken by the audit. The verification of action could be in two ways. One could be the documentary evidence is submitted by the audit. So based on that, auditor might be satisfied and close the finding.

Or there might be a need to do a follow up audit or the subsequent audit. So depending on the situation, depending on the type of finding, one of these two things could happen. The finding could be closed based on the documentary evidence, or finding could be closed based on the next audit follow up audit or the subsequent audit. So this was about the audit follow up. The next item which we want to discuss here is the audit closure. How does audit get closed. Audit gets closed when all the actions, all the activities which came out of the audit are carried out and these are agreed with the audit client and satisfactory action has been taken.

So once all these things are done, then audit could be closed. Every organization has document retention procedure that tells that what type of documents need to be retained for how long. So depending on that, the audit report needs to be retained, or when the time comes that needs to be destroyed. So let’s say if the company has a policy to keep audit reports for one year, two years, then after one or two years, that report needs to be destroyed.

So this will be as per the organization policy. So this is how audit is closed. So here we looked at three important aspect of the audit process. Here we talked about the audit report, we talked about the follow up, and we talked about the audit closure. So with this, we complete this section on quality audit, which was section two D of the CQE, body of knowledge. The next one will be the cost of quality, which is section two E of the body of knowledge. Let’s see that in the next video. That will be cost of quality.

18. 2E-1 Cost of Quality (COQ) – Introduction

The body of knowledge of CQE is the cost of quality. In this section we will be talking about some basic concepts related to the cost of quality. We will talk about the classification of quality costs and we will see that why do we need this, why do we need to calculate the cost of quality? And we will also look at the optimum level of these quality costs, costs. Let’s start with the basic concepts related to the cost of quality when we say cost of quality or let’s think about the cost of poor quality. Here there are two components to the cost of poor quality one is the visible part and the second is the invisible part. Visible is something which you can see. Invisible is something which is the hidden cost of the quality.

When we talk about the visible cost, the direct cost which we can see is the rejection cost. So if you make something that gets rejected then there’s a cost associated with that cost of rework. If you have to rework on that particular piece and get it to the right dimension, to the right tolerances, there is a cost involved in that. That’s a cost of poor quality, repair cost or even the cost of inspection. These are something which you can say these are the cost of quality. But then there is a hidden part of that which is invisible, which you really cannot quantify. This could be in terms of lost sale. So if you are consistently providing poor quality product you will be losing your customer, you will be losing your sale and in the long term this is going to harm the organization.

That’s something which probably you really cannot directly calculate that because of this poor quality we lost this much sale. Then there could be excessive inventory. The cost of excessive inventory is mostly ignored so if you have poor quality to compensate for that poor quality you will be making more number of pieces so that your next process could work. So you will be keeping some excessive inventory just to take care of your rejections. That is the cost of quality. Maintaining this inventory, storing that, the space it takes, the handling it takes, the amount of investment you need to retain that inventory all those things are the cost of excessive inventory which is because of the poor quality. Then there could be additional controls which you might establish to take care of the problems which you have.

On top of that, you might want to have a complaint handling department investigations you do sometimes you pay fines for the poor quality. There’s a legal fee associated with that. So if you look at these, these are number of items which really cannot be easily counted or calculated so that’s an invisible cost. If you look at the iceberg iceberg has 10% of the piece which is above the sea and 90% of the iceberg is below the sea cost of quality is just like that. What you see or what is the visible part of that cost of quality is just the small part of that. A big cost because of poor quality is the hidden cost or the invisible cost. So with that in background now let’s look at the classification of the cost of quality. Let’s see that on the next video.

19. 2E-2 Cost of Quality Classification

Most common approach to classify cost of quality is to classify these costs into these categories which are the prevention cost, appraisal cost and the failure cost. Failure cost can still be divided into internal and external failure. So here you end up with four types of the cost of quality prevention appraisal, internal failure and the external failure. Prevention is to prevent something going wrong. So whatever action, whatever cost you incur to avoid or to prevent things going wrong would be your prevention cost. Your appraisal cost would be the checking, checking to make sure that everything is going fine. So if you look at these two costs, which are the prevention and appraisal, these are the costs of good quality to make sure the quality is good. And if both of these fail, then there will be some problem, there will be some failure and that cost which is associated with failure would be internal failure or external failure cost. So the top two, one which are the prevention and appraisal are the cost of good quality, internal failure and external failures are the cost of bad quality.

In next few slides, let’s look at each of these one by one and understand what all other part of this, what all constitutes prevention appraisal, internal failure and external failure. Let’s start with the prevention failure on the next slide. So, as we earlier said, that prevention cost is something which you spend to prevent things going wrong. So what could be the cost? Some of the examples here are that the quality planning, whatever planning you do to make sure that things go right, that’s the prevention cost. Any amount, any investment, any money which you spend in the planning is prevention cost. Then education and training, so that your people are trained, they don’t make mistake. That’s prevention cost. Other prevention costs could be conducting design reviews, supplier reviews and selection so that you select the right type of suppliers quality, system audits which you do to make sure that you have a system in place, process planning and control.

So all these things together and there will be many more depending on your type of industry. So all these type of costs which are related to prevention are prevention costs and what are the appraisal costs. Let’s look at that on the next slide. So here we have appraisal cost. Appraisal is whatever amount you spend in testing, inspecting, checking so that the product is right. So anything which you do related to test and inspection, whether that’s in receiving in process or the final inspection, that’s your appraisal cost. Supplier acceptance sampling. So you get a lot of, let’s say 1 million pieces, nuts and bolts. You take sample out of that. Based on that sample, you accept or reject the lot. The cost associated with that would be the appraisal cost. Product Audits so earlier we talked about system audits. System audits are the overall audits to make sure that you have a system in place, that was prevention cost. The system audit was prevention cost.

Whereas when you do the product audit, product audit is specifically focused on that product, checking that product, making sure that this particular product meets the specification, that will be under appraisal cost calibration which you do to make sure that your inspection is right, that is appraisal cost. So, these are some of the examples of appraisal cost and as I earlier said that these are just examples based on your own industry, your own type of work, you might have a few more items in your list of appraisal costs coming to the next one which is internal failure cost. So internal failure cost is any failure which happens within the organization before that product or service leaves the boundary of the organization. Anything within the organization that failure will be internal failure cost. So what are those? So here are a few examples of that in process scrap or rework troubleshooting and repairing design changes when things are still being made.

Additional inventory required to support poor process yield or rejected lot. So earlier also we talked about inventory that poor quality leads to higher inventory level and the cost associated with that probably would be under the internal failure cost, reinspection and retesting of reworked items. So if you repaired something, did change something, then you still need to reinspect that that cost will be again internal failure cost, not the appraisal cost. Appraisal cost was when you inspected an item. So once you start doing rework.

So any cost related to that would be under internal failure cost. Even the reinspection of that piece as well downgrading, sometimes you downgrade the product. So instead of selling the first class item, you sell it as a second class or a lower quality item at a lower price. So that cost also will be internal failure cost coming to the next one which is external failure costs. So, external failure costs are big deal. Like you should avoid external failure cost at whatever cost it’s possible. External failure cost could be related to sales return and allowances.

So anything within warranty which it comes back that you need to spend money on that, that will be your external failure cost. Service level, agreement, penalties, complaint handling, field service level and part cost incurred due to warranty obligations, your technician has to go do the repair, change the parts, all that cost will be external failure cost. There is a big cost related to recall. So in recall there have been few examples related to motor vehicle, few examples are related to drugs, examples are related to food industry where company has to recall and refund the money or do the repair at their own cost. So that will be recalled. That’s a big cost many times legal claims, lost customer and opportunities. So there are many things which are related to external failure cost. So it still makes sense to spend some money in prevention and appraisal so that you can avoid your failure cost. Specifically, the external failure cost.

20. 2E-3 Cost of Quality Why & Optimum Costs

Previously we looked at the types of cost of quality. How do we classify the cost of quality? Here in this video we will be looking at two things. One is that why do we measure the cost of quality and what is the optimum level of those classifications? What’s the best level of the prevention cost? Appraisal cost, internal and external failure cost? Let’s start with first talk topic which is why do we measure the cost of quality? One basic thing which we need to understand is that management understands the language of the money. Rather than saying that we have this much level of defect, this much level of rework in this process, management would be much interested in knowing the high level money value that this much money we spend in repairing this much money we spend in external cost. That’s something which is important to management.

So once you have quantified cost, management can take actions based on that. So that’s how the cost of quality helps us in making the right decision. Management can set the targets to reduce these costs but that can only be done once you have established the cost of quality. So once you have established these numbers, then you can set the targets to reduce or improve your quality. And also this helps us in justifying money spent on improvement and prevention activities. So once you have those numbers which tells that this much money will lose in internal failure and the external failure that can help management to take decision, that okay, if we are spending this much in our failure cost, why don’t we spend something in the prevention?

So if anything related to prevention such as the training, such as establishing the quality management system so all these decisions can be taken much easily if you have quantified cost of quality available with you, which becomes the baseline and based on that, you keep on improving. So that’s why you need the cost of quality system in place. Now, the next question comes is what is the best level of these costs? So let’s look at that here. So what is the optimum quality cost? There were two models. Initially the model was which you see on the top. What it tells you is that let’s say this is the cost and this is the quality level. Let’s talk about failure cost. Failure cost which consists of internal and external failure cost. So if quality is low, let’s say on this left side, the cost will be high. As quality keeps on improving, the cost keeps on reducing. Once you have a perfect quality, you might more or less touch zero. What about your prevention cost? To understand that, let’s say that if you want to improve quality, you need to spend more on prevention.

So if you need to spend more on prevention, the prevention cost will be high as quality improves. And if you don’t spend anything on the prevention, then your quality will be very poor. So at a very low level of quality, your prevention cost is, let’s say zero. And as your quality keeps on improving, your prevention cost keeps on going up. And this cost also includes the appraisal cost also. So together these costs keep on increasing as quality improves. So you invest more in appraisal and prevention, the quality goes up, you spend less on that, quality goes down. So that’s how you will get the curve of this. Now, if you add both of these, what you get is the total cost of quality. Your total cost of quality will be something like this goes down and it goes up. And what does this tell you is that at a certain level of quality, your cost is minimum. So this is the level of quality at which the cost of quality is minimum.

So this was the old model. In the old model, the concept or the theory was that you keep on spending money, your quality will keep on improving. But then if you spend too much of the money, if you spend too much on prevention and appraisal, the cost will go up. But then really that doesn’t help you much. Quality definitely goes up, but then the total cost will be going up with the quality. So this is the best level where organizations should target. But what in fact this theory was telling was that beyond this level of quality, it is not justified to spend more money. So just stop at this level, don’t go beyond that. That’s how this theory was, pushing organizations to that at certain level you stop improving quality. Because then improving quality will cost you more than what it saves in terms of failure cost. So this was the old model and what is the new model?

So in the new model also, let’s put cost here. So this is our cost and this is the quality. What it tells you is that let’s say this is zero, this is 100% quality, the best quality. So at the best quality or 100% quality, your failure cost will be zero because everything is fine. And before that, the failure cost will be high and this will keep on reducing until it reaches 100%. So that’s your failure cost. And what about the prevention cost? Prevention cost will be increasing just like the previous model, increasing from the zero onwards. And this will keep on increasing, because if you keep on increasing quality, the appraisal and the prevention cost will keep on increasing.

So this is appraisal plus prevention. And what does this mean is the total cost will be something like this. So this will be high here and then it ends here. So let’s put a line here which is 100%. So this is your total cost. So what does this model tell you is that when your quality is low, you will have a high cost. But as you keep on improving your quality, as you move towards the best quality, which is the 100% level. Here the cost of quality, the total cost of quality will keep on reducing, unlike what was told in the previous model where it says that at an optimal level the cost of quality is low, but then it increases if you improve quality. That was the old way of selling cost of quality. But the new theory is tell that if you keep on improving quality, your cost will keep on decreasing. That’s the optimal cost. Now, in your CQE exam there’s a good chance that you might have a question related to cost of quality. Either this might be calculating the cost of quality based on the classifications which we learned earlier, or this could be in terms of finding out what’s the best level of these prevention, appraisal and failure cost. So you might be given a value of, let’s say the company spent 10% on appraisal, 25% on prevention, and this much percent on failure cost.

What is the best value? The quick and simple answer to that is there is no simple and straight answer as long as you keep on improving the quality by adding cost to appraisal and prevention and even out of appraisal and prevention. Also the emphasis should be on the prevention. So as long as you keep on spending money on prevention, your failure cost will go down. So that’s how you should be answering your question, if there is any question related to these costs in the exam. So with this, we complete our discussion on the cost of quality. But we still have one topic left here, which is Taguchi loss function. What is that and how is that related to the cost of quality? Let’s understand that in the next video.

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