Determining the cost of quality at ordnance factory Dehra Dun and exploring ways to reduce it

Abstract

In the era of increasing competitiveness, there has been a paradigm shift from the sellers market to the buyers market. The customers are demanding the products at extremely low prices. In order to manufacture the products at such low costs, the producers are forced to cut down the costs of production. Since quality costs have a major bearing on the total price of the product, reducing the cost of quality (COQ) while maintaining the optimum level of quality would go a long way in capturing a larger share in the market. The Indian Ordnance Factories have conventionally been manufacturing the products at very high quality levels without much emphasis on cost reduction. But in the recent times, products of comparable quality but at significantly lower prices are available in foreign and Indian markets. The armed forces, which are the major customers of the Ordnance factory organization, are increasingly opting for such products leading to a reduction in the demand for products manufactured by the Ordnance factories. Consequently, cost considerations have attained paramount importance. The first step towards reducing the cost of quality is to define and measure its various components, which is not being done currently at Ordnance Factory, Dehra Dun(OFD). An effort was made through this project of formulating and estimating the various elements of COQ so as to serve as a benchmark figure and for further improvements. A pilot study was carried out for the quarter July-Sept'99. The data was collected from the primary sources such as reports which are regularly generated by different sections and from secondary sources by discussion with managers of different sections. In order to help in establishing a regular system of data collection for quarterly reporting of the COQ, various forms were designed in accordance with each of the cost elements (Annex I). These forms can be filled in by the relevant sections and data can be compiled to arrive at the COQ. The COQ for the quarter July-Sept '99 was estimated to be Rs. 91.43 lakhs which is approximately 13 % of the sales value for the quarter. However, the most prominent fact unveiled by the analysis was that the appraisal costs are much higher than other cost categories and the failure costs are lower than the prevention and appraisal costs which also corroborates the fact that the Ordnance factories continuously endeavour towards high quality levels by thorough inspection of the products in order to meet the stringent quality requirements of the armed forces. In order to reduce the COQ various suggestions have been made, the major one being reducing the appraisal costs by reducing the manpower deployed in the Quality Control section after reduction in workload of inspection. This can be achieved through increasing quality awareness among workers, improving the process capability by use of better machines and tools, authorizing selected workers for self-certification and introduction of SQC techniques. As the system of measuring the COQ has now been established, data can be collected every quarter and compared with the past data to see the effect of various corrective actions.