Economical Quality Analysis For Industrial Enterprises
Yue Lu Xinhua Fu
In modern era, many system. theories and methods have been
pplied in the industrial enterprises.- It is obvious that thequality
problems, as one aspect of system, is the one deserving much more
important considerations.
There are many reasons for studying the quality problem as a
system. For example, the enterprises pursued benefits by the way of
high quality, although over—done quality is not the best. We should
consider it as a system problem. There are many modern management
theories such as IE(Industrial Engineering) , QC(Quality Control) , OR
(Operation Research) , ZD(zero—defect) , PERT (Program Evaluation
and Review Technique). If these theories and methods can be applied
under the thoughts of Economical Quality System Analysis, it will show
the great potentiality.
This paper applying the SD theory and method, declares the
concept of EQS, attempting to achieve three goals;
1. To analyze the relationship among the Quality — Cost — Profit,
and seek the best combination of these two factors; Quality and
Benefits.
2. To discuss, in the approprite quality level, the combina— tion
of Quality and benefit in the process of product design , manufacturing,
and sales.
3. To study the internal feedback structure, and the model of
quality and benefit of industrial enterprises.
A. Quality —Cost— Profit Analysis
In practice, studying the enterprise s quality problem isoften
related with the technique objects without paying muchattention to
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benefit. However, improving the quality is the best way to gain a
higher benefit, and a better payback should be based on sound quality.
1. Quality and Cost
There are the relations between Quality and Cost in our factory
products;
Cost Narn
On f
i
1
'
i)
L
1007e — > 0%
Defect Product MI Defect Product
C1; cost of quality gurantee (exponential growth)
C2; cost of quality lost (exponential decay)
C; total cost ( = C1+C2 )
Point M1 is the product quality level which has the lowest cost.
2. Quality and benefit
The relation between quality and benefit are list below;
Improved quality leads to more product sales ,. and the salesincome.
However, on the other side, the cost of improvingproduct quality will
also grow, adn lead to a higher price, in the end , the sales growth will
surely down and finally decline.
Cost
Sales Sales
come
SI
Cost
+
|
J _
M2 Quality Level
C; cost of product quality
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SI; sales income
M2; the product quality level which has the maximum profit
3. Model of Quality —Cost— Profit
There exist one best combination of quality and benefit, which is
the Economical Quality Level called by us. For the sake of
combination, we have studied the problem in the varietyquality level
with the aid of statistic analysis, Value Engineering and Break — even
analysis technique, etc.
B. Economical Quality Analysis
DESIGN PROCESS. PURCHASE PROCESS
Product decision Economical order
analysis quantity analysis
Product life cycle i Purchase expense
analysis analysis
Quality class Inventory expense
analysis analysis
Value Engineering
Defect product rate
analysis
Sample check analysis
Quality cost analysis
AUXILIARY PROCESS
Facility Repair
Advertisement expense
Analysis
Delivery delay Analysis
Post—sale Service
Analysis
Figure; EQS in every process
System Dynamics '91 Page 307
1. Design process
1. 1 Product decision analysis
PDA ( Product decision analysis ) means making the product
quality level choices, which starts from the ” rational or approprite
quality level” which satisfies the demand of clients, enterprise and
society, and fufils the goal —— ” market quality ” that means the
quality level leads to a dynamic equibrium in the market.
SolstionB Quality
ever
Solution A _X of
\
|
\
|
|
|
\
\
|
1
\
1
1
:
i s
“x £B px
B
Mairket Share
_
Figure above shows the solution
is better than solution A. (for in
the same investments) :
1. 2 Quality level analysis
The quality level was often divided into several classes to make the
analysis more convenient. The reason is that, in practice, you cannot
check every level s cost and benefit. We need to simplify the
problem. 1
Sales |
Cost to
4
a
1
1
|
C; cost S; benefit
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B,D; benefit delta A,E; cost delta
Because B > A, so it is acceptable that quality is improved from
level 3 to level 2, but E > D, it is not quite good to be from level 2 to
level 1.
1. 3 Quality improvement analysis
Quality improvement includes characteristics which are sensitive to
client and play a important role in product image and function, and the
cost of improvement is not very high. In tne case of over — done
quality, we will , perhaps, decrease some standards in order to reduce
cost.
2. Manufacturing Process
2. 1 Defect product rate analysis
In the manufacturing process, certainly there are some defect
products. If you control the.defect rate over — strictly, maybe it will
cause some side — effects; reducing productivity and benefits. In the
long time practice, we have found that the minimum product rate is not
the best solution to the comprehen— sive benefits of enterprises.
-2. 2 Sample check analysis
Expense a
Loss
C,
Defect Product Rate
a
b
C1; sample check expense °
C2; no sample check lost
If b > bo, check
b < bo, no check
System Dynamics '91 : Page 309
b0 is the economical checking point
2. 3 Quality control analysis
Strictness of quality control affects the loss of clients and
enterprise, so it is very important to establish appropritequality control
criteria.
Quality —~,
a Standard ~ Defect
Product Rate
Enterprise +) N Client
Loos Loss
Product ee
Ordier
Causal loop of Quality control analysis
3. Sales process
3. 1 Advertisemient expense analysis
: The advertisement expense is decided by three factors; market
demand, production capacity and sales amount.
There are some rules about advertisement in our enterprises;
(1) no advertisement — — — when production capacity lowerthan
minimum market demand
(2) advertisement — —— when the benefits the advertisementcan
bring are greater than or equal to advertisement expenses.
(3) best advertisement ——— when the marginal benefits of
advertisement expense is the highest.
3. 2 Delivery delay analysis
Although there are many factors affecting the delivery delay, such
as shortage of raw material supply, transportation delay, but the
production cycle is the key factor.
The longer the production cycle is, the lower the productivity is.
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The shorter the production cycle is, the higher defect rate is.
In fact, there is a most economical production cycle.
When client offers an urgent order with extra payment, we may
consider to offer a shorter production cycle under following conditions ;
(1) overtime ——— when overtime expenses are less than extra
profits
(2) adjusting production cycle ——— when expenses of
adjustment are less than extra profits
C. SD model for Economical Quality Analysis
We have been studying the EQS problem for several years, and we
have made a series of application separately. Now, with the aid of SD
theory and method, we have constructed the SDGM model for our
enterprises, which combines all analysis methods andother analysis
techniques.
The important principles, to which we have payed much attention
in the process of model construction, are listed below:
(1) We must set up a dynamic quality standard considering both
client and enterprise ss behalf.
We do not allow the many defect product to be handed to client,
and ruin the enterprise image in the same time. But we also do not want
the over—done quality level to absorb too much benefits of enterprises.
(2) The evaluation indexes of SDGM. model are benefits and cost.
Our goals are maximum benefits or minimum cost in the approprite
quality level.
(3) We have dedicated our efforts to judge the state and policy
variables, and have studied their relations in every case carefully.
After three year application, we have achieved a great success.
Within the past three years, our enterprise had nearly doubled the sales
income while production cost decreased 15 per cent, and improved our
System Dynamics '91 Page 311
image in domestic and overseas market.
Not only have we made use of SDGM in our enterprise, butalso we
have propagated it to our neighbour enterprise, and itmade a great
success, too.
The detail contents about model variable, equation are ignored here
because of the limit of paper. it of paper.
