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The cost of Poor Quality. Increasing the Transparency of Quality in Tetra Pak Capital Equipment´s Supply Chain

Fransson, Magnus and Turesson, Klas (2009) MIO920
Production Management
Abstract
Contemporary business trends are more and more shifting focus to the requirements of the
customers. One of the most important factors for the customer is quality, both in the interface with
the selling company and in the products sold. Tetra Pak is a pioneer within the packaging of diaries
and food. The company has been profitable in most situations which have created a state of mind
where quality in the supply chain has not been a top priority. As competition has become more
intense, Tetra Pak has realised the importance of quality and put it high on the agenda. In order to
make good decisions that can improve quality the company needs an understanding of the current
situation.
The purpose of this dissertation is to find the cost... (More)
Contemporary business trends are more and more shifting focus to the requirements of the
customers. One of the most important factors for the customer is quality, both in the interface with
the selling company and in the products sold. Tetra Pak is a pioneer within the packaging of diaries
and food. The company has been profitable in most situations which have created a state of mind
where quality in the supply chain has not been a top priority. As competition has become more
intense, Tetra Pak has realised the importance of quality and put it high on the agenda. In order to
make good decisions that can improve quality the company needs an understanding of the current
situation.
The purpose of this dissertation is to find the cost of poor quality and increase the transparency of
quality in Tetra Pak Capital Equipment (CE) supply chain. With this as base, recommendations for
improvements are given. Tetra Pak CE is responsible for the production, supply and installation of
Filling Machines and Distribution Equipment. The cost calculation has been done with a supply chain
perspective and focus has been set in the area that was considered to create most costs. The areas
chosen were products that failed to conform with specification, both internally and externally. In
Tetra Pak the internal of these are called Non Conformities and the external are called Claims.
The main sources of data in this dissertation has been, nearly 50 interviewed employees and internal
data regarding the area investigated. From this the most important processes has been mapped and
cost calculations conducted with a triangulation of Activity Based Costing (ABC) analysis, Top Down
analysis and estimations from the persons interviewed. The outcome of the cost calculations can
unfortunately not be published in this academic report due to company restrictions, but it can be
reviled that it is more that twelve times more expensive to find failures outside the company than
internally. It became apparent during the investigation that it is only a minor part of the current
supply chain costs of poor quality that can be seen within the company, and little costs are
transferred to the suppliers, unless they are obliged by Tetra Pak to conduct special investigations.
When the findings above were investigated it was concluded that the supply chain currently has a
very low transparency. Information about poor quality is scattered in several systems and the impact
of low quality on customer does not reach those who decides what corrective actions to take. The
main instrument to prioritise is currently the number of incoming claims. To improve this area a
customer claims related cost model has been developed with the intention to bring a better
understanding of the customer impact into the organisation and aid prioritisation of corrective
actions.
To further increase the customer perspective in the company it is suggested that a new
measurement that capture the impact of claims at the customers is formed. The current quality
measurements is considered to have several flaws in order to truly align with the corporate strategy
and in some instance the formulation might even prevent registrations of claims and therefore limit
the information to the central organisation. A divergence in the purpose of the claims process has
been seen. This leads to the recommendation that the process should be separated into one part
that is concerned with handling and compensating the customer and one part that is concerned with
solving the technical issue. To further improve the information, a centralisation of the claim handling
near the customer is recommended. (Less)
Please use this url to cite or link to this publication:
author
Fransson, Magnus and Turesson, Klas
supervisor
organization
course
MIO920
year
type
M1 - University Diploma
subject
other publication id
09/5322
language
English
id
1978229
date added to LUP
2011-06-16 16:12:26
date last changed
2011-06-20 12:40:27
@misc{1978229,
  abstract     = {Contemporary business trends are more and more shifting focus to the requirements of the
customers. One of the most important factors for the customer is quality, both in the interface with
the selling company and in the products sold. Tetra Pak is a pioneer within the packaging of diaries
and food. The company has been profitable in most situations which have created a state of mind
where quality in the supply chain has not been a top priority. As competition has become more
intense, Tetra Pak has realised the importance of quality and put it high on the agenda. In order to
make good decisions that can improve quality the company needs an understanding of the current
situation.
The purpose of this dissertation is to find the cost of poor quality and increase the transparency of
quality in Tetra Pak Capital Equipment (CE) supply chain. With this as base, recommendations for
improvements are given. Tetra Pak CE is responsible for the production, supply and installation of
Filling Machines and Distribution Equipment. The cost calculation has been done with a supply chain
perspective and focus has been set in the area that was considered to create most costs. The areas
chosen were products that failed to conform with specification, both internally and externally. In
Tetra Pak the internal of these are called Non Conformities and the external are called Claims.
The main sources of data in this dissertation has been, nearly 50 interviewed employees and internal
data regarding the area investigated. From this the most important processes has been mapped and
cost calculations conducted with a triangulation of Activity Based Costing (ABC) analysis, Top Down
analysis and estimations from the persons interviewed. The outcome of the cost calculations can
unfortunately not be published in this academic report due to company restrictions, but it can be
reviled that it is more that twelve times more expensive to find failures outside the company than
internally. It became apparent during the investigation that it is only a minor part of the current
supply chain costs of poor quality that can be seen within the company, and little costs are
transferred to the suppliers, unless they are obliged by Tetra Pak to conduct special investigations.
When the findings above were investigated it was concluded that the supply chain currently has a
very low transparency. Information about poor quality is scattered in several systems and the impact
of low quality on customer does not reach those who decides what corrective actions to take. The
main instrument to prioritise is currently the number of incoming claims. To improve this area a
customer claims related cost model has been developed with the intention to bring a better
understanding of the customer impact into the organisation and aid prioritisation of corrective
actions.
To further increase the customer perspective in the company it is suggested that a new
measurement that capture the impact of claims at the customers is formed. The current quality
measurements is considered to have several flaws in order to truly align with the corporate strategy
and in some instance the formulation might even prevent registrations of claims and therefore limit
the information to the central organisation. A divergence in the purpose of the claims process has
been seen. This leads to the recommendation that the process should be separated into one part
that is concerned with handling and compensating the customer and one part that is concerned with
solving the technical issue. To further improve the information, a centralisation of the claim handling
near the customer is recommended.},
  author       = {Fransson, Magnus and Turesson, Klas},
  language     = {eng},
  note         = {Student Paper},
  title        = {The cost of Poor Quality. Increasing the Transparency of Quality in Tetra Pak Capital Equipment´s Supply Chain},
  year         = {2009},
}