Cost of poor quality
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What is cost of poor Quality in terms of rejections, delay of projects , reliability issues in field etc

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Managers and workers speak the language of things but Senior leaders speak the language of money...

…COPQ allows us to translate the things into money.

Cost of Poor Quality 2 .PPT


Cost of poor quality1
Cost of Poor Quality leaders speak the language of money...

Cost of Poor Quality 3 .PPT


Quality costs
Quality Costs leaders speak the language of money...

Components

$

Conformance$

Non-Conformance$

Cost of Poor Quality 4 .PPT


Total quality cost
Total Quality Cost leaders speak the language of money...

I want my money back!

Internal

Failure

ExternalFailure

Prevention

Appraisal

$

Cost of Quality (COQ)

Cost of Poor Quality 5 .PPT


Copq overview
COPQ Overview leaders speak the language of money...

Definitions

  • All activities and processes that do not meet agreed performance and/or expected outcomes

  • Costs that would disappear if every task were always performed without deficiency

  • Actual Cost - Minimum Cost = COPQ

Cost of Poor Quality 6 .PPT


Traditional cost of poor quality
Traditional Cost of Poor Quality leaders speak the language of money...

Waste

Customer Returns

Rejects

Inspection Costs

Testing Costs

Rework

Recalls

(4-5% of Sales)

When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below.

Cost of Poor Quality 7 .PPT


Cost of poor quality2
Cost of Poor Quality leaders speak the language of money...

As an organization gains a broader definition of poor quality,the hidden portion of the iceberg becomes apparent.

Waste

Customer Returns

Rejects

Testing Costs

Inspection Costs

Rework

Recalls

Excessive Overtime

Late Paperwork

Pricing or

High Costs

Billing Errors

Excessive Field

Incorrectly Completed

Lack of Follow-up on Current Programs

Services Expenses

Sales Order

Excessive

Employee Turnover

Planning Delays

Excess Inventory

Customer Allowances

Unused Capacity

Complaint

Handling

Premium Freight Costs

Time withDissatisfied Customer

Excessive

Overdue Receivables

System Costs

  • Hidden COPQ: The costs incurred to deal with these chronic problems

Development Cost of Failed Product

COPQ ranges

from 15-25%

of Sales

Cost of Poor Quality 8 .PPT


Quantifying the potential benefit
Quantifying the Potential Benefit leaders speak the language of money...

  • Sigma

  • 6 sigma

  • 5 sigma

  • 4 sigma

  • 3 sigma

  • 2 sigma

  • Cost

  • <10% of sales

  • 10-15% of sales

  • 15-20% of sales

  • 20-30% of sales

  • 30-40% of sales

Cost of Poor Quality 9 .PPT


What does reality look like
What Does Reality Look Like? leaders speak the language of money...

The ratio of the individual category costs to total costs varies widely. Many companies exhibit ratios which look like the following:

Quality Cost Category

Percent of Total

Internal Failure

25 to 40

External Failure

25 to 40

Appraisal

10 to 50

Prevention

.05 to 5

What's Wrong With This Picture?

Cost of Poor Quality 10 .PPT


Examples of prevention expense

Quality Planning leaders speak the language of money...

Training and Education

Process Definition

Customer Surveys

Preproduction Reviews

Technical Manuals

Detailed Product Engineering

Early Approval of Product

Specifications

Purchase Cost Targets

Process Capability

Studies

Preventive Maintenance

Supplier Qualification

Job Descriptions

Housekeeping

Zero-Defect Program

Examples of Prevention Expense

Cost of Poor Quality 11 .PPT


Examples of appraisal expense

Supplier Certification leaders speak the language of money...

Employee Surveys

Security Checks

Safety Checks

Reviews:

Operating Expenditures

Product Costs

Financial Reports

Capital Expenditures

Test

Inspection

Process Controls

Train QA Personnel

Product Audits

Quality Systems Audits

Customer Satisfaction

Surveys and Audits

Prototype Inspection

Accumulating Cost Data

Examples of Appraisal Expense

Cost of Poor Quality 12 .PPT


Examples of internal failure costs

Supplier Problems leaders speak the language of money...

Scrap and rework

Late deliveries

Excess inventory

Equipment Downtime

Accidents, Injuries

Absenteeism

Unused Reports

Missed Schedule Cost

Lost Sales (any cause)

Substandard Product

Scrap or Rework

Re-inspection

Redesign/Engineering Change

Process Modifications

Payroll Errors

All Expediting Costs

Off-Spec/Waiver

Abandoned Programs

Examples of Internal Failure Costs

Cost of Poor Quality 13 .PPT


Examples of external failure costs

Product Recall leaders speak the language of money...

Handling Complaints

Customer ServiceCaused by Errors

Products Returned

Analysis of Returns

Evaluation of Field Stock

Late Payments andBad Debts

Lawsuits

Reports

Sales and service

Returns and allowances

Failure

Examples of External Failure Costs

  • Lost Sales Because of Customer Dissatisfaction!

Cost of Poor Quality 14 .PPT


Non value added work
Non-value Added Work leaders speak the language of money...

Definition

  • Common activities that provide no benefit to customers.

    • Some result from internal or external failure

    • Some are unnecessary inspection

  • Examples

    • Rarely used information systems

    • Memos never read

    • Financial reports not used

    • Irrelevant procedures

    • Meetings with no objectives or outcomes

Cost of Poor Quality 15 .PPT


The hidden organization
The Hidden Organization leaders speak the language of money...

Step

1

Step

2

Product

Test

Test

Floor Space

Analyze

Analyze

The Hidden Factory

Fix

Fix

Value Added

Floor Space

Floor Space

Non-Value Added

Philip R. Thomas, Competitiveness Through Total Cycle Time. McGraw-Hill (1990)

“Theoretical Cycle Time:The back-to-back process time

required for a single unit to complete all stages of a task

without waiting, stopping, or setups.”

Cost of Poor Quality 16 .PPT


Why cost of poor quality
Why Cost of Poor Quality? leaders speak the language of money...

  • Reporting Tool

    • Comparisons

    • Trends

  • Analytical Tool

    • Priorities

    • Tradeoffs

  • Investment Tool

    • ROI

Cost of Poor Quality 17 .PPT


Focus of copq efforts
Focus of COPQ Efforts leaders speak the language of money...

  • Identify and Quantify Quality Costs

    • Expose the “Hidden Factory”

      • Ongoing Measurement System

        • Breakthrough Improvement

Cost of Poor Quality 18 .PPT


Advantages of using quality costs for management
Advantages of Using Quality Costs for Management leaders speak the language of money...

  • Advantages

  • Reducing the cost of poor quality is one of the best ways to increase a company's profit.

  • Provides manageable entity and a single overview of quality.

  • Aligns quality and goals.

  • Prioritizes problems and provides a means to measure change/improvement.

  • Provides a means to correctly distribute controllable quality cost for maximum profits.

  • Promotes the effective use of resources.

  • Provides incentives for doing the job right every time.

Cost of Poor Quality 19 .PPT


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