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Sample COPQ Study

Sample COPQ Study. 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. Prevention. Cost of Attaining Quality. Appraisal:. Prediction. Audit. Appraisal:. Detection.

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Sample COPQ Study

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  1. Sample COPQ Study

  2. 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. (slide name here) 2 .PPT

  3. Cost Of Poor Quality Prevention Cost of Attaining Quality Appraisal: Prediction Audit Appraisal: Detection Cost of Poor Quality Failure: Internal External (slide name here) 3 .PPT

  4. Quality Costs Components $ Conformance$ Non-Conformance$ (slide name here) 4 .PPT

  5. Total Quality Cost I want my money back! Prevention Appraisal Internal Failure ExternalFailure $ Cost of Quality (COQ) (slide name here) 5 .PPT

  6. COPQ Overview 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 (slide name here) 6 .PPT

  7. Traditional Cost Of Poor Quality Waste Customer Returns Rejects Inspection Costs Testing Costs Recalls Rework (4-5% of Sales) When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below. (slide name here) 7 .PPT

  8. Cost Of Poor Quality As a company 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 COPQ ranges from 15-25% of Sales Late Paperwork Excessive Overtime Premium Freight Costs Customer Allowances Pricing or Billing Errors Excessive Field Incorrectly Completed Lack of Follow-up Services Expenses Sales Order on Current Programs Excessive Employee Turnover Planning Delays Excess Inventory Expediting Costs Unused Capacity Development Cost Complaint of Failed Product Handling Time with Dissatisfied Overdue Receivables Customer Excessive System Costs (slide name here) 8 .PPT

  9. Efficiency Study Total Cost of Poor Quality is $59,728,973 Recurring Costs in One Year $32,089,143 53.7% Internal Costs External Costs Appraisals Costs $14,533,562 24.3% $13,106,268 21.9% (slide name here) 9 .PPT

  10. Efficiency Study CumulativeTotalCost of Quality is $143,178,401 Internal Failures $115,538,571 80.7% Internal Costs External Costs Appraisals Costs Appraisal Costs $14,533,562 10.2% External Costs $13,106,208 9.2% (slide name here) 10 .PPT

  11. Cumulative Internal Costs 100% 120 110 100 80% 90 80 60% 70 Dollars/Year Millions CUM.% 60 50 40% 40 30 20% 20 10 0% 0 A B C D E F G H J K L M Q N O P Categories COPQ (slide name here) 11 .PPT

  12. Cumulative Internal Costs INTERNAL COSTS DOLLARS INDIV % CUM % CATEGORIES Excess inventory reserves $36,253,810 31.38% 31.4% A Safety stock $25,785,999 22.32% 53.7% B Intermediate stock inventory (Net) $16,213,000 14.03% 67.7% C Obsolete inventory reserves $11,552,776 10.00% 77.7% D Production scrap $6,469,000 5.60% 83.3% E Excess inventory reserves carrying costs $5,075,533 4.39% 87.7% F Safety stock carrying costs $3,610,040 3.12% 90.8% G Dispositions (Unreserved outermediate scrap) $2,473,000 2.14% 93.0% H Production rework $2,470,000 2.14% 95.1% J Intermediate stock carrying costs $2,269,540 1.96% 97.1% K Obsolete inventory reserves carrying costs $1,617,389 1.40% 98.5% L QC reinspection indirect costs $642,114 0.56% 99.0% M Investigation of failures-Mfg. Eng. $445,536 0.39% 99.4% N Design changes $333,000 0.29% 99.7% O Downtime $212,834 0.18% 99.9% P Vendor rework charges $115,000 0.10% 100.0% Q Back-log late payments lost interest 0.00% 100.0% R Accounts receivables 0.00% 100.0% S 0.00% 100.0% TOTAL $115,538,571 100.00% (slide name here) 12 .PPT

  13. Internal Costs – 12 Months Component Descriptions • A.Excess inventory reserves - Reserves for on-hand slow moving inventory that exceeds the 24 month sales forecast. Reported on the Year 1 Excess and Obsolete Analysis Report from Cost Accounting. • B.Safety stock - Excess inventory maintained as an in-house bank because of the inability to produce reliable yields, forecast consistently, or receive procured products on a timely basis. FGs valued at 2 months the Year 1 annual standard cost of sales; packaging materials valued at 1 month the usage in dollars; raw materials valued at 1 month the usage in dollars. Information reported from Materials Management and Production Planning. (slide name here) 13 .PPT

  14. Internal Costs – 12 Months Component Descriptions (continued) • C.Intermediate stock inventory (net) – Work-in-process material used as a buffer for inadequate foundry yields, inaccurate sales forecasts and launch plans, design changes which necessitate rapid response, and to support the complexities of instrument assemblies. Data derived from Stock Analysis Report. Net inventory is utilized to not duplicate excess and obsolete reserves costs. • D.Obsolete inventory reserves - Reserves for inventory of inactive product (removed from the price list). Reported on the Year 1 Excess and Obsolete Report. (slide name here) 14 .PPT

  15. Internal Costs – 12 Months Component Descriptions (continued) • E. Productionscrap - Material discarded in one year and reported by cell and product family. Reported on the Scrap Report as well as multiple journal entries. • F. Provisions for excess inventory - Only money provided from the operations to cover identified excess and obsolete inventory. Reported on the Year 1 Excess and Obsolete Report and the Cost of Sales Analysis. • H. Dispositions (unreserved outermediate scrap) - Quarantine and disposal of units with questionable packaging by QA. Reported on the Full Year Dispositions Report. (slide name here) 15 .PPT

  16. Internal Costs – 12 Months Component Descriptions (continued) • J.Productionrework - Rework as reported by department. Dollars are actual direct labor hours by department times the conversion rate. • G., K., L.Carrying costs (excess inventory reserves, safety stock, intermediate stock, obsolete inventory reserves) - Calculated values for the cost to maintain inventory and reserves to inventory. Calculated as the weighted average cost of capital (14%) times the specific inventory or reserves dollars. (slide name here) 16 .PPT

  17. Internal Costs – 12 Months Component Descriptions (continued) • M. QC re-inspection indirect costs - Estimated non-reported QC indirect labor hours expended in a year as part preparation prior to performing a re-inspection of reworked product. Calculated as an estimated 212 indirect hours per week as part preparation for rework times 46 production weeks times $66 per hour (direct labor rate + variable overhead rate). • N. Investigation of failures (Mfg. Eng.) - Estimate of time spent by manufacturing engineering personnel in the investigation and resolution of internal failure problems. Calculated as approximately 35% of time in units 1, 2, and 3 times an average cost/hr. of $35 times the number of personnel. • O. Design changes scrap - Scrap principally on vended items because of design enhancements. Reported on the Year 1 Customer Returns-Scrap/Rework Report. (slide name here) 17 .PPT

  18. Internal Costs – 12 Months Component Descriptions (continued) • P. Production downtime - Reported downtime by department/cell. Calculated as actual reported hours of downtime (bar-coded as downtime) times each cells specific fixed overhead rate. • Q.Vendor rework charges - Vendor charges for reworking a product because of company error. 95% was because of a blister packaging re-inspection that had channeling which was suspect for sterility. Reported on the Cost Accounting Sundry Schedule (misc. charges). • R. Backing • S. Accounts receivable (slide name here) 18 .PPT

  19. Internal Costs Category A Finished goods Work in process Raw materials EXCESS TOTAL $ INVENTORY Finished goods $31,292,402 Work in process $4,460,408 Raw materials $501,000 TOTAL $ $36,253,810 Excessive Inventory Reserves is: $36,253,810 $31,292,402 86.3% $501,000 1.4% $4,460,408 12.3% (slide name here) 19 .PPT

  20. Category A: Excessive Inventory Reserves 100% 36 30 80% 24 60% 18 40% Millions CUM.% 12 20% 6 DOLLARS / YEAR 0 0% A1 A2 A3 A4 A5 A6 A7 A8 Product Group Categories EXCESSIVE RESERVE EFFECT DOLLARS '% INDIV '% CUM CATEGORIES Unit 1 $15,153,840 41.80% 41.8% A1 Unit 2 $8,682,800 23.95% 65.7% A2 Unit 3 $7,368,144 20.32% 86.1% A3 Unit 4 $4,301,665 11.87% 97.9% A4 Unit 5 $552,631 1.52% 99.5% A5 Other $109,447 0.30% 99.8% A6 Accessories $80,283 0.22% 100.0% A7 Miscellaneous $5,000 0.01% 100.0% A8 TOTAL $36,253,810 100.00% Pareto Analysis Product Group (slide name here) 20 .PPT

  21. Internal Costs Category B Finished goods Work in process Raw materials SAFETY STOCK TOTAL $ Finished goods $24,832,000 Raw material $762,083 Packaging materials $191,916 TOTAL $ $25,785,999 Safety Stock (Just In Case Inventory) Packagingmaterials Finished goods $191,916 $24,832,000 Raw material $191,916 $762,083 (slide name here) 21 .PPT

  22. Internal Costs Category C INTERMEDIATE STOCK (NET) TOTAL $ Units $9,249,000 Instruments $6,964,000 TOTAL $ $16,213,000 Intermediate Stock is $ 16,213,000 $9,249,000 57.0% Units Instruments $6,964,000 43.0% (slide name here) 22 .PPT

  23. Internal Costs Category C STOCK IMPLANTS (NET) TOTAL $ Unit 1 $3,877,000 Unit 2 $2,330,000 Unit 3 $2,151,000 Unit 4 $483,000 Accessories $270,000 Custom $83,000 Other $37,000 Ultra $18,000 TOTAL $ $9,249,000 Unit Products Total Value is $ 9,249,000 Unit 1 Unit 2 0.2% Unit 3 Unit 4 0.4% Accessories 0.9% Custom 25.2% Other 2.9% Ultra 5.2% 23.3% (slide name here) 23 .PPT

  24. Internal Costs Category C STOCK INSTRUMENTS (NET) TOTAL $ Instrument 2 $3,740,000 Instrument 1 $1,823,000 Instrument 3 $739,000 Accessories $349,000 Instrument 4 $283,000 Custom $22,000 Ultra $7,000 Other $1,000 TOTAL $ $6,964,000 Instruments Total Value is: $6,964,000 53.7% Instrument 2 Instrument 1 Instrument 3 0.1% Accessories 0.3% Instrument 4 Custom 4.1% Ultra Other 5.0% 26.2% 10.6% (slide name here) 24 .PPT

  25. Internal Costs Category D OBSOLETE INVENTORY TOTAL $ Finished goods $7,639,002 Work in process $3,913,774 TOTAL $ $11,552,776 Obsolete Inventory Reserves is: 11,552,776 $7,639,002 66.1% Finished goods Work in process $3,913,774 33.9% (slide name here) 25 .PPT

  26. Category D: Obsolete Inventory Reserves OBSOLETE RESERVE EFFECT DOLLARS '% INDIV '% CUM CATEGORIES Unit 2 $4,154,014 36.05% 36.1% D1 Unit 3 $3,537,586 30.70% 66.8% D2 Unit 1 $2,927,840 25.41% 92.2% D3 Custom $709,309 6.16% 98.3% D4 Other $69,252 0.60% 98.9% D5 Unit 4 $63,752 0.55% 99.5% D6 Miscellaneous $34,025 0.30% 99.8% D7 Accessories $26,998 0.23% 100.0% D8 TOTAL $11,522,776 100.00% Pareto Analysis Product Groups 100% 10 80% 8 60% 6 CUM.% Millions DOLLARS / YEAR 40% 4 20% 2 0 0% D1 D2 D3 D4 D5 D6 D7 D8 Product Group Categories (slide name here) 26 .PPT

  27. Year 1 Internal Costs 100% 30 80% 25 20 60% CUM.% 15 Millions Dollars/Year 40% 10 20% 5 0 0% E Z F G H J K L M Q N O P Categories COPQ Pareto Analysis (slide name here) 27 .PPT

  28. Year 1 Internal Costs (slide name here) 28 .PPT

  29. Internal Costs Category E Production Scrap 100% 6 80% 5 4 60% CUM.% 3 Millions DOLLARS / YEAR 40% 2 20% 1 0 0% E1 E2 E3 E4 E5 E6 E7 E8 E9 Scrap Categories SCRAP CATEGORIES DOLLARS / YEAR '% INDIV '% CUM CATEGORIES Unit 1 $1,843,000 28.5% 28.5% E1 Unit 2 $1,651,000 25.5% 54.0% E2 Unit 3 $1,576,000 24.4% 78.4% E3 Fixed heads $823,000 12.7% 91.1% E4 Custom $237,000 3.7% 94.8% E5 Internal fixation $235,000 3.6% 98.4% E6 Accessories $44,000 0.7% 99.1% E7 External fixation $33,000 0.5% 99.6% E8 Other $27,000 0.4% 100.0% E9 TOTAL PLANT $6,469,000 100.0% Pareto Analysis (slide name here) 29 .PPT

  30. Internal Costs Category E1 33.2% PCA OTHER 33.0% PRECISION PARTNERSH LOCK 9.4% 11.2% Unit 1 13.2% PCA $611,000 Other $609,000 Precision $243,000 Partnership $206,000 Lock $174,000 TOTAL $1,843,000 Unit 1 Total Scrap Value is: $1,843,000 (slide name here) 30 .PPT

  31. Internal Costs Category E2 Unit 2 PCA $1,154,000 MAX $288,000 OTHER $125,000 MATIC $84,000 TOTAL $1,651,000 Unit 2 Total Scrap Value is: $1,651,000 69.9% PCA MAX OTHER MATIC 5.1% 7.6% 17.4% (slide name here) 31 .PPT

  32. Internal Costs Category E3 100% 1.4 80% 1.2 1 60% DOLLARS / YEAR Millions CUM.% 0.8 40% 0.6 0.4 20% 0.2 0% 0 E3.1 E3.2 E3.3 E3.4 E3.5 E3.6 E3.7 E3.8 E3.9 E3.10 E3.11 Scrap Categories INSTRUMENTS '% INDIV '% CUM CATEGORIES PCA 2 $675,000 42.8% 42.8% E3.1 OTHER 1 $223,000 14.1% 57.0% E3.2 PARTNERSHIP 1 $158,000 10.0% 67.0% E3.3 MAX $133,000 8.4% 75.4% E3.4 ENDO $115,000 7.3% 82.7% E3.5 INTERNAL FIXATION $104,000 6.6% 89.3% E3.6 OTHER 2 $80,000 5.1% 94.4% E3.7 PCA 1 $44,000 2.8% 97.2% E3.8 PRECISION 1 $38,000 2.4% 99.6% E3.9 DISPOSABLE INSTRUMENTS $5,000 0.3% 99.9% E3.10 MATIC $1,000 0.1% 100.0% E3.11 TOTAL $1,576,000 100.0% Pareto Analysis Instruments (slide name here) 32 .PPT

  33. Provisions for Excessive and Obsolete Inventory 100% 6 80% 5 4 60% CUM.% 3 DOLLARS / YEAR Millions 40% 2 20% 1 0 0% Z1 Z2 Z3 Z4 Z5 Z6 Z7 Z8 Product Group Categories PROVISIONS FOR OBSOLETE AND EXCESSIVE INVENTORY DOLLARS / YEAR '% INDIV '% CUM CATEGORIES Unit 1 $2,837,779 44.68% 44.7% Z1 Internal & external fixation $2,076,955 32.70% 77.4% Z2 Unit 4 $622,876 9.81% 87.2% Z3 Unit 2 $399,295 6.29% 93.5% Z4 Custom $344,445 5.42% 98.9% Z5 Other $45,346 0.71% 99.6% Z6 Accessories $24,706 0.39% 100.0% Z7 Miscellaneous $0 0.00% 100.0% Z8 TOTAL $6,351,402 100.00% Category Z: Pareto Analysis Product Groups (slide name here) 33 .PPT

  34. Internal Costs Category J Production Rework 100% 2 80% 1.5 60% DOLLARS / YEAR Millions 1 40% CUM.% 0.5 20% 0 0% J1 J2 J3 J4 J5 J6 J7 J8 J9 Rework Categories DESCRIPTION DOLLARS / YEAR '% INDIV '% CUM CATEGORIES Inspection Instruments $714,000 28.91% 28.9% J1 Inspection Recon $467,000 18.91% 47.8% J2 Unit 2 $390,000 15.79% 63.6% J3 Unit 1 $376,000 15.22% 78.8% J4 Unit 3 $235,000 9.51% 88.3% J5 Packaging $178,000 7.21% 95.5% J6 Foundry $96,000 3.89% 99.4% J7 Plastics $7,000 0.28% 99.7% J8 Custom $7,000 0.28% 100.0% J9 $2,470,000 100.00% Pareto Analysis (slide name here) 34 .PPT

  35. Internal Costs Category J1 INSPECTION Instruments & $540,000 machine Inspection $174,000 DOLLARS / YEAR $714,000 Inspection Instruments Total Value is $714,000 $540,000 75.6% Instruments & machines Inspection $174,000 24.4% (slide name here) 35 .PPT

  36. Internal Costs Category J2 INSPECTION RECON Inspection $401,000 X-ray $66,000 DOLLAR / YEAR $467,000 Inspection Recon Total Value is $467,000 $401,000 85.9% Inspection X-ray $66,000 14.1% (slide name here) 36 .PPT

  37. Internal Costs Category J3 Unit 2 Part A $262,000 Part B $128,000 DOLLAR / YEAR $390,000 Unit 2 Rework Total Value is $390,000 $262,000 67.2% Part A Part B $128,000 32.8% (slide name here) 37 .PPT

  38. Internal Costs Category J4 Finishing Titanium Cup Screw & pin Primary A Unit 1 Finishing $251,000 Titanium $79,000 Cup $31,000 Screw & pin $9,000 Primary A $6,000 DOLLARS / YEAR $376,000 Unit 1 Rework Total Value is $376,000 $251,000 66.8% $6,000 1.6% $9,000 2.4% $31,000 8.2% $79,000 21.0% (slide name here) 38 .PPT

  39. Internal Costs Category O Downtime Pareto Analysis by Department 100% 210 180 80% 150 60% 120 CUM.% Dollars/Year Thousands 90 40% 60 20% 30 0 0% 281 201 219 287 211 205 206 214 209 200 210 208 222 207 217 Departments (slide name here) 39 .PPT

  40. External Cumulative Costs Pareto Analysis 100% 16 80% 14 12 60% 10 CUM.% Dollars/Year Millions 8 40% 6 4 20% 2 0 0% A B C D E F G H CATEGORIES COPQ (slide name here) 40 .PPT

  41. External Cumulative Costs (slide name here) 41 .PPT

  42. External Costs Component Descriptions • Product liability assessment charges - Product liability charges for self insured risk sensitive, self insured loss sensitive, and excess insurance premiums. The two main elements of product liability costs are a reserve accrual for self assumed losses and premium costs for the insurance that comes over the self assumed loss level. The self insured reserve accrual is allocated based on risk weighted sales and 5 year loss history. • B. Code 4 scrap customer returns - Customer returns identified by the Customer Returns Department as available for scrap by Inspection Code. Reported on the Year 1 Customer Returns and Scrap/Rework Report. (slide name here) 42 .PPT

  43. External Costs Category A PRODUCT LIABILITY ASSESSMENT TOTAL $ Self insured loss sensitive $4,750,000 Excess insurance premium $414,000 Self insured risk sensitive $390,000 TOTAL $ $5,554,000 Product Liability Assessment 1996 is$ 5,554,000 $4,750,000 85.5% Self insured loss se Excess insurance pre Self insured risk se $390,000 7.0% $414,000 7.5% (slide name here) 43 .PPT

  44. External Costs Category B 100% $2,500,000 80% $2,000,000 60% $1,500,000 CUM. % DOLLARS / YEAR 40% $1,000,000 20% $500,000 $0 0% C1 C2 C3 C4 C5 C6 C7 C8 C9 C10 C11 PRODUCT FAMILY CATEGORIES Pareto Analysis Code Scrap (slide name here) 44 .PPT

  45. Code Scrap (slide name here) 45 .PPT

  46. External Costs Category B LITIGATION EXPENSES TOTAL $ General internal $1,970,000 General outside $270,000 TOTAL $ $2,240,000 Litigation Expenses is $2,240,000 $1,970,000 87.9% General internal General outside $270,000 12.1% (slide name here) 46 .PPT

  47. Cumulative Appraisal Costs Pareto Analysis 100% 14 12 80% 10 60% CUM.% 8 Millions Dollars/Year 6 40% 4 20% 2 0 0% A C E G J L N B D F H K M Categories COQ (slide name here) 47 .PPT

  48. Cumulative Appraisal Costs (slide name here) 48 .PPT

  49. Appraisal Costs Component Descriptions • A-E, K,L.Recon intermediate and final inspection, instrument inspection, vendor inspection (instruments), trauma inspection, primary inspection, packaging verification officers - actual dollars spent for inspection of Reconstructive, unit and instrument product. Reported on the Year 1 Responsibility Report for each department. • F.Quality Engineering - time spent in shop floor inspection support and raw material inspection. Calculated as 30% of Year 1 Responsibility Report for Dept. (minus sub-dept. B activity). (slide name here) 49 .PPT

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