Scribd
Upload
430 views19 pages

Cost of Poor Quality

The document discusses the cost of poor quality (COPQ) methodology. It defines COPQ as costs that would disappear if tasks were performed without deficiencies. COPQ is made up of prevention costs, appraisal costs, internal failure costs, and external failure costs. Measuring COPQ allows companies to quantify quality-related costs, prioritize problems, and track improvements over time. Reducing COPQ is an effective way for companies to increase profits.

Uploaded by

Princess Annie
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
430 views19 pages

Cost of Poor Quality

The document discusses the cost of poor quality (COPQ) methodology. It defines COPQ as costs that would disappear if tasks were performed without deficiencies. COPQ is made up of prevention costs, appraisal costs, internal failure costs, and external failure costs. Measuring COPQ allows companies to quantify quality-related costs, prioritize problems, and track improvements over time. Reducing COPQ is an effective way for companies to increase profits.

Uploaded by

Princess Annie
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 19

Cost of Poor Quality

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

All Rights Reserved, Juran Institute, Inc.

Cost of Poor Quality

Prevention
Cost of Attaining Quality Appraisal: Prediction Audit

Appraisal: Detection Failure: Internal External Cost of Poor Quality

Cost of Poor Quality 3 .PPT

All Rights Reserved, Juran Institute, Inc.

Quality Costs

Components

$
Conformance Non-Conformance

Cost of Poor Quality 4 .PPT

All Rights Reserved, Juran Institute, Inc.

Total Quality Cost


I want my money back!

Prevention

Appraisal

Internal Failure

External Failure

$
Cost of Quality (COQ)
Cost of Poor Quality 5 .PPT All Rights Reserved, Juran Institute, Inc.

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

Cost of Poor Quality 6 .PPT

All Rights Reserved, Juran Institute, Inc.

Traditional Cost of Poor Quality (4-5% of Sales)

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

Customer Returns

Inspection Costs
Recalls

Rework

Cost of Poor Quality 7 .PPT

All Rights Reserved, Juran Institute, Inc.

Cost of Poor Quality As an organization gains a broader definition of poor quality, the hidden portion ofWaste iceberg becomes apparent. the
Customer Returns Testing Costs Rejects Inspection Costs Rework Recalls

Excessive Overtime Pricing or Billing Errors Late Paperwork High Costs

Excessive Field Services Expenses

Excessive Employee Turnover

Incorrectly Completed Lack of Follow-up Sales Order on Current Programs Customer Allowances Excess Inventory

Planning Delays

Complaint Handling Premium Freight Costs Overdue Receivables Excessive System Costs

Unused Capacity Time with Dissatisfied Customer

Development Cost of Failed Product

COPQ ranges from 15-25% of Sales


Cost of Poor Quality 8 .PPT

Hidden COPQ: The costs incurred to deal with these chronic problems
All Rights Reserved, Juran Institute, Inc.

Quantifying the Potential Benefit

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

All Rights Reserved, Juran Institute, Inc.

What Does Reality Look Like?

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

Quality Cost Category


Internal Failure External Failure Appraisal Prevention

Percent of Total
25 to 40 25 to 40 10 to 50 .05 to 5

What's Wrong With This Picture?


Cost of Poor Quality 10 .PPT All Rights Reserved, Juran Institute, Inc.

Examples of Prevention Expense

Quality Planning 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

Cost of Poor Quality 11 .PPT

All Rights Reserved, Juran Institute, Inc.

Examples of Appraisal Expense

Test Inspection Process Controls Train QA Personnel Product Audits Quality Systems Audits Customer Satisfaction Surveys and Audits Prototype Inspection Accumulating Cost Data

Supplier Certification Employee Surveys Security Checks Safety Checks Reviews: Operating Expenditures Product Costs Financial Reports Capital Expenditures

Cost of Poor Quality 12 .PPT

All Rights Reserved, Juran Institute, Inc.

Examples of Internal Failure Costs

Substandard Product Scrap or Rework Re-inspection Redesign/Engineering Change Process Modifications Payroll Errors All Expediting Costs Off-Spec/Waiver Abandoned Programs

Supplier Problems Scrap and rework Late deliveries Excess inventory Equipment Downtime Accidents, Injuries Absenteeism Unused Reports Missed Schedule Cost Lost Sales (any cause)

Cost of Poor Quality 13 .PPT

All Rights Reserved, Juran Institute, Inc.

Examples of External Failure Costs

Product Recall Handling Complaints Customer Service Caused by Errors Products Returned Analysis of Returns Evaluation of Field Stock Late Payments and Bad Debts

Lawsuits Reports Sales and service Returns and allowances Failure

Lost Sales Because of Customer Dissatisfaction!


Cost of Poor Quality 14 .PPT All Rights Reserved, Juran Institute, Inc.

Non-value Added Work

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 All Rights Reserved, Juran Institute, Inc.

The Hidden Organization

Step 1
Floor Space

Test

Step 2

Test

Product

Analyze

Analyze

The Hidden Factory Fix Value Added Non-Value Added Floor Space Fix Floor Space

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

All Rights Reserved, Juran Institute, Inc.

Why Cost of Poor Quality?

Reporting Tool
Comparisons

Trends

Analytical Tool
Priorities
Tradeoffs

Investment Tool
ROI
Cost of Poor Quality 17 .PPT All Rights Reserved, Juran Institute, Inc.

Focus of COPQ Efforts

Identify and Quantify Quality Costs Expose the Hidden Factory Ongoing Measurement System Breakthrough Improvement

Cost of Poor Quality 18 .PPT

All Rights Reserved, Juran Institute, Inc.

Advantages of Using Quality Costs for Management

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 All Rights Reserved, Juran Institute, Inc.

You might also like