Cost of poor Quality

1. Cost of Poor Quality

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. Cost of Poor Quality 2 .PPT

3. Cost of Poor Quality Cost of Poor Quality 3 .PPT

4. Quality Costs Components $ Conformance$ Non-Conformance$ Cost of Poor Quality 4 .PPT

5. Total Quality Cost I want my money back! Internal Failure ExternalFailure Prevention Appraisal $ Cost of Quality (COQ) Cost of Poor Quality 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 Cost of Poor Quality 6 .PPT

7. Traditional Cost of Poor Quality 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

8. Cost of Poor Quality 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

9. 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

10. 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 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

11. 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 Examples of Prevention Expense Cost of Poor Quality 11 .PPT

12. Supplier Certification 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

13. Supplier Problems 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

14. Product Recall 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

15. 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

16. The Hidden Organization 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

17. Why Cost of Poor Quality? • Reporting Tool • Comparisons • Trends • Analytical Tool • Priorities • Tradeoffs • Investment Tool • ROI Cost of Poor Quality 17 .PPT

18. Focus of COPQ Efforts • Identify and Quantify Quality Costs • Expose the “Hidden Factory” • Ongoing Measurement System • Breakthrough Improvement Cost of Poor Quality 18 .PPT

19. 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