What is the Cost of Poor Quality (COPQ)?

Cost of Quality vs Cost of Poor Quality

→ The cost of poor quality is the financial loss of a business due to inefficiencies, errors, or defects available in its processes, products, or services.

→ In easy words, we can say that it is the company's total financial losses from doing the wrong things.

→ COPQ is a key metric in business.

→ Also we can say that the COPQ is the expenses incurred from failing to produce quality outputs the first time.

→ COPQ would disappear if the operations and process are smooth.

→ COPQ is the hidden cost and most organizations do not have a proper assessment method.

Table of Contents:

Join Industrial Knowledge WhatsApp Group for Daily Updates

Examples of the COPQ:

→ In the automotive industry COPQ is rigorously tracking for cost saving and profitability improvement.

→ In this industry the quality issues can have significant financial and reputational impacts on the business.

⏩Examples of the COPQ are:

  • Repair
  • Rework
  • Scrap
  • Warranty failure
  • Wastes of Manufacturing

COPQ Complete Presentation

➡️ Sample Presentation File

➡️ WhatsApp Us to Get this Presentation Bundle

➡️ Mail us to Get this Presentation Bundle


What is the Cost of Quality (COQ)?

→ The COQ is the total cost of ensuring that a product or service meets specified standards.

→ Also, it is the costs associated with failures when quality standards are not met.

→ It provides a comprehensive view of the cost that businesses need to pay in terms of producing good products.

→ COQ is the cost of achieving good products or providing good services.

→ COQ = Costs of Achieving Good Quality + COPQ

→ Most people think that a good product requires higher costs but this is not true actually.

Cost of Quality Graph

Examples of the Cost of Good Quality:

→ Cost of Good Quality refers to the costs that are spent for products or services to meet defined standards and avoid defects.

⏩Examples of the COGQ are:

  • Training and motivational activity
  • Vendor evaluation
  • Vendor development
  • Process Capability Study of machines
  • Calibration of measuring devices and equipment
  • Incoming material inspection
  • Stage inspection
  • Final inspection


Cost of Poor Quality Iceberg:

→ As per the iceberg, where only a small part is visible above water.

→ The visible costs of poor quality are just the tip of the iceberg.

→ While a larger portion of hidden costs lies under the surface.

→ Most of the costs associated with poor quality remain unnoticed or unidentified.

→ But they have a significant impact on a business's profitability.

⏩Components of the COPQ Iceberg:

  1. Above the Surface (Visible Costs)
  2. Below the Surface (Hidden Costs)
Cost of Poor Quality Iceberg

01. Above the Surface (Visible Costs):

→ Visible costs are direct and easily identifiable.

→ That is easily detected by the inspectors or operators.

⏩Examples of Visible Costs are:

  • Scrap
  • Rework or Repair
  • Returns and Warranty Claims
  • Inspection and Testing
  • Product Recalls and Penalties
  • Non-Conformance
  • Rejections
  • Obsolete and scrape


02. Below the Surface (Hidden Costs):

→ The hidden costs are often much larger than the visible ones.

→ Also this has a long-term impact on the business.

→ They are harder to quantify but can significantly affect a business's profitability and reputation.

⏩Examples of Hidden Costs are:

  • Overproduction and overtime
  • Planning delay
  • Employee attrition
  • Field service expenses
  • Complaint handling
  • Premium freight
  • Long set times and high tool change over time
  • Late paperwork and lack of follow-up work
  • Customer allowances
  • Unused capacity
  • Nonconformance
  • Customer dissatisfaction and brand damage
  • Overdue receivables
  • High inventory
  • Employee dissatisfaction
  • Legal and regulatory issues
  • Lost sales and lost market share
  • Opportunity costs
  • Increased supplier and capital costs


Cost of Quality vs Cost of Poor Quality:

→ The COPQ is a part of COQ and specifically includes internal and external failure costs.

→ If the processes are perfect then we do not need to bear extra cost.

⏩Four Elements of Cost of Quality are:

  1. Prevention Cost
  2. Appraisal Cost
  3. Internal Failure
  4. External Failure

→ Prevention and Appraisal costs are considered as investments to avoid COPQ.

→ Internal Failure and External Failure are considered as direct costs due to failure.

→ Refer to the below classification for the relationship between COQ and COPQ.

Classification of Cost of Quality

→ Now we will learn in detail about all the above four elements.


01. Prevention Costs:

→ Prevention is incurred to prevent defects or problems.

→ This is associated with the design, implementation, and maintenance of the QMS.

→ Prevention is the action taken before the actual operation to prevent defects or errors.

→ They are proactive investments, typically resulting in lower failure and appraisal costs over time.

→ It is all about the planning of quality, reliability, production, and inspection.

→ Cost incurred for the preparation and validation of specifications for incoming, in-process, and final product inspection.

→ The creation, and maintenance of the system that assures the defect-free output after each process.

⏩Examples of Preventive Costs:

  • Quality training, planning, audits, and certifications
  • Process improvements
  • Supplier development programs
  • Planning
  • Training and development of the workforce
  • Assurance
  • Supplier management
  • Process improvement
  • Preventive maintenance


02. Appraisal Costs:

→ An appraisal is associated with measuring and monitoring activities.

→ This is associated with all kinds of evaluation such as supplier and customer evaluation.

→ That will help us to ensure that all products and services conform to specifications.

→ Appraisal costs are costs incurred to detect defects before they reach the customer.

⏩Examples of Appraisal Costs:

  • Inspection and testing of materials
  • Audits 
  • Supplier assessments
  • Calibration of equipment and instruments
  • Verification:
  • Acceptance testing
  • Field testing


03. Internal Failure:

→ Internal failure is the cost related to the rework or repair of defects.

→ Also it is the cost to correct the errors in service.

→ This cost occurs when we fail to meet the specifications and are detected before they are dispatched to the customer.

→ If a product or service is not produced or supplied right the first time then we need to correct it.

→ This includes additional labor, material, and process costs.

→ Now we are considering another case where a finished good or service hasn't been made right the first time and also it is not reworkable or repairable.

→ In such a case, we have no other choice apart from scrapping it.

→ Failure activity is required to establish the causes of an internal failure.

⏩Examples of Internal Failure:

  • Rework
  • Scrap
  • Repairs
  • Rejection and Scrap
  • Machine downtime
  • Re-inspection and retesting
  • Process inefficiencies
  • Failure analysis


04. External Failure:

→ External failure is the cost incurred due to remedy of the defects discovered by customers.

→ This occurs when products fail to meet specified design standards and are not detected until they reach at the customer end.

→ External failure is more dangerous than others because it directly affects customer satisfaction and business reputation.

→ External failure also included the cost incurred due to customer complaint handling.

→ Also we can add the cost due to warranty claim handling, and investigation of rejected or recalled products, including transport charges.

⏩Examples of External Failure:

  • Warranty claims
  • Product returns and recalls
  • Repair or replacement after delivery
  • Lost sales and reputation due to poor customer experience
  • Legal claims and liabilities
  • Customer complaints


Impacts of COPQ:

→ There are many bad impacts of COPQ on business.

→ We will learn about the key impacts on business.

→ We need to bear the financial loss due to scrap, rework, and repair of defective products.

→ Also business lost the sales and brand reputation.

→ Defective products can cause delays, inefficiencies, and higher resource consumption.

→ Thus the operation efficiency and effectiveness decrease.

→ External failures lead to loss of customer trust.

→ Failing to meet regulatory or statutory requirements can result in penalties, lawsuits, or loss of certifications.


How to Reduce COPQ?

→ We can reduce COPQ by implementing continuous improvement methodologies such as Lean or Six Sigma.

→ Arrange training and development of employees.

→ Implement process control and risk management.

→ Perform Root Cause Analysis (RCA) to identify and eliminate the cause of defects.

→ Integrate the process automation to minimize human error.

→ Perform process and system audits regularly to ensure consistent product output.

⏩Key Strategies that Reduce the CQPQ:

  • Product and process traceability
  • Non-conformance and corrective action
  • Preventative Maintenance
  • Stronger engineering change management
  • Customer complaint and returns management
  • Employee training management
  • Management of supplier quality
  • Management of electronic documentation


Benefits of Tracking COQ and COPQ:

  • Improved Decision-Making
  • Increased Operational Efficiency
  • Enhanced Customer Satisfaction
  • Increased Profitability
  • Risk Mitigation
  • Reduced Internal and External Failures
  • Enhanced Reputation and Customer Retention
  • Cost Saving
  • Supports Continuous Improvement


Conclusion:

→ The COQ is the total costs associated with ensuring that the products or services meet required standards.

→ Businesses can prevent defects by optimizing the COQ and COPQ.

→ By investing in prevention and appraisal activities, businesses can reduce failure, improve efficiency, and increase customer satisfaction.

→ In the long term, businesses can achieve good profitability.

→ Focusing on reducing COPQ is essential for any business that wants to stay competitive and profitable.

→ By identifying and addressing the root causes of failures, businesses can significantly reduce the hidden costs of poor quality.

→ This improves process efficiency, enhances customer satisfaction, reduces risk, and strengthens brand reputation.

20 Comments

  1. Thanks for providing such an important information and knowledge.
    I request to you please share APQP information also.

    ReplyDelete
    Replies
    1. Thank you for your kind words! We will update very soon - APQP

      Delete
  2. Very knowledgeable and helpful to engineers who are looking for simple way of gaining knowledge

    ReplyDelete
  3. Excellent Sir....
    Gain knowledge in simple way..
    Thank you so much for efforts.

    ReplyDelete
    Replies
    1. Thank you for your kind words!! we are very thankful to you for your motivational feedback!!

      Delete
  4. Thank you for this great insight you have shared. God bless you

    ReplyDelete
    Replies
    1. You are most welcome and thank you for your kind comment!!!

      Delete
  5. thank you - how do we download

    ReplyDelete
    Replies
    1. We are working on that and we will update the same.

      Delete
  6. It looks like you're addressing direct poor quality cost but not focusing on the high cost area which is the indirect poor quality cost. What is the cost to your customer when you

    ReplyDelete
  7. Very helpful information. I just took over QA department and we need to spread this kind of knowledge. Thanks

    ReplyDelete
    Replies
    1. Yes thanks for your valuable feedback and you can also go through our other QA related articles.

      Delete
  8. Nice content.& Very easy language to understand....thanku so much

    ReplyDelete

Post a Comment

Previous Post Next Post