Cost of Quality vs Cost of Poor Quality

What is the Cost of Poor Quality (COPQ)?

→ It is the cost related to providing poor quality products or services. In easy words, we can say that it is the total financial losses incurred by the company due to doing the wrong things.
→ COPQ is the cost that would disappear if in smooth operating conditions.
→ It is a refinement of the concept of COQ.
→ COPQ is the hidden cost because most of the organizations do not have a proper method of the assessment of COPQ and hence they do not know how much money they can earn by reducing COPQ.

Examples:

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

Cost of Good Quality vs Cost of Poor Quality



What is the Cost of Quality (COQ)?

→ COQ is the cost of achieving Quality Products or Services.
→ COQ = Costs of Achieving Good Quality + COPQ
→ Most of the people think that higher quality requires higher costs, which is due to buy better materials or machines or by hiring more labor but this is not true in actual.
→ It is a methodology that allows an organization to determine that its resources are used for activities that prevent poor quality.

Examples:

→ 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, etc...

Classification:

Classification of Cost of Quality

[A] Prevention Cost:

→ Prevention is incurred to prevent or avoid problems related to products or services.
→ This is associated with the design, implementation, and maintenance of the QMS.
→ They are planned and incurred before the actual operation, and they could include it.

Examples:
[1] Planning
⇢ This is related to the creation of plans for quality, reliability, operations, production, and inspection
[2] Training and development of the workforce
[3] Product or service requirements
⇢ The establishment of specifications for incoming materials, processes, and finished goods
[4] Assurance
⇢ The creation, and maintenance of the system that assures the defect-free output after each operation until the end.



[B] Appraisal Costs:

→ An appraisal is associated with measuring and monitoring activities.
→ This is associated with the suppliers’ and customers’ evaluation of purchased materials, processes, goods, and services to ensure that they conform to specifications.

Examples:
[1] Verification:
⇢ It is related to checking of incoming material, process setup, and finished good output as per agreed specifications
[2] Audits
⇢ The audit is the confirmation that the quality system is functioning correctly
[3] Supplier assessment
⇢ This is related to the assessment and approval of suppliers.
[4] Test and inspection of purchased materials
[5] Acceptance testing
[6] Inspection
[7] Testing and inspection of equipment, etc.

[C] Internal failure:

→ Internal failure is related to the remedy of defects discovered before the product or service is delivered to the customer.
→ This occurs when the results of work fail to meet the agreed specifications and are detected before they are dispatched to the customer.

Examples:
[1] Rework:
⇢ If a product or service is not made or supply right the first time, then we try to correct it instead of scrap it. The cost related to do this activity is called rework. This includes additional labor hours/ machine hours for correct work and (wherever rectification requires material) sometimes additional material and process, too.
[2] Rejection or Scrap:
⇢ Consider 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 scrap it.
⇢ In simple language, the scrap is defective product or material that cannot be repaired, used or sold
[3] Waste:
⇢ The waste is the performance of unnecessary work or holding of stock as a result of errors, poor organization, or communication.
[4] Failure analysis
⇢ Failure activity is required to establish the causes of an internal failure.



[D] External failure:

→ External failure is incurred to remedy defects discovered by customers.
→ This occurs when products that fail to reach design quality standards are not detected until after transfer to the customer.

Examples:
[1] Warranty repairs and replacement:
⇢ If the product fails during the warranty period, an attempt is made to repair it and make it functional. If the product is not repairable then we have to replace it with the one. It's a loss of the organization.
[2] Complaints:
⇢ All work and costs associated with handling and servicing customers’ complaints.
⇢ Returns - handling and investigation of rejected or recalled products, including transport charges.

COPQ Calculation:

→ Now we will take one example of COPQ calculation in a tire manufacturing company you can apply the same concept for any organization. For better understanding refer the below picture in which the various costs mentioned related to various COPQ activity.

Example of COPQ Calculation

→ With the help of COPQ analysis, we can prioritize the major cost spending area with the help of the Pareto Chart. Then we can find the root cause by Cause and Effect Diagram behind the cost spending and we can improve our efficiency and effectiveness.



Key Points To Minimize COPQ:

  1. Traceability
  2. Nonconformity and Corrective Action
  3. Machine and Instrument Maintenance
  4. Internal Audit
  5. Change Management
  6. Customer Complaints Management
  7. Supplier Improvement Program
  8. Training and Empowerment of Employees

[1] Traceability:

→ If we want to reduce the COPQ then traceability is one of the most important parameters that we have to maintain for our product and process.
→ Without proper traceability, the organization faces problems like delays, defects, and recalls, etc.
→ If possible then it is better to implement the Poka-Yoke System within traceability from production to delivery. So we can easily view and access details on production location, time of production, warehouse, labeling and packaging, and delivery related information.

[2] Nonconformity and Corrective Action:

→ Implement strong correction action for each and every nonconformities without any delay.
→ The nonconformities may be in any form like production deviations, errors in specifications, or customer complaints, etc.
→ Record and maintain all action was taken on nonconformities like containment action taken, rework, replacement, discounts, or recall, etc.
→ We can use below standard methodologies for root cause and corrective action:
     ⇢ 8D Problem Solving Method
     ⇢ 5S Methodology
     ⇢ 5 Why
     ⇢ Cause and Effect Analysis
     ⇢ FMEA, etc.



[3] Machine and Instrument Maintenance:

→ Various maintenance processes of various instruments and machines will help us to give conformity of our products continuously.
→ Maintenance activity also reduces the losses and minimizes the failure.
→ So it maintains a smooth process flow.

[4] Internal Audit:

→ Internal audit is important for organizations to keep a record of non-conformities and corrective actions.
→ This helps us to identify loopholes in our system which can be eliminated from the system.
→ We can implement various audits like factory audits, process audits, facility audits, QMS audits, and health & safety audits, which helps in boosting the performance of the organization.

[5] Change Management:

→ Change management is also very important for the organization it can be any change related to technology, culture, operation, system, process, etc.
→ Successful change management depends on strong leadership and clear policies of the organization.
→ Also, we have clear visibility into the whole process, including change history, data on the changes made, the status of change made, and departments or areas affected, etc.



[6] Customer Complaints Management:

→ Effective customer complains handling without any delay help us to satisfy our customer so we have a happy customer.
→ The happy customer gives us repetitive business and it will increase our top line as well bottom line.
→ Also, ensure that the same compliant will not repeat twice.

[7] Supplier Improvement Program:

→ The supplier's improvement program automatically improves our products.
→ It helps us reduce our COPQ by maintaining smooth process flow and elimination all Wastes of Manufacturing and Supply chain.

[8] Training and Empowerment of Employees:

→ The training and empowerment of employees also reduce COPQ of our organization.
→ By providing periodic awareness sessions, training sessions, and evaluation for the same upgrade the knowledge of the employees and it boosts the performances.
→ We can evaluate the effectiveness of the training by test, questionnaires, and by giving the practical tasks.
→ We can also apply the same for all stakeholders.

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