COST OF POOR QUALITY

Prepared by Joni Mart Sitio

 Cost of Poor Quality
COST OF QUALITY

COST OF POOR COST OF GOOD

QUALITY QUALITY

Internal Failure External Failure

COSTS Appraisal COSTS Prevention COSTS
COSTS

Customer External Audit &

Scrap Reworks Customer Return Training
Complaint Certification

Testing & Analysis Calibration

External Internal
 Cost of Poor Quality
COPQ Overview
Definition
When quality costs are initially determined, the
 All activities and processes that do not meet agreed categories included are the visible ones as depicted in
performance and/or expected outcomes the iceberg below.
 Costs that would disappear if every task were always
performed without deficiency
 Actual Cost - Minimum Cost = COPQ

Why Cost of Poor Quality? Waste Customer Returns

1. Reporting Tool
Rejects
• Comparisons Testing Costs Inspection Costs
• Trends
2. Analytical Tool
Rework Recalls
• Priorities
• Tradeoffs
3. Investment Tool
• ROI- Return of Investment
 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/Repots High Costs
Planning Delays
Excessive Field Incorrectly Completed
Services Expenses Lack of Follow-up Sales Order
Excessive on Current Programs
Employee Manpower Excess Inventory
Customer Allowances
Premium Freight Costs
Over Consumable Unused Capacity
Scada program not Work Excessive
Complaint System Costs
Handling Time with
COR program not Work Dissatisfied Customer
Overdue Receivables JIS Issuance Delay

WPS Isuance Delay Hidden COPQ: The

costs incurred to deal
Development Cost of Failed Product
COPQ ranges from 15- with these chronic
25% of Sales problems
 Traditional Model

Total quality costs

Failure costs
unit of product
Cost per good

Cost of appraisal
plus prevention

0% Quality of conformance 100%

Companies under TQM do not focus on quality cost minimization.
Quality improvement projects tend to focus on zero defects or defect reduction to the six-sigma
level.
 The earlier you detect and prevent a defect the more you can save.
If you catch a defective 2 cent resistor before is used, you loose two cents.
If you find after is solder into a computer component, it may cost $10 to repair the part.

Prevention
$ 1
Correction
$ 10

Failure
$

$ 100

If you don’t catch it until it reaches the customer’s hands, the repair will cost hundreds of dollars.
Indeed, for a $5000 computer, a field repair may exceed the manufacturing cost.
 COQ Theme

Costs are not incurred or allocated, but

rather caused.
Cost information does not solve quality
problems, nor does it suggest specific
solutions.
Problems are solved by tracing the cause
of a quality deficiency.
 Quantifying the Potential Benefit

Sigma Cost
6 sigma <10% of sales
5 sigma 10-15% of sales
4 sigma 15-20% of sales
3 sigma 20-30% of sales
2 sigma 30-40% of sales
 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?

 Examples of Prevention Expense Examples of Appraisal Expense

 Supplier Certification
 Quality Planning  Purchase Cost Targets  Test  Employee Surveys
 Training and Education  Process Capability  Inspection  Security Checks
 Process Definition  Studies  Process Controls  Safety Checks
 Customer Surveys  Preventive Maintenance  Train QA Personnel  Reviews:
 Preproduction Reviews  Supplier Qualification  Product Audits – Operating
 Technical Manuals  Job Descriptions  Quality Systems Expenditures
 Detailed Product Engineering  Housekeeping Audits – Product Costs
 Early Approval of Product  Zero-Defect Program  Customer – Financial
 Specifications Satisfaction Reports
 Surveys and Audits – Capital
 Prototype Inspection Expenditures
 Accumulating Cost
Data
 Examples of Internal Failure Costs Examples of External Failure Costs

 Product Recall
 Substandard Product  Supplier Problems  Lawsuits
 Handling
 Scrap or Rework – Scrap and rework  Reports
Complaints
 Re-inspection – Late deliveries – Sales and
 Customer
 Redesign/Engineering – Excess inventory service
Service
Change  Equipment Downtime – Returns
Caused by
 Process Modifications  Accidents, Injuries and
Errors
 Payroll Errors  Absenteeism allowance
 Products
 All Expediting Costs  Unused Reports s
Returned
 Off-Spec/Waiver  Missed Schedule Cost – Failure
 Analysis of
 Abandoned Programs  Lost Sales (any cause)
Returns
 Evaluation of
Field Stock
 Late Payments
and
Bad Debts
 Focus of COPQ Efforts

 Identify and Quantify Quality Costs

 Expose the “Hidden Factory”
 Ongoing Measurement System
 Breakthrough Improvement
 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.
 GAP DATA COLLECTION & ANALYSIS

GAP DATA COLLECTION & ANALISYS WOL PROCESS

January February March April May June July August September October November
S.No Process ( WOL SCOPE)
W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1
1 WPS Qualification TBA
2 Mock-Up Test TBA
3 Incoming Material TBA
4 Premachining
5 Blasting/SPI
6 Welding Process QH Station
7 Welding Process EC Station
8 Welding Process SHV Station
9 Welding Process TH Station
10 NDE UT Thickness
11 NDE UT LD
12 NDE LPT WW
13 Welding Repair Process
14 Machining
15 Manual Repair Process
16 NDE Solvent
17 Pickling Process
18 Final Dimensional Inspection
19 Marking
20 Final Visual Inspection

GAP DATA COLLECTION & ANALISYS SPOOLING PROCESS

January February March April May June July August
S.No Process ( WOL SCOPE)
W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4
1 WPS Qualification TBA
2 Welder Qualifi cation TBA
3 Fit/UP
4 Welding
5 PMI
6 FDC
7 Blasting Painting
8 FVI
 GAP DATA COLLECTION & ANALYSIS

GAP DATA COLLECTION & ANALISYS BENDING PROCESS

January February March April May June July August
S.No Process ( WOL SCOPE)
W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4
1 Visual Inspection
2 FDC prior to Bending
3 Blasting
4 Bending Process
5 Heat treatment
6 FDC
7 Blasting Painting
8 FVI

During Gap Analysis Checklist each process need to be generated

PERSONNEL REQUIRED TO SUPPORT THE ACTIVITIES

1. All Existing Operations Quality Personnel

2. Operation Process Engineer: 3 No's
3. Document Control : 1 No's
4. Process Quality Inspector: 4 No's
Thank You