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Cost of Poor Quality

The Cost of Poor Quality (COPQ) is the expense incurred due to waste, inefficiencies and/or defects. COPQ has been proven to range from 5% to 30% of gross sales for most companies.

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Cost of poor quality can be staggering when considering process inefficiencies, work-a rounds, defective products, rework, scrape etc.

Understanding COPQ alone is not enough to be able to calculate your own costs due to poor quality. You must understand the various ways in which your process is inefficient, producing scrape or just simply creating defective items.

There are seven (7) common forms of waste that are often referred to as the Seven Deadly Muda (waste). Technically there are more than 7 forms of waste but if you can remember these 7 you'll capture 90+% of your waste

  1. Defects
  2. Over Production
  3. Over Processing
  4. Inventory
  5. Motion
  6. Conveyance
  7. Waiting

We cover these forms of waste in far more detail in our Lean course however, if you can assess your process and think of the many ways in which any or all of these forms of waste manifest themselves in your processes then you should be able to derive a tangible COPQ.

Cost of poor quality is not just about figuring out the cost of manufacturing defects, there are a whole host of other possibilities that will not even show up in your performance metric unless the metric is designed with the intent to manage waste.

Take for example the simple act of inspection. This is a result of known poor or inconsistent quality and is a common mitigating action taken to "catch" defects before the reach the customer or next processing function.

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There is a cost to that poor quality and it's easily calculated by the staff, hours and wages required to "inspect".

A more discrete example might be over production. Most people don't consider this waste because they would rather have more product or materials than not enough. But, the fact remains that overproduction is just that; more manufactured product than is required and there is an inherent and tangible cost for it.

Motion and conveyance are two more forms of waste that are often taken for granted. These forms of waist have significant impact on processes that are highly repetitive and labor intensive.

If an assembly line operator performs an activity by moving a tool 12 inches more than is necessary and this operator performs several hundred actions per shift then you can see the possibility for mounting forms of waste that could result from a single operator wasting motion.

Be carefull however when calculating COPQ as the example just given might be misleading if perhaps the process bottleneck is somewhere else in the "system"

The wasted motion by your operator may have limited or no impact on the number of "widgets" being produced by the system.

Cost of poor quality is not about making your product better, it's about understanding the value of inefficiently producing that product and determining ways to eliminate or reduce that inefficiency.

Lean Six Sigma is undoubtedly one of the best methods to diagnose and manage the presence of high COPQ and following the steps in the Six Sigma methodology are sure to get you there.

Calculating COPQ

  1. Determine the type(s) of waste that are present in your process
  2. Estimate frequency
  3. Estimate the cost per event, item or time frame
  4. Do the Math

Keep in mind, COPQ calculations may not always be simply dollars spent for inspectors or scrape material calculations.

COPQ may be calculated in the form of cost avoidance, revenue opportunities missed or in-efficiencies of a laborer who could produce 1 more saleable product per shift if she performs an action differently.

Most companies and their leadership don't fully know the cost of their own poor quality and unfortunately are not driven to rank it as a priority beause it's believed to be something less than it typically is.

It's usually up to a Black Belt such as yourself to determine the opportunity and design a game plan for addressing it.

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