The Cost of Poor Quality (COPQ)

1) Appraisal

2) Detection

3) Internal Failure

4) External Failure

The Cost of Poor Quality is the sum of just 3 & 4:

COPQ = Internal Failure Costs + External Failure Costs

The picture below illustrates the some of the costs associated with poor quality. All of these represent areas of opportunity.

A better metric could be measuring the Cost of Quality as a % of Cost of Goods Sold (COGS). This removes the margin variation and eliminates product "mix" influences.

The first goal is to have all the cost of quality in the Appraisal and Prevention areas and zero Costs of Poor Quality.

Then, work to streamline any remaining costs without sacrificing the quality.

It can be challenging to standardize a calculation and many forms of the calculation exist. There are many obvious direct costs that can be categorized into one of the four areas but most of the costs are indirect and more difficult to quantify.

Work with the financial representative to help quantify and validate hard and soft savings.

Each company should come up with a standard with definitions for their formula. This is the same concept behind making a measurement system repeatable and reproducible.

Create a set of examples to help explain the costs and where they should be allocated.

Examples could be provided to controllers and financial representatives to check for reproducibility and repeatability. In other words, perform a variable data MSA on the Cost of Poor Quality measurement system to help fine tune the calculation and standard operating procedure or work instruction.

Don't allow the details to interfere with going forward with a COPQ procedure. It can be refined while in use and savings could be at risk without any attention at all.