The Cost of Quality is made up four cumulative areas:
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.
Often times companies will relate the Cost of Quality as a percentage of sales (% Sales). However, a different standard may apply to your model or business.
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.
The COPQ becomes visible evident for the first time in a DMAIC project when a actual state detailed Process Map is created. The team will be surprised how frequently their is detection, appraisal, rework, scrap, or other COPQ related costs. The perfect state should strive to eliminate COPQ but reality is that not all can be economically eliminated. However simply understanding and growing the awareness and measuring the COPQ alone will usually lead to better results.
The actual improvements from the team will help with a fundamental shift of the results and a solid Control Plan and handoff will most importantly...CONTROL the future variation and SUSTAIN the gains.
Six Sigma Modules
The following presentations are available to download.
Green Belt Program (1,000+ Slides)
Cause & Effect Matrix
Central Limit Theorem
1-Way Anova Test
Correlation and Regression