Cost of Quality #CoQ #CoPQ

 Cost of Quality – What is it ?

Watch this video on what is Cost of Poor Quality & you will realise what should be CoQ…

Excellent video that all knowledge workers who are sitting either on the 1^st step of Ladder or at the bottom stage {Front Line Managers & Decision Makers (who always talks about Schedule & Cost), Engineers & even Technicians} should watch about the importance of quality, the video looks at the causes and outcomes of the Challenger space shuttle fatal accident in 1986, Toyota 2009 Recalls, and BP's 2010 Deepwater Horizon explosion. Very well placed – and if this doesn’t convince you that Quality is important…then nothing will !

The business climate is becoming increasingly more competitive. There are multiple options available to the customer for nearly every product in the market. Companies must stay competitive to survive. The top performing companies set themselves apart from the competition by listening to the voice of customer and providing products that meet the customer’s needs while maintaining a high level of quality and dependability.

An organization can choose to invest in upfront quality costs to reduce or prevent failures or pay in the end when the defect is eventually discovered by the customer. In many cases organizations choose the latter one. Product failures can result in increased warranty costs and possibly even product recalls. The impact to the bottom line can be devastating. In addition, there are hard to measure costs incurred through loss of brand value and possible decline in future sales. Cost of Quality can have an immense impact on a company’s bottom line, in positive or negative.

 

What is Cost of Quality (CoQ)

The cost of quality (CoQ) includes all costs incurred over the life of the product by investing in preventing Non-conformance to requirements, Appraising the product for conformance to requirements, and failing to meet requirements (Rework). Failure costs are often categorized into internal (found by the Quality Control team) and external (found by the customer). Failure costs are also called the Cost of Poor Quality (CoPQ).

Industry starts focusing investment in defect prevention rather than Inspection because of the benefits over the life of the product.

The cost of quality (CoQ) consists of one or more of the following costs

Prevention costs- Costs related to the prevention of poor quality in the products, deliverables.

Appraisal costs- Costs related to evaluating, measuring, auditing, and testing the products, deliverables.

Failure costs (internal / external)- Costs related to non-conformance of the products, deliverables to the expectations of the stakeholders

Quality-related activities that incur costs may be divided into prevention costs, appraisal costs, and internal and external failure costs.

Why Implement Cost of Quality (CoQ) concept ?

Many organizations will have true quality-related costs as high as 15-20% of sales revenue, some going as high as 40% of total operations. A general rule of thumb is that costs of poor quality in a thriving company will be about 10-15% of operations. Effective quality improvement programs can reduce this substantially, thus making a direct contribution to profits.

The quality cost system, once established, should become dynamic and have a positive impact on the achievement of the organization’s mission, goals, and objectives.

So how you are going to measure CoQ ?

                                                                                          CoPQ the Tip of an Iceberg

References -

https://www.pmi.org/

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#JosephJuran