COPQ (COST OF POOR QUALITY)

COPQ includes any cost that would not occur if quality were perfect. Lets understand this term in depth. Quality..'Quality is the ongoing process of building and sustaining relationships by assessing, anticipating, and fulfilling stated and implied needs.' For zycus at our floor (sdt-asa) the ongoing road map process is getting the raw data from the client till delivering the final link. There are lot of sister processes which are executed within the main process. Zycus tries to maintain and sustain its relationship with its client by assessing its data (classification, vendor norm, etc.) and anticipating the needs of the customer. Cost of quality includes any cost that would ideally not occur if the quality were perfect. This includes such obvious cost as scrap and rework, but it also includes less obvious cost such as the cost to replace defective material( in our case correct the identified internal & external defects), the staff(project resource) and equipment required to correct the defects. Unidentified cost such as opportunity cost is also associated with the rework cost.

Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices The opportunity cost is also the "cost" (as a lost benefit) of the forgone products after making a choice.

Specifically quality costs are a measure of the cost associated with the achievement or non-achievement of the product or service requirements established by its company and its contracts with its customer and society. Requirements include marketing specifications End product and process specifications Company procedures Operating instructions Professional or industry standards Govt regulations and any other document or customer need that can affect the definition of product or service.

More specifically quality cost are the total of the cost incurred by, 1. Investing in a prevention of non-conformance to requirements. 2. Appraising a product or service for conformance to requirements. 3. Failure to meet requirements.

For most organization, quality cost are hidden cost.unless specific quality cost identification efforts have been undertaken. Poor quality cost impact companies in two ways as 1. Higher cost 2. Low customer satisfaction. The lower customer satisfaction creates price pressure and lost sales, which results in lower revenues. The combination of higher cost and lower revenues eventually brings on crises that may threaten the very existence of the company. Rigorous cost of quality measurement is one technique for preventing such a crises from occurring. As a general rule, quality cost increase as the detection point moves further up the production and distribution chain. The lowest cost is generally obtained when errors are prevented in the first place. If non conformance occurs then it is least expensive to detect them as soon as possible after their occurrence, beyond that point there is a loss incurred from additional work that may be lost.

The most expensive quality costs are from non-conformance detected by customers. In addition to the replacement or repair loss, a company looses company goodwill and their reputation is damaged when the customer relates his experience to others. In extreme cases, litigation may result, adding even more cost and loss of goodwill. Another advantage of early detection is that it provides more meaningful feedback to help identify root causes .The time lag between the production of any deliverable and the failure (internal/external defect) makes it very difficult to trace the occurrence back to the process state that produced it. Note 1. Quality cost measurement need not be accurate to the penny to be effective. The purpose of of measuring such cost is provide guidelines for management decision making and action. 2. The estimates of COPQ can be obtained using special audits, statistical sampling and other market studies. These activities can jointly conducted by teams of quality, projects and six sigma personnel. 3. The estimates of COPQ should be obtained every quarter/month/ or weekly if possible.

Types of cost associated with poor quality

1. Prevention cost The cost of all activities basically designed to prevent poor quality in product or service is called as prevention cost. Examples. Cost for new product review. Quality planning Supplier capabilities surveys

Process capability evaluation Quality improvement team meetings Quality improvement projects Quality education training

2. Appraisal cost The cost associated with measuring, evaluating, and auditing products and service to ensure conformance to quality standards and performance requirements. 3. Internal failure cost Failure cost occurring prior to delivery of the product or service to the customer. Ex cost of scrap, rework, reinspection retesting, Material (data) review. 4. External failure cost Failure cost occurring after delivery of the product or service to the customer Ex processing customer complaints, customer returns, Product recalls.

Elements of cost of quality: in-depth approach

1) Prevention Costs 2) Appraisal Costs 3) Failure Costs: a) Internal failure costa b) External failure costs

1) Prevention Costs: It includes cost of all the activities specifically designed to prevent poor quality in products or services. Such as A) Marketing / Customer / User: Marketing research Customer / user perception surveys / clinics Contract / document review B) Product / service / design development : Design quality process reviews Design support activities Product design qualification test Service design qualification Field test C) Operations : Operations process validation Operations quality planning Design & development of quality measurement & control equipments Operations support quality planning Operator quality education Operator SPC/process control D) Six sigma , lean and quality administration : Administrative salaries and expenses Program planning

Performance reporting Education & training Improvement projects Process & product audits Other associated costs

2) Appraisal costs : These include costs associated with measuring , evaluating or auditing products or services to ensure the conformance to quality standards and performance requirements. Such as: A) Operations appraisal costs : Planned operations inspections , tests , audits ( It mainly includes checking labor , product / service quality audits , inspection and test materials) Setup inspections Special tests (manufacturing) Process control measurements Laboratory support Measurement equipment Outside endorsements & certifications B) External appraisal costs : Field performance evaluation Special product evaluation Evaluation of the field stock and spare parts C) Review of tests and inspection data D) Miscellaneous quality evaluations

3) Failure cost : These costs arise due to the defect in the product / service or due to the non-conformance to the requirements. These are further divided into two sub-categories as Internal failure costa and External failure costs.

a) Internal failure costs : These are the failure costs which occur prior to the actual shipment or delivery of the product / service to the customer. Examples are : A) Product / Service design failure costs ( internal ) : Design corrective action Rework due to design changes Scrap due to design changes B) Purchasing failure costs : Purchased material reject disposition costs Purchased material replacement cost Supplier corrective action Rework of supplier reject Uncontrolled material losses C) Operations ( product / service) failure costs : Material review and action costs ( Such as disposing costs , troubleshooting or failure analysis cost , investigation support costs ) Operations corrective action such as rework and repair Reinspection / retest cost Extra operations Scrap costs ( operations) Downgraded end product or service Internal failure labor losses D) Other internal failure costs b) External failure costs : These costs arise when the defective product / service or the nonconformance to the requirement is actually delivered to the customers. These include Complaint investigation Returned goods Retrofit costs Warranty claims Liability costs

Penalties Customer / user goodwill Lost sales Other external failure costs.

Project resources please try to understand the criticality of the COPQ concept and lets try to collectively cater this poor quality problem. .QMS