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What is COPQ - Cost of Poor Quality?

Cost of poor quality (COPQ) or poor quality costs(PQC) are costs that would disappear if systems, processes, and products were perfect.
Icebergs
Why do we need to know COPQ?

  • This tool speaks in the language of management: $$$

  • Research shows that COPQ represents 15 to 40% of business costs

  • It helps to prioritize process improvement actions or projects

  • COPQ data shows how profit is affected by quality

  • It helps identify redundant activities

  • Aligns quality goals with organizational goals

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Whether you need to engage top management, obtain resources, or inspire your team, placing a monetary value on the costs of a problem helps to accomplish all of the above. 

Like the iceberg, much of the costs of poor quality that impact us are not as easy to identify.

How is calculated COPQ?

COPQ is calculated by identifying the internal and external costs of the specific issue you are trying to fix:

  • Internally your company faces issues such as scrap, rework, and failure analysis.

  • Externally the costs include complaints, return costs and warranty repairs.

Monetary values can be attached to each of these costs. When summed, that figure is the cost of poor quality.

Internal Failure Costs

Internal costs are the expenses incurred due to a failure to meet a customer requirement. Some examples of Internal Failure Costs are:

  • Scrap

  • Rework

  • Rejects

  • More setups

  • Expediting

  • Processes:

    • Slow processes, 

    • Process Changes (adapting the process to eliminate or minimize errors),

    • Inefficient processes (excessive Variation in Processes & Non-value added activity)

  • Late delivery

  • Retooling

  • Engineering change orders

  • Lost customer loyalty

  • Long cycle time

  • Lost/ Missing Information (Looking for information that isn’t where is should be)

External Failure Costs

Costs corresponding to defects found after receipt by the customer are considered External Failure Costs.

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  • Hard Costs: Warranty, Customer Returns, Customer Complaints

  • Soft Costs: Loss of Customer

  • Appraisal Costs: Inspection and Testing, Material Utilized for Inspection and Testing

  • Prevention Cost: Planning, Process Control, Supplier Appraisal, Training.

Management, when shown how much the problem is costing the company, will feel compelled to allocate the necessary resources to eliminate the problem. COPQ will clearly detail to them the costs of the types of expenses associated with the problem you are facing. And do so in terms that they best understand i.e how much the issue affects the company profitability!

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Additionally, determine the return on investment (ROI). Calculate how much will be saved by the elimination of the problem or by the purchase of better equipment. Then determine how long it will take your organization to realize this savings.

 

The ROI coupled with the detailed COPQ should enable you to regularly obtain the problem solving or infrastructure resources necessary to make required process improvements.

 

Remember! Speak the language of top management, the language of money. Explain exactly how much pain is caused by not eliminating the problem, or by not improving the process.

Inefficiencies cost money!

As a Lean consultancy, we are passionate about simplicity and Lean is a mindset that we apply in all our areas of activity. Our reward is when we know that we helped you meeting your business objectives, where both management skills and tools play a key role.

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