Cost of Poor Quality (COPQ) is all the cost associated with producing or receiving defective material. It doesn’t only cover the material itself, but also all the work done as a result of this and any lost opportunities.
Below are some of the items that should be included when calculating the Cost of Poor Quality within your business.
- Underutilization: Planned overcapacity to make up for low yield
- Scrap/Rework: The cost of scrapped material or the rework of it. Also the added cost will include items like additional inspection, sorting, handling and movement of material
- Warranty: The cost of service centres and staff dealing with complaints, Credit provided to costumers, rework, restocking and SLA penalties.
- Lost Opportunities: Lost revenue and costumers and excess stock of unsold material.
Extend of COPQ
Most executives believe cost of poor quality within their business is below 5% of sales, but Independent studies shows that Cost of Poor Quality typically range between 5-30% of sales for manufacturing and service companies. Putting it in to perspective, then the average company spend a full day every week producing only scrap.
The first step to reduce the COPQ is to understand the true extend by monitoring it. This needs to be done properly by including all of the contributors, not just the most visible ones.
- Supply Chain COPQ: A supply chains COPQ have a cumulating effect on the business (OEM) making the final product. Due to this, a lot of companies work proactively with their suppliers to reduce their COPQ. A common practice amongst OEM’s to make the supplier accountable, is implementing a charge back system where the supplier is charged the additional cost the OEM incurred as a result of receiving out of spec parts.
- Internal COPQ: The best way to systematically reduce the COPQ, is by implementing an effective Quality Management System (QMS). This will include a process that triggers corrective and preventive actions when a non-conformance has been detected. For example an 8D Problem Solving activity that is tracked and monitored until closure to prevent reoccurrence.
If you would like to implement a process that effectively monitor and drive down Cost of Poor Quality, we are able to provide quality consulting support. Please contact us for a free quote with no obligations.
Alternatively you can continue to our quality training page to see our available courses.Go to Quality Training