COPQ

First, be sure of your definition of Cost of Poor Quality, which is sometimes loosely used. Some conflate it with the Total cost of quality, but ASQ defines it as shown below.



Internal Failure Costs consist of waste (e.g., activities associated with poor quality such as MRB, quarantine, etc.), scrap, rework and failure analysis
External Failure Costs consist of warranty, field/return repairs and service, returns, customer complaints (handling of), recalls, concessions made to compensate customers for poor quality (extension of warranty, replacement of installed base, etc.)

Note: Your company may want to include additional categories if they are relevant. I included a few that are relevant to my company that are less typical for most.

 

Wa-assalamu alykom!

Miner has given an excellent description. Typically, the cost of poor quality can be around 25% of sales revenue, but most organizations do not have a means to capture that.

Imagine a scenario where products fail QC inspection: from the moment the QC inspector reaches for a reject note (on a pc or a pad of paper) to record the details of the failure, the "Cost of Poor Quality" clock starts to run. The QC inspector shouldn't be completing a rejection note, they should be inspecting parts - which means they aren't doing what was planned. When the parts are rejected, in many cases, production may be halted. Perhaps a material controller has to move the products to a quarantine area and so on until the parts are finally dispositioned. All those activities were unplanned. They are a cost which few organizations capture.

 

That's just the start, of course. If the rejects go unaccounted for - as I have seen happen too often, because it's considered to be "too low cost to worry about" - the only "signs" are activities which are unplanned. For example, materials being requisitioned because of production demand which is over and above what was planned. I've seen parts being thrown away, because they were made wrongly, but they were not recorded as scrap. If this was 10% (one in 10 parts), at the end of production there's only 90% of what should have been made, so now replacement materials may need to be ordered. The additional costs of placing orders, most likely paying additional costs, expedited freight etc are rarely captured.

 

That is correct. Would it make a difference if the customer were told that the defective unit that they received was the result of handling? No, it is defective and that is all they would care about.

 

Although I think you will move on to external failures costs as well, I wanted to take a moment to provide 2 cautions:
1) external failures are far more costly than internal failures.
2) since 1) is true it is preferable to move failure cost internally through better inspection and testing then solve the problem permanently.

If you only track internal failure cost some num-nuts is going to solve their internal failure cost problem by just shipping the bad parts - either through deliberate ship it dispositions or by eliminating or eviscerating the inspection test steps.

 

Indeed! The (senior) production management at a company I am familiar with tried to "magic away" some $8M+ in internal reject processing costs as my failure in "counting apples and oranges correctly" - but then the 6 Sigma Master Black Belt visited from "corporate" and fired those people...

 

Not really. When senior management are aware of problems which cost $8M and then take no action, but instead try to explain it isn't so bad, they deserve to be fired.