What is Cost Of Poor Quality (COPQ)?

The cost of quality, or more accurately the cost of poor quality (COPQ), was described by Dr J.M. Juran as “the sum of all costs that would disappear if there were no quality problems”. This definition applies to all sectors; and to for-profit and not-for-profit organizations.

Cost of quality is the missing link between quality management and strategic results…… particularly, the financial goals and objectives of an organization.

COPQ Assessment - The first step

A COPQ assessment is an important first-step for organizational transformation. It involves identifying the key value creation, and support processes of an organization; and therefore quantifying the chronic waste in these processes, in the

Language of management – MONEY! (Profit,Cost)

Data mining - The value of the hidden costs!

Chronic waste is the gold in an organizational-mine. The quality improvement process aims to reduce chronic waste. Reduction in COPQ is the by-product of structured quality improvement projects.

When it comes to COPQ, most organizations have a tendency to focus on the initial or visible 5-10% of total cost (waste, rework, inspection costs, etc). What is not evident, but crucial is that the rest 15-25% of the hidden cost (excessive overtime, excess inventory, excessive employee turnover, etc) is not visible.

Some examples of COPQ are:

Scrap

Rework

Downtime due to failure

Warranty claims

Lost sales

Complaint investigations

Price discounts due to quality problems

Supplier’s poor quality

Redundant activities in service and support departments

Excess allowances for material, labor, and expenses that are built into company standards

Annual inventory write-downs

Accounts receivable write-offs

Rarely used information systems

Memos never read

Financial reports not used

Irrelevant procedures

Meetings with no objectives or outcomes

and many more....

How much can I save?

Based on our consulting assignments in India, Thailand, Indonesia, Singapore, Pakistan, Oman, Iran and Kenya, we at Qsys estimate that the COPQ in an organization ranges between 15 and 40 per cent of total costs.

We are convinced that reducing COPQ is a smart approach to deal with uncontrollable business factors, such as, high inflation, high interest rates, spiraling oil costs, rising commodity costs, etc.

Qsys has been facilitating structured quality improvement over the past 10 years and has saved each of its clients significant money.

Note: Qsys specializes in assessing the COPQ of organizations in the manufacturing, service, healthcare, and education sectors.

COPQ Assessment