Conquering the

cost of poor qualityAshok Dandekar, ASQ and QuEST Forum Fellow

Quality Director, Fujitsu Laboratories of America

Co-chair, QuEST Forum CoPQ Strategic Initiative

• CoPQ and the bottom line

• CoPQ in action

• CoPQ executive board initiative

• A call to action

Agenda…

Consider...

Quality as a driver

of ICT’s business performance...

...with CoPQ as a strategic lever

The potential and promise of CoPQ!

CoPQSales

35%*

Amount (€ M)

Percent of Sales

€ 2B

€ 700M

Reduce

Inefficiencies

Optimize

Costs of Poor

Quality

Improve

Profitability

10%

CoPQ

reduction

* Industry Average

Net Profit

5%

€ 100M

CoPQ Reduction

4%

€ 70M

€ 70M

Potential net

profit upside

Net Profit w/CoPQ Reduction

9%

€ 170M

The Cost of Quality Balancing Act

Today’s Focus

R&D

Defects

Field

Defects

Other

DefectsE&O

Quality

People

Costs

Test

Equipment

& Labs

Cost of

Inspection

& Test

Cost of Good Quality

Cost of Poor Quality

CoPQ includes activities and

processes that do not meet

agreed performance and/or

expected outcomes

Cost for Quality

per good

unit

Cost for Quality 0% Good Quality

(100% defective)

100% Good Quality

(0% defective)

Cost of good

Quality

Cost of poor

Quality

Cost of

Quality

Optimum

Balancing two elements

Schematic development of Quality

The Cost of Quality Balancing Act

Taking the first step

MANAGING COPQ

“The journey of a thousand miles begins with one step.”

Lao Tzu

PARTNERING WITH FINANCE

VALIDATING THE OPPORTUNITY

SIZING THE OPPORTUNITY

DEFINING THE STRATEGIC

FRAMEWORK FOR COPQ

OPTIMIZATION

An Iceberg of Opportunity

External Failures

Excessive Overtime

Pricing or Billing errors

Excessive Field Services Expenses

Excessive Employee Turnover

Planning Delays

Complaint Handling

Premium Freight Costs

Internal Failures

Program Overruns

Equipment cost Overruns

Penalties

Retrofit

Materialized Risk

Excessive System Costs

Development Cost of Failed Product

Late Paperwork

Lack of Follow-up on Current Programs

Customer Allowances

Unused Capacity

Commissioning Spares

Overdue Receivables

Time with Dissatisfied Customer

Warranty

NCC (Non Conformance Costs) E&O (Obsolete and Scrap)

Hurdles, snags and pitfalls…

And how to address them

Awareness Data coverage

and accuracy

Data collection,

analysis and

reporting

Sourcing vs

reporting

Credibility Leader ownership

EDUCATION BOOKING

DISCIPLINE

AUTOMATION CONSISTENT

END-TO-END

KPIs

FINANCIAL

LINKAGES

COMMITMENT &

GOVERNANCE

QuEST Forum Executive Board

unanimously approves…

Cost of Poor Quality as

a Strategic Initiative

STRUCTURE MEMBERSHIP

• Alcatel-Lucent

• Cablcon

• Cisco

• Cox

• Desara Group

• Ericsson

• Extreme Networks

• Fujitsu

• Karlee

• Nokia

• Telamon

• Verizon

• JDSUComms LegalKPI Team

LE

AD

ER

SH

IP

BEN JERNIGAN

Nokia

Secretary

DEEPTI ARORA

Nokia

Exec Board Sponsor

Co- Chairs

JOANN BRUMIT

Karlee

ASHOK DANDEKAR

Fujitsu

Data

Repository &

Automation

Ad

vis

ory

(a

s n

eeded b

y sponsor/

chairs)

CHARTER

•Deepen ICT’s

understanding of

CoPQ.

•Set benchmarks by

defining and

normalizing CoPQ

elements.

•Operators/suppliers

•Common CoPQ

elements

normalized so

values aren’t

reported.

GOAL

SCOPE

QuEST Forum strategic initiative

The team

13PARTICIPATING

COMPANIES

11 Questions

•Mixed scoring

•Open-ended comments

•Asked:

- Company type

- Focus on COPQ

- Interest in what KPIs

354 total invites

12% response rate

43 responses

QuEST Forum strategic initiative

The survey

"Would be

interesting to

benchmark with other

successful or complex

implementations of

CoPQ."

"Need to know

CoPQ in similar

sector and similar

processes."

"Is there any

interest in

examining higher

level KPIs such as

contract loss due

to poor quality?"

"Already

participating --

depends on format

for benchmarking

as this is very

sensitive data."

"One of the most

effective ways to

drive improvements

in entire company!

Happy to see this.“

QuEST Forum strategic initiative

The open-ended responses

Top 5 KPIs:

•Customer reported defects

•Scrap

•Penalties

•Software defects

•Hardware repair

No COPQ program

Planning measures or

have no measures

Program ranging from some

results to mature program

Expressed interest in

joining the team

24%

76%

32%

74%

QuEST Forum strategic initiative

The survey results

Example of

normalization

Example of

benchmarking (based on normalization)

Normalization component

Actual CoPQ Costs

$100 M

$1 B

Normalized CoPQ

10%

Company A

10%

Company B

20%

Company C

15%

Normalization

• CoPQ reported as a ratio of normalization unit

• Normalization unit typically not publicly available (e.g., cost of goods sold)

• Advantages:

- No sharing of actual costs

- Helps in benchmarking

QuEST Forum strategic initiative

The normalization plan

KPI – sub-teams and status

CUSTOMER

REPORTED DEFECTS

SCRAP

PENALTIES

SOFTWARE

DEFECTS

HARDWARE

REPAIR

TEAM

SELECTION

LEADER

ASSIGNMENT

KPI DEFINED

IN SUBTEAM

KPI BASELINED

IN TEAM

BENCH-

MARKING

Q4-2014:

Team Kickoff

Q1-2015:

KPI Definitions

Q2-2015: Q3-2015:

Benchmarking

Q4-2015:

Next StepsTIM

EL

INE

COMPLETED IN PROGRESS NOT STARTED

NokiaMohini S (Acting)

NokiaMohini S (Acting)

NokiaMohamad Nasser

Alcatel-LucentArt Morrical

Alcatel-LucentMichael J. Oloughlin

1

1

1

1

1

1

• Are you interested in saving millions for your

company?

• Are you interested in saving billions for

the ICT industry?

• Investigate the promise and potential

of managing the cost of poor quality

Join the QuEST Forum CoPQ Executive

Initiative and participate in benchmarking.

A call to action…

“Intellectuals solve problems.

Geniuses prevent them.”

-- Albert Einstein