Cost of-poor-quality - juran institute

19
Cost of Poor Quality

Transcript of Cost of-poor-quality - juran institute

Page 1: Cost of-poor-quality - juran institute

Cost of Poor Quality

Page 2: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 2 .PPT

Managers and workers speak the language of things but Senior leaders speak the language of money...

…COPQ allows us to translate the things into money.

Page 3: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 3 .PPT

Cost of Poor Quality

Prevention

Cost of Attaining Quality Appraisal: Prediction

Audit

Appraisal: Detection

Cost of Poor Quality Failure: Internal

External

Page 4: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 4 .PPT

Components

Non-Conformance$

Conformance$

$

Quality Costs

Page 5: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 5 .PPT

I want my money back!

Cost of Quality (COQ)

Prevention Appraisal Internal Failure

ExternalFailure

$

Total Quality Cost

Page 6: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 6 .PPT

COPQ Overview

Definitions

All activities and processes that do not meet agreed performance and/or expected outcomes

Costs that would disappear if every task were always performed without deficiency

Actual Cost - Minimum Cost = COPQ

Page 7: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 7 .PPT

Traditional Cost of Poor Quality

(4-5% of Sales)

When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below.

Waste

Testing Costs

Rework

Customer Returns

Inspection CostsRejects

Recalls

Page 8: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 8 .PPT

Cost of Poor Quality

As an organization gains a broader definition of poor quality,the hidden portion of the iceberg becomes apparent.

Late Paperwork High CostsPricing orBilling Errors

Excessive FieldServices Expenses

Incorrectly CompletedSales OrderLack of Follow-up

on Current ProgramsExcessiveEmployee Turnover Planning Delays Excess Inventory

ExcessiveSystem CostsOverdue Receivables

ComplaintHandling

Unused Capacity

Time withDissatisfied Customer

Excessive Overtime

Waste

Testing Costs

Rework

Customer Returns

Inspection CostsRejects

Recalls

Development Cost of Failed Product Hidden COPQ: The costs incurred to deal with these chronic problems

Premium Freight Costs

Customer Allowances

COPQ rangesfrom 15-25% of Sales

Page 9: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 9 .PPT

Sigma6 sigma

5 sigma

4 sigma

3 sigma

2 sigma

Cost <10% of sales

10-15% of sales

15-20% of sales

20-30% of sales

30-40% of sales

Quantifying the Potential Benefit

Page 10: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 10 .PPT

The ratio of the individual category costs to total costs varies widely. Many companies exhibit ratios which look like the following:

Quality Cost Category Percent of Total

Internal Failure 25 to 40

External Failure 25 to 40

Appraisal 10 to 50Prevention .05 to 5

What's Wrong With This Picture?

What Does Reality Look Like?

Page 11: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 11 .PPT

Examples of Prevention Expense

Quality Planning Training and Education Process Definition Customer Surveys Preproduction Reviews Technical Manuals Detailed Product Engineering Specifications

Purchase Cost Targets Process Capability Studies Preventive Maintenance Supplier Qualification Job Descriptions Housekeeping Zero-Defect Program

Page 12: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 12 .PPT

Supplier Certification Employee Surveys Security Checks Safety Checks Reviews:– Operating Expenditures– Product Costs– Financial Reports– Capital Expenditures

Examples of Appraisal Expense

Test Inspection Process Controls Train QA Personnel Product Audits Quality Systems Audits Customer Satisfaction Surveys and Audits Prototype Inspection Accumulating Cost Data

Page 13: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 13 .PPT

Supplier Problems– Scrap and rework– Late deliveries– Excess inventory

Equipment Downtime Accidents, Injuries Unused Reports Missed Schedule Cost Lost Sales (any cause)

Examples of Internal Failure Costs

Substandard Product Scrap or Rework Re-inspection Redesign/Engineering Change Process Modifications Payroll Errors All Expediting Costs Off-Spec/Waiver Abandoned Programs

Page 14: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 14 .PPT

Examples of External Failure Costs

Product Recall Handling Complaints Customer Service

Caused by Errors Products Returned Analysis of Returns Evaluation of Field Stock Late Payments and

Bad Debts

Lawsuits Reports– Sales and service– Returns and allowances– Failure

Lost Sales Because of Customer Dissatisfaction!

Page 15: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 15 .PPT

Non-value Added Work

Common activities that provide no benefit to customers. Some result from internal or external failure Some are unnecessary inspection

Examples Rarely used information systems Memos never read Financial reports not used Irrelevant procedures Meetings with no objectives or outcomes

Definition

Page 16: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 16 .PPT

The Hidden Organization

“Theoretical Cycle Time: The back-to-back process timerequired for a single unit to complete all stages of a taskwithout waiting, stopping, or setups.”

ProductStep1

Step2

Floor Space Floor Space

Floor Space

Value AddedNon-Value Added

Philip R. Thomas, Competitiveness Through Total Cycle Time. McGraw-Hill (1990)

The Hidden Factory

Analyze

Fix

Test

Analyze

Fix

Test

Page 17: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 17 .PPT

Why Cost of Poor Quality?

Reporting Tool Comparisons Trends

Analytical Tool Priorities Tradeoffs

Investment Tool ROI

Page 18: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 18 .PPT

Focus of COPQ Efforts

Identify and Quantify Quality Costs Expose the “Hidden Factory”

Ongoing Measurement System Breakthrough Improvement

Page 19: Cost of-poor-quality - juran institute

All Rights Reserved, Juran Institute, Inc. Cost of Poor Quality 19 .PPT

Advantages of Using Quality Costs for Management

Advantages Reducing the cost of poor quality is one of the best ways to

increase a company's profit. Provides manageable entity and a single overview of quality. Aligns quality and goals. Prioritizes problems and provides a means to measure

change/improvement. Provides a means to correctly distribute controllable quality

cost for maximum profits. Promotes the effective use of resources. Provides incentives for doing the job right every time.