Cost of Poor Quality:
The cost incurred in producing & rectifying a defect is called the cost of poor quality. It is also called the cost of non-conformance.
Purpose of COPQ:
- To reduce the cost by reducing the defect.
- To be aware of the money lost when a defect is produced in a product & detected at the in-house & customer end.
The cost of poor quality will be calculated for all rejections and rework at the in-house and customer ends. The MR/QA head will be responsible for calculating and reporting the Cost of Poor Quality.
Why Cost of Poor Quality?
If a company does not calculate COPQ, it may never know why it is incurring losses. It may also cut short inspection processes and skilled manpower, use cheap raw materials, and bypass processes to increase profit, which may ultimately lead to more quality problems.
Categories of cost of quality:
1. Prevention cost
2. Appraisal Cost
3. Internal Failure Cost
4. External Failure Cost
Cost of Good Quality:
In the Cost of Good Quality, there are Prevention costs and Appraisal costs included. It is also the cost for quality assurance.
Prevention Costs :
The cost incurred in preventing failures & reducing other costs to a minimum is called prevention costs.
- Activities of planning quality systems and translating product design & customer requirements into measures that will ensure product quality.
- The cost incurred in the product review.
- R&D testing
- Supplier assurance
- Cost includes developing & providing quality training.
- Quality system audit.
Appraisal Costs:
The cost incurred in the appraisal ( detection ) of product & process quality. It is type of cost for quality control.
- All types of inspections. (Incoming, in process & Final inspection)
- Quality Audits and process audits.
- Calibration and maintenance of test equipment
- Laboratory testing
Cost of Poor Quality:
In cost of poor quality includes Internal failure cost and external failure cost. Here internal failure means failure in-house in the company.
Internal Failure Costs:
Internal failure costs occur when the result of work is not as required & captured in-house.
- Scrap
- Rework and Repair
- In-house failure analysis
- Downtime of plant & machinery
- Rework and rejection of the supplier
- In-house analysis cost
External Failure Costs:
External failure cost occurs when output from an activity is not as per the requirement & captured at the customer end.
- Rework or replacement of the product
- Analysis & action taken for customer complaint
- Warranty claims
- Customer returns
- Product recall
The hidden cost of poor quality :
These are additional costs of quality that are hidden & do not appear on the COPQ calculation sheet. These are intangible & difficult to measure.
- Lost order/sale
- Loss of customers
- Management time loss
- Inventory increment
- Delivery problem
- Reputation damage
- Employee morale down
How to calculate COPQ?
The cost of poor quality will be calculated by capturing various costs associated with internal and external failure costs. COPQ will normally be represented as % age of sales.
COPQ% = (Total cost of Poor Quality/ Net sale of the month) x 100
where total cost includes internal failure costs and external failure costs.
This is a simple format for capturing the cost of poor quality. They included internal failure cost and customer end rejection cost. Internal rejection costs include rework costs and in-house rejection costs. External rejection costs include customer return costs, customer visit costs, segregation costs, analysis costs and debit costs etc.
COPQ Calculation Sheet PDF | Download
Importance of COPQ in quality:
- COPQ reflects the total cost of defects, impacting profitability.
- Reducing COPQ improves overall financial performance and profit.
- High quality enhances reputation and gives a competitive edge.
- Minimizing COPQ leads to satisfied customers and loyalty.
- COPQ analysis identifies areas for process optimization.
- It helps identify and mitigate risks associated with poor quality.
- Monitoring COPQ is integral to ongoing quality enhancement.
- Managing COPQ ensures adherence to industry standards and regulations.