What is the Cost of poor quality and how to calculate COPQ in the automotive industry?
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 in-house & customer end.
The cost of poor quality will be calculated for all the rejections & rework at the in-house & customer end. MR/QA head will be responsible for calculating & reporting the Cost of Poor Quality.
Why Cost of Poor Quality?
If a company does not calculate COPQ, it may never be able to know why they are incurring losses, they may cut short inspection processes, skilled manpower, use cheap raw material, 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
Prevention Costs :
The cost incurred in preventing failures & reducing other costs to a minimum is called prevention costs.
- Activities of planning quality system and translating product design & customer requirement in the measure which 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.
The cost incurred in appraisal ( detection ) of product & process quality.
- All types of inspections.
- Quality Audits & Process audits.
- Calibration & maintenance of test equipment
- Laboratory testing
Internal Failure Costs:
Internal failure costs occur when the result of work is not as per requirement & captured at in-house.
- Rework & repair
- Inhouse failure analysis
- Downtime of plant & machinery
- Rework & Rejection of supplier
External Failure Costs:
External failure cost occurs when output from an activity is not as per 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 COPQ calculation sheet. These are intangible & difficult to measure.
- Lost order/sale
- Lost of customers
- Management time
- Inventory increment
- Delivery problem
How to calculate COPQ?
The cost of poor quality will be calculated by capturing various costs associated with internal failure cost and external failure costs. COPQ will normally represent as % age of sale.
COPQ = (Total cost of Poor Quality/ Net sale of the month) x 100
where total cost includes internal failure cost & external failure costs.