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 the 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 know why they are incurring losses, it may cut short inspection processes, skilled manpower, use cheap raw material, and bypass processes to increase profit which may ultimately lead to more quality problems.

Categories of cost of quality:

Cost of Quality,Cost of Poor 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 systems and translating product design & customer requirements 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.

Appraisal Costs:

The cost incurred in appraisal ( detection ) of product & process quality.

Internal Failure Costs:

Internal failure costs occur when the result of work is not as per requirement & captured in-house.

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 on the 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 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 costs and external failure costs.

Importance of COPQ in quality:

  • Financial Impact: COPQ reflects the total cost of defects, impacting profitability.
  • Profitability: Reducing COPQ improves overall financial performance.
  • Competitive Advantage: High quality enhances reputation and gives a competitive edge.
  • Customer Satisfaction: Minimizing COPQ leads to satisfied customers and loyalty.
  • Process Improvement: COPQ analysis identifies areas for process optimization.
  • Risk Management: It helps identify and mitigate risks associated with poor quality.
  • Continuous Improvement: Monitoring COPQ is integral to ongoing quality enhancement.
  • Regulatory Compliance: Managing COPQ ensures adherence to industry standards and regulations.

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