copq presentation

Leaning Client Strategy Forward Copyright 2012, Cedar Root, 6 Inc. All rights reserved

Cost of Poor Quality (COPQ) Basic Concepts

Copyright 2012, Cedar Root, 6 Inc. All rights reserved

Topic Measuring Success Cost of Poor Quality (COPQ)

Internal Failure Costs External Failure Costs

Deployment Guidelines Example Calculations References

2

Copyright 2012, Cedar Root, 6 Inc. All rights reserved 3

Measuring Success

Defects Waste Down?me $ COPQ

Product $ Revenue Material

= Lost $ Prot = Lost Capacity

Lost Opportunity


Measuring Success

There are (3) key measures that can measure any process. Rolled Throughput Yield (RTY)

(First Quality/First Time or Good Units/Total Units) Capacity ProducAvity (C-P)

(Cycle Ame to produce good units) Cost of Poor Quality (COPQ)

(Cost increase due to poor RTY and C-P)

4


Measuring Success

If RTY, C-P or COPQ is your primary metric, the other two can be your secondary metric as a check & balance. For Example: Primary: RTY (Improving Quality Units) Secondary:

C-P (Units/Time) to assure added time is not required to produce quality units

COPQ (increased cost due to higher cycle time and/or inspection)

5


Measuring Success

Other Examples: Primary: C-P (Units per time) Secondary:

RTY (Quality Units) to assure quality is not compromised as a result of reducing cycle time.

COPQ (increased cost due to scrap or rework associated with poor quality units or other costs associated with reducing cycle time such as unnecessary capital equipment.

6


Measuring Success

Other Examples: Primary COPQ (Failure Costs) Wrong! Go back to

the other primary metrics. RTY (Quality Units) to assure quality is not compromised

as a result of reducing non-value added processes such as the (7) categories of MUDA.

C-P (Capacity Produc?vity) to assure cycle ?me is not increased due to phantom cost reduc?ons.

7


Measuring Success

Other Examples: Primary: Other Metrics (i.e Reduce Down Time) Secondary:

C-P (Units/Time) to assure total cycle ?me is not compromised to address local down?me issue, example maintenance.

RTY (Quality Units) to assure quality is not compromised as a result of reducing down?me.

COPQ (increased cost due to scrap or rework associated with poor quality units or other costs associated with reducing down?me.

8


Cost of Poor Quality (COPQ) The costs of not producing 100% 1st Quality/1st Time for your

Customer(s) These costs can be categorized into the following components..

Internal Failure Costs RTY (Quality Units) C-P (Good Units/Time)

External Failure Costs RTY (Quality Units) C-P (Good Units/Time)

9


Internal Failure Costs

Failure or waste costs that occur prior to delivery or shipment of units to the customer. RTY Categories:

- scrap, rework, inspec?on/tes?ng, material review, seconds, supplier quality, trim, mee?ngs, quality reports, etc.

C-P Categories: - down?me, setup ?me, startup ?me, expedi?ng, rerunning replacement

product, etc.


External Failure Costs

Failure or waste costs that occur aKer delivery or shipment of units to the customer. RTY Categories:

- scrap, rework, inspec?on/tes?ng, material review, seconds, correc?ve ac?on reports, premium freight, mee?ngs, quality reports, recall, warranty claims, goodwill, lost sales, etc.

C-P Categories: - down?me, setup ?me, startup ?me, expedi?ng, rerunning replacement

product, etc.


The Real COPQ Most rms only account for about 5% of the waste that occurs in

an organiza?on.

12

4-6% of

Sales

25-35% of Sales

Lost Opportunity

TradiAonal Quality Costs

AddiAonal costs of poor quality

Rejects

Scrap Inspec?on

Rework

Long cycle ?mes

Expedi?ng costs Lost sales

Late delivery

Lost customer loyalty

Excess inventory

Rescheduling

Mee?ngs


Deployment Guidelines You may have to establish a data collec?on process to obtain

necessary cost of poor quality informa?on for your project. Step 1: Iden?fy the major internal and external categories that need to be

captured (use guidelines above).

Step 2: Establish a method to collect data for each category to be measured (solicit team par?cipa?on and Accoun?ng help)

Step 3: Establish cost opportunity for categories being tracked. Obtain help from Accoun?ng.

Step 4: Establish repor?ng format that can easily calculate COPQ, preferably an automated repor?ng system that is very accessible.


Example Calcula?ons The following are example categories of waste that will leak prot

down the drain and (metrics they drive).

Scrap/Waste (RTY) Customer Returns (RTY) Rework (C-P) Down?me (C-P) Complaint Inves?ga?on Time (SG&A) Disposal Costs (RTY)

14


Scrap/Waste (RTY) Material scrapped due to setup/startup, edge trim, quality, etc. Process waste/units may be measured in square feet, cubic feet or

weight or a discrete quan?ty. Example CalculaAons (see accounAng for help)

Opportunity $ = (sales $) - (cost to make) Example ($100 sales - $90 to make) / 10 units = $10 prot margin or

$1 per unit margin. Waste (COPQ) = (sales $) - 2(cost to make) / units sold ($100 sales - $180 to make) / 10 units = -$90 from the bofom or -

$9 /unit from the bofom line. If sales $ are the same for replacement product, then the cost to

make can be used for COPQ and normalized by units produced.

15


Customer Returns (RTY) Material returned for warranty or goodwill Includes scrap, inves?ga?on, premium freight, etc. Example CalculaAons (see accounAng for help) If returned

material has to be scrapped add the costs on the previous slide. Otherwise subtract the following costs from sales $ for COPQ. freight cost to return product freight cost to replace product inves?ga?on ?me and repor?ng (see next slide) Warranty or legal costs cost as applicable Rework cost (see slide explaining rework) Lost sales when assigned

16


Rework (C-P) Labor & materials to make product salable. Example Calcula?ons (see accoun?ng for help)

Cost factor = labor & materials/units sold COPQ = (Sales $) - (cost to make + rework)

17


Down?me (unscheduled) (C-P) Measured in hours of capacity Example Calcula?ons (see accoun?ng for help)

Cost factor = gross margin/total hrs consumed COPQ = (down?me) X cost factor

18


Inves?ga?on Time (Overhead) Hours tracking and repor?ng complaint

Example Calcula?ons (see accoun?ng for help) Cost factor = Average wage (hourly + benets)

19


Disposal Cost (RTY) Cost associated with material waste disposal, recycle, landll,

regulatory, etc. Example Calcula?ons (see accoun?ng for help)

COPQ = Transporta?on Landll Hazardous waste Regulatory

20


References Campenella, Jack. ASQ Quality Press

Principles of quality costs/ Jack Campenella. 2nd ed. ISBN 0-87389-019-1

Jurans quality control handbook / J.M. Juran - 4th e. ISBN 0-07-033176-6


Intellectual Property

This Training Manual and all materials, procedures and systems herein contained or depicted (the "Manual") are the sole and exclusive property of

The contents hereof contain proprietary trade secrets that are the private and conden?al property of Cedar Root. Unauthorized use, disclosure, or reproduc?on of any kind of any material contained in this Manual is expressly prohibited. The contents hereof are to be returned immediately upon termina?on of any rela?onship or agreement giving user authoriza?on to possess or use such informa?on or materials. Any unauthorized or illegal use shall subject the user to all remedies, both legal and equitable, available to Cedar Root. This Manual may be altered, amended or supplemented by Cedar Root from ?me to ?me. In the event of any inconsistency or conict between a provision in this Manual and any federal, provincial, state or local statute, regula?on, order or other law, such law will supersede the conic?ng or inconsistent provision(s) of this Manual in all proper?es subject to that law.

2012 by Cedar Root. All Rights Reserved.

copq presentation

Documents