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What is COPQ ? | Cost of Poor Quality - full explanation |

Hello friends, let's know about COQ (COPQ) today

COPQ means ....... Cost of Poor Quality

What is COPQ

This technique uses by a very famous guru of quality whose name was Joseph M. Juran. He said that the company's manager and worker general talk about things like product quality, productivity, breakdown of machines, rejection ppm etc.

But the one who is the senior manager or management team of the company talks in the language of money. If you convert any loss into money, then the perspective of seeing that losses changes. As we understand from an example, suppose there is a breakdown of 2 hours on your machine. Now if you estimate how much loss the company suffered in the form of money due to this 2 hour break down, then it will be very high and it will motivate you to do better. Let us explain with another example as the rejection % of your company is 2% (PPM 20000). Right now looking at this, it seems that there is only 2% rejection but now convert this 2% rejected product into money. Meaning that if these 2% parts were OK then how much would be the sale. So you will see that we are rejecting the product of lakhs rupees of the company.

COQ helps us to see the loss of the company by converting it into money. By which we are always inspired to do something better. 

Type of COQ

Cost of Poor Quality (COPQ)
Cost of Poor Quality

(1) Cost of Lost Opportunities

This is the loss due to which the company loses money in a direct or in-direct way, let's understand it with the following example.

1.1 Direct Cost of Lost opportunities

The customer is facing problems due to the product which we are sending, whether it is the product not being delivered on time or the regular quality problem in the product. Due to these customer reduces the demand quantity of our product. The business loss caused to the company by this is called direct cost of lost opportunities.

1.2 In-Direct cost of lost opportunities

Due to continuous poor delivery and bad quality of the product, the existing customer gives the next new business to someone else instead of giving us, due to all of this issues, the company's brand value in the market will be down, its affect to the new customers who are going to give us new business. once he know about bad quality and bad delivery of the company he will not give us new business orders and will move to our competitor. Such loss is called in-direct cost of lost opportunities.

(2) Cost of conformance

The quality of the product or service should be correct and the customer should get the right product or service. in all these activity the cost involved is called the cost of conformance, 

It mainly has two parts: -

2.1 Prevention Cost

prevention means to prevent any mistake from happening. Prevention cost is the cost that we invest (expense) to reduce appraisal (inspection) and failure, it is called prevention cost.

"prevention costs are the cost of those activities specifically designed to prevent poor quality product or service"

What is the main factor of Prevention Cost?

Whatever expenses are incurred in the activities mentioned below comes within the prevention cost -

Market Research - The cost of doing market research to know about your product and get feedback.

Quality Training Program – The cost of getting a training program for your employee related to the product.

Contract Review – The cost involved in reviewing the contract with your supplier and customer.

Design Review – The cost involved in the design review of your product.

Field Trial – The cost of doing field trials to know the quality of your product.

Supplier Evaluation – Expenses incurred in evaluating the new supplier.

Process Plan Review – The cost incurred in reviewing the process that has been created to manufactured the product.

Process Capability Review – The cost involved in reviewing the capability of the process.

Design and Manufacturing of Jigs and Fixtures – Jigs and fixtures are required to make a product. The cost incurred in its design and manufacturing of jigs and fixtures.

2.2 What is the Appraisal Cost

Appraisal (Inspection) – It means to examine or test. In this, whatever appraisal (inspection) we do to know the quality of our product or service and to know how our product or service is performing. The cost involved in this process is called Appraisal Cost.

Appraisal costs are spent to detect defects to assure conformance to quality standards. Appraisal cost activities sums up to the “cost of checking if things are correct” the appraisal costs are focused on the discovery of defects rather than prevention of defects

Whatever expenses are incurred in the activities mentioned below comes within the prevention cost -

Proto type testing: - At the time of development of new product, which makes proto type samples and tests them, then whatever cost comes this will be appraisal (inspection) cost.

Supplier Audit: - We also keep auditing our suppliers from time to time so that the quality of the parts being supplied by them is maintained. Any cost incurred in conducting this audit comes within the appraisal (inspection) cost.

Incoming Material Inspection:- In-Coming Inspection Cost of the material coming from the supplier. its comes within appraisal (inspection) cost.

Process Inspection / Control: - The cost of inspection that is done to maintain the quality of the product in the manufacturing process.

Final Inspection: - The cost involved in the final inspection of the product.

Laboratory Testing and Measurement:- The cost of laboratory testing and measurement of the product.

(3) Cost of Nonconformance

Cost of non-conformance is the expense or loss caused due to internal or external failure in the product or service. Most of the company only monitor this only. This section is called COPQ i.e. Cost of Poor Quality.

 3.1 Internal Failure Cost

Any failure in our product and service that occurs in the plant without the customer knowing it or before the customer gets it is called internal failure. Any cost or loss incurred in this failure, comes under the internal failure cost.

 “internal failure costs occurs when results of work fail to reach designated quality standards and are detected before transfer to the customer”

It consists of the following main parts......

Scrap: - During the manufacturing process, some parts are made whose quality is not according to its required parameters, which are scraped. This scrap coast comes in the internal failure cost.

Rework: - The cost involved in reworking non-conforming parts.

Repair: - The cost involved in repairing non-conforming parts.

Failure analysis time: - The cost of time taken in the analysis of whatever failure comes. NC in internal audit, process audit, product audit

100%, 200% Inspection: - 100% or 200% inspection is done to supply high quality product to the customer, nowadays many company keeps third party. The cost involved in all this comes within internal failure cost.

Re-Inspection, Re-sorting, Re-testing: - If there is some problem in the product, all the suspected parts are re-inspected, re-sorted, cost of re-testing

Downgrading the quality of the product: - By reducing the quality standard of y product, there are more chances of making non-conforming parts.

3.2 External Failure Cost:-

Failure of our product and service which could not be detected in the plant and is found at your customer's place and they get to know. That means, our product or service fails at the customer end. According to the quality standard of the customer, he did not get the product or service, this type of failure is called external failure. Any cost or loss incurred in this failure comes under the external failure cost. 

It consists of the following main parts......

External failure costs occur when the product or service from a process fails to reach designated quality standards and is not detected until after transfer to the customer”

Processing/investigation of customer complaint: - When a problem in the product or service is found at the customer's place or the customer comes to know about it, then the customer raises the quality complaint. To close it, it takes many types of expenses, such as the cost of visiting the customer to see and understand the problem, find out the reasons for the problem, and the investment that is required in doing the work that is prescribed for him, the expenses etc. |

Repair / Replacement of sold goods products: - When a problem is found in the product with the customer, then that product is either repaired or it is replaced by another product. The cost incurred in this process is called external failure cost.

Warranty Claims: - When a problem in the product or service is found in the market, then the customer raises the warranty claim. In such a situation, the cost of repair or replacement of parts is called external failure cost.

Interest charges on delayed payment due to quality problems: - When a problem comes in a product batch, then the entire batch gets hold, due to which its customer also holds its payment. Due to this, extra interest has to be paid in the loan taken.

And many more factors come to the external failure cost.

What is the share of these cost elements in the total cost of quality? 

In a general company, their (COQ) contribution is as per the graph shown below.

Cost of Poor Quality (COPQ)
What is COPQ (Cost of Poor Quality)

Total cost of quality is 25 to 35% of the turnover in an average company which is very high. The purpose of finding out the cost of quality is that which element is causing more damage to our company so that it can be reduced by reducing it.

Benefits of Cost of Poor Quality

Why should we reduce the cost of quality, what are its benefits? Following is.......
1. Top management always talks about money, they always see profit and loss in money. It is considered the language of Coast of Quality Management.
2. When we come out to the Coast of Quality, then many gray areas come out, on which by doing improvement projects, we can improve the company's profit by improving those areas.
3. The cost of quality helps us to identify where the damage is happening in the system.
4. With the cost of quality, we can determine the quality and target of the plants.
5. The cost of quality helps us to identify a lot of cost reduction projects

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