COST OF POOR

QUALITY
WHAT YOU CAN FIND IN THIS
PRESENTATION?

 This is not a quick fix to help you to solve your

problems
 This presentation is to boost your awareness on
the concept of Cost of poor quality and quality
management / control.
 Sometimes, the method for improvements come
from proper awareness of a certain problem.
WHAT IS COST OF POOR QUALITY?

 Cost of poor quality (COPQ) or poor quality

costs (PQC), are defined as costs that would
disappear if systems, processes, and
products were perfect
WHY SOME COMPANIES DON’T LIKE
QUALITY CONTROLS?
.. BUT WHAT
THEY DON’T
SEE IS….
WHAT WILL
HURT THEM
THE MOST!
COST OF POOR QUALITY - CLASSIFICATIONS

Key Point here:

Control controllable Poor-quality cost to avoid

resultant Poor-quality Cost
 COST OF POOR QUALITY - CALCULATION
 TCoPQ [Total Cost of Poor Quality] =

 ➔ Failure at supplier's site (bad)

+ Labor Cost (assembly and testing)
+ Overhead Cost (Inventory, handling, shipping costs)
+ Scrapping Cost (of part and attached parts assemblies: Sometimes
assemblies cannot be disassembled and have to be scrapped
altogether)
+ Rework (applying a new part instead)

 ➔ Failure at manufacturer's site (worse)

+ Repair / Recall Costs (these are costs associated with repairing or
replacing a new part / assembly under warranty)
+ Product Liability Costs (These are costs resulting from damages
caused by the faulty part to 3rd parties)

 ➔ Failure at customers' site (worst)

COST CONTROL IS GOOD … BUT NOT AT
THE EXPENSE OF GOOD QUALITY!

 Good Cost reduction

 Reduce Cost (rework/ scrap/ sorting/ recall) from reducing
the quantity of products with quality issues
 Improve production processes to eliminate Wastes.
 Avoid unnecessary cost by improving the processes.

 Bad Cost reduction

 Reduce or relax Quality inspections/ Requirements/
resources to speed up production or delivery processes
 Reduce Process controls on the production due to high cost
of machine or tools purchases.
QUALITY MANAGEMENT
SYSTEM
QUALITY MANAGEMENT – THE CONCEPT

 1. Quality has to be defined as conformance to

requirements, not as goodness or elegance.
Management must establish requirements, supply the
wherewithal, and encourage and help employees to get the
job done. The basis of this policy is “Do it right the first
time.”

 2. The system for assuring quality is prevention,

not appraisal. The first step to defect and error
prevention is to understand the process* by which a
product is produced. When a defect occurs, discovery
and elimination are top priorities. Prevention is a
knowledge issue for quality-focused workers.
QUALITY MANAGEMENT – THE CONCEPT

 3. The performance standard must be zero defects,

not “that’s good enough.” The only performance
standard that makes sense for “do it right the first time” is
zero defects. Zero defects needs to be a performance
standard for everyone in the company, from top
management to workers on the line.

 4. The measurement of quality is the price of non-

conformance, not indices. A dollar figure can be
established for the cost of quality (COQ) by determining
the difference between the price of nonconformance and the
price of conformance. The price of nonconformance is
the expense of doing things the wrong way, and can
account for 20 to 35% of revenues. Price of conformance
is the cost of doing things right — typically 3 to 4%.
Managers should spend time identifying where cost of
quality is occurring and address what makes it occur.
QC VS. QA : ANY DIFFERENCES?
 · Quality Control
 – What: The activities or techniques used to achieve and
maintain the product quality, process and service.
 – How: Finding & eliminating causes of quality problems
through tools & methods so that customer requirements
are continually met.

 · Quality Assurance
 – What: Prevention of quality problems through planned
and systematic activities including documentation.
 – How: Establish a good quality management system and
the assessment of its adequacy & conformance audit of the
operation system & the review of the system itself.
 IMPORTANCE OF QUALITY MANAGEMENT
Quality Management
Process
Corporate planning
Requirements / Specifications
Product, Design, project, and
quality planning / Reviews
Significant Consequence of Error if not
performed properly
An error in corporate planning can cause us to create a
product or service that won’t work at all, or won’t be
optimal for the company.
An error in requirements elicitation leads to an
incorrect specification. If we don’t catch the error, we
deliver to specification but don’t satisfy the customer.
If we catch the error, it will cost us ten times as much
to fix it later as it would have cost to fix it during the
elicitation process.
Each error here costs ten times as much to fix during
the course of the project as it does to prevent the error
by proper planning. Major errors may create a situation
where we cannot deliver a quality product on schedule
affordably.
 IMPORTANCE OF QUALITY MANAGEMENT
Quality Management
Process
Developing the product with
QA and QC
Managing customer
expectations and change
requests
Delivering the product with
quality
Significant Consequence of Error if not
performed properly
Design a product without knowing the related quality
requirements or related standards and regulations,
might end up designing some products that are not
allowed to be sold on the market.
An error in managing change requests can lead to
complete project or product failure. An error in
managing customer expectations can lead to delivering
a product that meets specifications but does not
satisfy the customer. This can lead to a major loss for
the business, where all the effort of product
development may be spent with no value realized.
An error here can lead to failure at the end of a
project or loss of customer satisfaction and repeat
business. Be careful when you waive a certain quality
issue to ensure you meet the delivery target.
IMPORTANCE OF QUALITY
MANAGEMENT SYSTEM AUDIT
QUALITY MANAGEMENT SYSTEM VIA A GOOD
DOCUMENTATION CONTROL SYSTEM

 To communicate requirements, intentions, instructions, methods and

results effectively
 To convert solved problems into recorded knowledge so as to avoid having
to solve them repeatedly
 To provide freedom for management and staff to maximize their
contribution to the business
 To free the business from reliance on particular individuals for its
effectiveness
 To provide legitimacy and authority for the actions and decisions needed
 To make responsibility clear and to create the conditions for self-control
 To provide co-ordination for inter-departmental action
 To provide consistency and predictability in carrying out repetitive tasks
 To provide training and reference material for new and existing staff
 To provide evidence to those concerned of your intentions and your actions
 To provide a basis for studying existing work practices and identifying
opportunities for improvement
 To demonstrate after an incident the precautions which were taken or
which should have been taken to prevent it or minimize its occurrence
THANK YOU!