COQ

(Cost of Quality)
 WHY COQ…??
Traditionally quality performance has been reported to management in terms of
rejection and defective material reports. This vital information is often difficult to analyse
and interpret in terms of costs.
As a result, cost saving opportunities may be overlooked. Successful business
requires financial planning and control. It is advisable that quality failures be presented in
financial terms
 Cost of Quality
Quality costs or cost of quality is a means to quantify the
total cost of quality-related efforts and deficiencies.
 Classifications of COQ
As defined by Philip B. Crosby, the cost of quality has two main components: the
cost of good quality (or the cost of conformance) and the cost of poor quality (or the
cost of non-conformance).

Cost of Cost of poor

confirming quality
the quality
(Confirmatio
(scrap, re-
work, delay
COQ
n cost) etc..)
 The cost of poor quality affects:

 Internal and external costs resulting from failing to meet requirements.

 The cost of good quality affects:

 Costs for investing in the prevention of non-conformance to requirements.

 Costs for appraising a product or service for conformance to requirements.

COQ

Confirma Cost of poor

tion Cost Quality

Preventive Appraiser Internal External

cost cost Failures Failures
Preventiv Appraise Internal External
e Cost r cost Failures Failures
Cost of escort expenses
Quality planning Pre-production incurred to prevent
Design Scrap
verification transit damages
Design & development of
quality measurement and Cost of trucks halting
test equipment charges at Field
Process Scrap
Calibration and maintenance Receiving inspection
of quality measurement and Cost of premium freight
test equipment paid to deliver the goods
Replacement, rework
Calibration and maintenance and repair
of production equipment
used to evaluate quality Inspection & Testing warranty Complaints

Cost of trucks halting

Supplier assurance charges at Plant
Warranty claims
Inspection and test
Quality training equipment
Cost for port detention
and demurrages Products rejected and
returned
Quality auditing
Materials consumed
Cost of trucks halting Cost of Write -offs
during inspection and
testing charges at plant for (Physical Variance, )
Quality Improvement incoming containers Intrest on Over Due
programs
 Cost of Quality by American Society of Quality

Cost of Quality by American Society of Quality

Cost of Quality to be here

Total cost of Quality

Sales turnover  Category Cost of Prevention &

Cost of Appraisal

Up to 15% World Class

 15 to 30% Industry Average

Cost of failures

 >30% Non-Competitive

Internal failure cost : 10 to 12%

Prevention Cost : 1 to 2%
(Costs generated before a product is shipped
(Costs incurred to prevent the occurrence of
as a result of non-conformance to
non-conformances ….)
requirements….)

Appraisal cost : 4 to 6% External failure cost : 10 to 15%

(Costs incurred in measuring and controlling (Costs generated after a product is shipped as
current production to assure conformance to a result of non-conformance to
requirements...) requirements….)

7
 Six Sigma Philosophy of Cost of
Quality

Table 1: Sigma Level and the Cost of Quality

Sigma Level DPMO Cost of Quality as

Percentage of Sales

2 298,000 More than 40%

3 67,000 25-40%

4 6,000 15-25%

5 233 5-15%

6 3.4 Less than 1%

Six Sigma Philosophy of Cost of
Quality
Confirmation Cost Vs Cost of poor quality
 Preventive Cost
COQ element Description Cost related To Responsibility for Data
giving Data source

Activity of planning quality systems and Raw data by costing.

Quality Application
translating product design and Data compiling by SAP
planning engineering
customer quality requirements QA

Design & development

Costs of designing, developing and Raw data by costing.
of quality
measurement and test documenting any necessary inspection, NPD Data compiling by SAP
equipment testing QA

Calibration and
maintenance of quality The cost of calibration and
measurement and test maintenance of gages, templates, jigs, QA Cal Lab Manual
fixtures and similar items
equipment

Calibration and
maintenance of The cost of calibration and
production equipment maintenance of production equipment PRD Cal Lab Manual
used to evaluate used to evaluate quality
quality
 Preventive Cost
Responsibility for Data
COQ element Description Cost related To
giving Data source

The initial assessment, subsequent

Inward QA,
audit and surveillance of suppliers to Raw data by costing.
Supplier assurance ensure they are able to meet and Process Engg., Data compiling by QA SAP
Purchase team
maintain the requisite product quality

Quality training Cost of quality training programmes L&D L&D Manual

Cost for appraising of the entire system

Quality auditing of quality control or specific elements of QMD QMD SAP
the system used by an organisation

Structuring and carrying out

Quality programmes aimed at new levels of Raw data by costing.
Improvement performance e.g. defect prevention CI Lean SAP
programs programmes, quality motivation Data compiling by QA
programmes
 Appraiser Cost
COQ element Description Cost related To Responsibility for Data
giving Data source

Costs associated with testing and

Pre-production measurement of pre-production for the
Process engg Costing SAP
verification purpose of verifying the conformance of
design to quality requirements.

The inspection and testing of incoming

Raw data by costing.
parts, components and materials. Also
Receiving inspection Inward QA SAP
included inspection at the supplier’s
Data compiling by QA
premises by the purchaser’s staff.

The activity of inspection and testing

first during the process of manufacture, Raw data by costing.
Inspection & Testing and then as a final check to establish QA SAP
the quality of the finished product and Data compiling by QA
its packaging.

The depreciation costs of the Raw data by costing.

Inspection and test equipment and associated facilities;
equipment the cost of setting up and providing for QA SAP
Data compiling by QA
maintenance and calibration.

Materials consumed Materials consumed or destroyed

during inspection during the course of destructive tests. QA Costing SAP
and testing
 Internal Failures
COQ element Description Cost related To Responsibility for Data
giving Data source

Material, parts, components, and

product end items which fail to conform
Design Scrap PRD Costing SAP
to quality requirements and which
cannot be economically reworked

Material, parts, components, and

Process Scrap product which rejected during PRD Costing SAP
manufacturing process

Cost of trucks halting Cost of trucks halting charges at Plant

charges at Plant SCM Costing SAP

Cost for port

detention and Cost for port detention and demurrages SCM Costing SAP
demurrages

Cost of trucks
halting charges at Cost of trucks halting charges at plant
plant for incoming for incoming containers SCM Costing SAP
containers
 External Failures
Responsibility for Data
COQ element Description Cost related To giving Data source

Cost of escort
expenses incurred to Cost of escort expenses incurred to
SCM Costing SAP
prevent transit prevent transit damages
damages

Cost of trucks halting Cost of trucks halting charges at Field SCM Costing SAP
charges at Field

Cost of premium Cost of premium freight paid to deliver

freight paid to SCM Costing SAP
deliver the goods the goods

The investigation of complaints and

Warranty Complaints provision of compensation for defective QA Costing SAP
products or installation.

Work to repair or replace items found

to be defective by the purchaser and
Warranty claims QA Costing SAP
accepted as the supplier’s liability under
the terms of the warranty.
Cost of Write -offs
(Physical Variance, ) Write offs for physical variance Costing Costing SAP
Interest on Over Due
1 RUPEE SAVED IS MORE THAN

1 RUPEE EARNED