How to Calculate the Cost of Poor Quality (COPQ)

[sowmya]

Ours is a medium sized manufacturing unit.We are capturing all type of reworks (both internal and customer end) .Can anybody help me in calculating cost of poor quality. (From basics)

[Sambasi]

My name is sambasi (K. Sambasivam I am working with Thai Baroda Industries Ltd., Thailand). To answer your question :-
1. What is Cost of Poor Quality?
Cost of Poor Quality (CPQ) is defined as sum spent on
- Preventive Costs.
- Apprisal Costs.
- Failure Costs (Internal and External Failure)
2. Cost of failures to be considered in manufacturing process.
- Internal : (1) Scrap, (2) Waste, (3) Repair/rework,
(4) Down grading.
- External : (1) Claim / Replacement, (2) Concession.
(3) Reshipment.
3. Calculations
- Cost of poor quality is calculated as a sum of all items.
4. Internal / External Failures and Defination.
1. Scrap : Total cost to produce a product which must be scrapped.
2. Waste : Cost of material that is left over and can not be used after
completion of an order.
3. Repair/rework : Cost to make a product usable.
4. Down Grading : Cost of material made from standard input but fails
to meet quality requirments at output stage. Or cost of salvaging
(cost of unusable output, while processing inputs with suspected
quality deviations)
5. Claim / Replacement : Adjustments made to compensate for returned
goods.
6. Concessions : Adjustment made to compensate for quality problem.
7. Reshipment : Repackign and reshipment costs for customer retruned
goods.

[remsqa]

Hai sawmaya

Mr sambasivam havd explained all the basic and the relevant data in detail can i do summerize the same

In simple the COPQ is meant by the extra expence which is accoured due to the derotiation of Quality (REJ ,SCRAB)Or Expence made to correct the component to meet the expected charactertics (REWORK COST)

Or any extra cost made to deliver the component because of delay due to the Quality non conformance .It might me tracked as a premium freight.
Expecting all you value added comments

REGARDS
R.L.SATTHISH KUMAR

[gpainter]

For an average company it has been estimated that the cost of poor quality eats up 30% of your bottom line.

[Lyn N Iles]

Another cost of poor quality which may be significant is the possible loss of future orders from this customer.

Not only that, sometimes customers have contact with other organisations who may be existing customers or who might become customers in the future. If they are sufficiently annoyed by your failure to provide quality product or service, they may communicate this to these other organisations.

Good news travels fast - bad news travels even faster .........!

Lyn

[Wes Bucey]

Originally Posted by Lyn N Iles

Another cost of poor quality which may be significant is the possible loss of future orders from this customer.

Not only that, sometimes customers have contact with other organisations who may be existing customers or who might become customers in the future. If they are sufficiently annoyed by your failure to provide quality product or service, they may communicate this to these other organisations.

Good news travels fast - bad news travels even faster .........!

Lyn

Ah, yes. It is a sad tale, but true:
"You never get a second chance to make a good first impression."
Most buyers don't have time or patience to work through a supplier's problems, they just move on to another supplier. I sure never go back to a filthy restaurant to see if they cleaned up.

[Greg B]

Originally Posted by sowmya

Ours is a medium sized manufacturing unit.We are capturing all type of reworks (both internal and customer end) .Can anybody help me in calculating cost of poor quality. (From basics)

Sowmya,

Here is an attachment I placed on the cove, some time ago. You should try the search tool as there are many topics associated with the 'cost of quality'. Look at the bottom of this threads page and you will find some links that are automatically placed there by the forum software. Here is my attachment:

Non Conforming Flow 2.doc - Post Attachment

This is the original thread and explains the chart.
Costs of NonConformity - A Flow Chart Showing Costs Involved
Please take the time to review the thread and everyone's comments. I hope it helps.

[AllanJ]

Originally Posted by sowmya

Ours is a medium sized manufacturing unit.We are capturing all type of reworks (both internal and customer end) .Can anybody help me in calculating cost of poor quality. (From basics)

Whatever else people may advise you to do, including using the (almost discredited) conventional "quality cost" catgories of failure, prevention and appraisal, the people who can best help you, calculate the cost of poor quality, work in your accounting department.

If you want to get management attention, buy-in for what you are doing and their comprehension of the cost estimates you and your accounts department should together produce, use the official accounting system and the cost categories and terms with which your management is familiar. That will avoid the need to explain the jargon about failure, prevention etc, which not many managers use anyway, at the upper levels.

If you have the equipment and ability to download cost data into a spreadsheet, that will be of great assistance as you can then prepare your reports with graphical summaries.

Involve yourself with the accountants - as I have counseled many quality managers for 30 years or so, they can be your best allies