shellig
Starting to get Involved
Cost of Poor Quality (CoPQ) - scrap element of calculation includes lost margin?
The group I am working with to formalize this metric have gone back and forth on this. It is easy to get the amount of lost raw materials and effort hours for scrap element (what you paid to produce).
When you are sold out, you have the lost margin as opportunity cost (the value of the product in the market vs what you paid to produce). I have looked through threads and some use this and some do not in their calculation. I would say that the majority of calculators and discussions do not include this in the scrap element of the calculation.
My point of view is the missed opportunity cost should be included in the scrap element of CoPQ regardless of whether you are in a sold out condition or not.
1) To have a consistent calculation, 2) to focus effort on this as the biggest thing to work on to avoid and 3) because it is real loss when you are sold out.
Wanting to see other's input on this. Thanks!
The group I am working with to formalize this metric have gone back and forth on this. It is easy to get the amount of lost raw materials and effort hours for scrap element (what you paid to produce).
When you are sold out, you have the lost margin as opportunity cost (the value of the product in the market vs what you paid to produce). I have looked through threads and some use this and some do not in their calculation. I would say that the majority of calculators and discussions do not include this in the scrap element of the calculation.
My point of view is the missed opportunity cost should be included in the scrap element of CoPQ regardless of whether you are in a sold out condition or not.
1) To have a consistent calculation, 2) to focus effort on this as the biggest thing to work on to avoid and 3) because it is real loss when you are sold out.
Wanting to see other's input on this. Thanks!