Cost of Quality (COQ) - Breakdown of Costs Discussion

D

dewie

#1
Cost of Quality

Could anyone pleaseeeee tell me where to get the information of COQ? Could it be find in any web site or pdf?
 
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Marc

Hunkered Down for the Duration
Staff member
Admin
#2
Here's a quick snippet from misc.industry.quality:

Subject: Re: Cost of quality info needed
From: "Joseph Ludford"
Newsgroups: misc.industry.quality
Date: Tue, 30 Jan 2001 12:25:35 -0500

> Does anyone know the stats on what a typical company spends on the four
> costs of quality and what the breakdown is for a worldclass company?
>
> I am doing a presentation and I am tyring to influence sr. management on
> where we should be with prevention costs.
>
> thanks
> Linda

This is a follow-up to my previous note. In Quality Progress, May 1998, paper Six Sigma: A Breakthrough Strategy for Profitability, there is Table 1. Practical Impact of Process Capability with the following information:

6 sigma 3.4 defects per million <10% of sales (World class)
5 sigma 233 parts per million 10-15% of sales
4 sigma 6,210 parts per million 15-20% of sales (Industry average)
3 sigma 66,807 parts per million 20-30% of sales
2 sigma 308,537 parts per million 30-40% of sales (Noncompetitive)

There is an article in Quality Digest, October 1994 that has information on
quality cost as a percentage of sales for aircraft and automotive
manufacturing industries.

There is data from the 1980's or earlier for a tire manufacturer in Juran's
Quality Control Handbook, Fourth Edition, Chapter 4.

I have seen the following conclusions about quality costs stated by Juran
and Gryna either in the Quality Control Handbook or the text Quality
Planning and Analysis:

1) Total quality costs are hgiher for complex industries
2) Failure costs are the largest percentage of total quality costs
3) Preventive costs are a small percentage of total quality costs
4) For manufacturing organizations, cost of poor quality varies from 5-35%
of sales depending on product complexity
5) For service organizations, cost of poor quality varies from 25-40% of
operating expenses depending on service complexity

I have also seen the following rules for taking action stated by Juran and
Gryna:

1) Zone of Improvement - failure costs > 70% or prevention costs < 10% of
total quality costs - identify and pursue improvement projects

2) Zone of Indifference - failure costs ~ 50% and prevention costs ~ 10% of
total quality costs - if there are no profitable projects shift to control

3) Zone of High Appraisal Costs - failure costs < 40% or prevention costs >
50% of total quality costs - find ways to reduce appraisal costs

If you are a member of ASQ, you could ask the ASQ Quality Information Center
to search their database for articles on the subject. Call 1-800-248-1946
to reach the QIC. They would provide abstracts of the articles at no charge
but would charge for copies of the articles.

Joe Ludford
 

Marc

Hunkered Down for the Duration
Staff member
Admin
#3
Wayne and Duane gave you a range of 5% to 50% of sales. I agree that
these are the min and max extreme values. My personal experience is
something like 15% to 30% of your P&L in terms of scrap, error, rework
cost and all types of muda (inventory, moving items, ...).

The six sigma apostles have published the following table :

+( Cost of quality - six sigma

cost subject to error, scrap and rework
Code:
 --------------------------------------------------
 - Sigma Level    defects per      cost of        -
 -                            million            quality        -
 -                    opportunities    [% of sales]   -
 --------------------------------------------------
 -                                                                       -
 -       2            308.537                 not            -
 -                 noncompetitive   applicable     -
 -                    companies                               -
 -                                                                        -
 -         3             66.807        25%-40%        -
 -                                                                       -
 -          4              6.210        15%-25%        -
 -                             industry avg                    -
 -                                                                       -
 -        5                233              5%-15%        -
 -                                                                       -
 -        6                  3.4             < 1%               -
 --------------------------------------------------
Harry M., Schroeder R. : Six Sigma
Random House Inc., 2000

HP Staber/Salzburg

[This message has been edited by Marc Smith (edited 23 March 2001).]
 
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