Trying to Determine Average Cost of Nonconformities

[Bev D]

With all the guessed at and unknown variables that are involved your best solution will be a Ouija board, Tarot deck and a pair of dice.

Well to be fair I think The OP now realizes that an average is meaningless and is certainly not predictive of future costs. The OP is now asking about how to calculate the total cost of past nonconformities, which can be done although it isn’t always easy.

 

[Randy]

The OP is now asking about how to calculate the total cost of past nonconformities, which can be done although it isn’t always easy.

Of course it isn't because there are too many variables involved.

 

[Ed Panek]

As others have said, too many variables.

Using a risk based approach, you could rank them as severe, not severe etc, but quality is more concerned about a product meeting a specification and the harm thats possible which usually is safety driven; not $$ driven.

I would say this might not be a question for QA but instead the production manager or product manager who can enact supplier cost, production waste type changes

 

[Bev D]

My experience is different. In several organizations where I worked COPQ was something that QA was interested in. Finance, Manufacturing, Product Support, R&D and leadership were also interested. In most of the organizations where I worked the major effect of poor quality were felt by the end use Customer and field costs are much higher than those experienced during manufacturing. In addition, the sources of the great majority of costs were more design related than manufacturing or even supplier related. Although some were of course related to insufficient measurement practices or other causes…

Again in my experience, there were never too many factors to take into account although there are certainly a boatload. I have found that the limiting effect is how manual the data collection and analysis is. In my last organization we were able to automate the analysis due to our high level of electronic data collection and linked systems. This is not easy nor is it a universal condition…many small businesses simply can’t do it.

I also must stress two other aspects that I found to be critical:
COPQ (dollars) is only one measure that I used. The severity of the defect was also a critical element as some things simply can’t - and shouldn’t - be monetized. Things that threaten life or health, Customer satisfaction, Ability to deliver/sell, potential regulatory/legal offenses…these all matter and can be assessed for severity if you use a universal rating across the organization. (And QA assigned the ratings by the way).
You will never get the cost complete and fully accurate. But you can get it in the ball park and make the number useful to the organization…


I will always caution that it isn’t easy, it isn’t simple and it takes a whole team to create a useful ‘metric’ but if you are able to, it can be quite powerful….I recognize that half-a$$ed efforts are frustrating and wasteful (I’ve experienced this first hand as well. I learned a lot from these failed efforts tho)

 

[Cari Spears]

Good Morning Folks,
I am trying to determine the average cost of each Individual non-conformance generated. Is this possible? Is there a formula behind the calculation? I was determined at one time an avg cost of a Non-conformance was 160.00 per and I am not sure how they came to this determination regarding the price.

We have a formula of sorts. We have operation codes that people clock in to, and then another code for rework. So if the machining operation code is 700, the rework operation code is 799, if the inspection operation code is 800, the reinspection operation code is 899, and so on. We've calculated an approximate administrative dollar amount that we charge for each red tag (we red tag our nonconforming product), and we add the rework and reinspection costs charged to that job...voila, cost of nonconforming product. The rework costs are our standard shop rates for those operations.

For scrap, it's the administrative cost for the red tag, plus whatever material and labor has been charged up to the point it was scrapped.

Not perfectly accurate, we know, but it's a good indicator of where to look for trends. And we make tooling, mostly one-off stuff, so this simple formula might not be adequate for high volume production.

 

[billyjack332]

We have a formula of sorts. We have operation codes that people clock in to, and then another code for rework. So if the machining operation code is 700, the rework operation code is 799, if the inspection operation code is 800, the reinspection operation code is 899, and so on. We've calculated an approximate administrative dollar amount that we charge for each red tag (we red tag our nonconforming product), and we add the rework and reinspection costs charged to that job...voila, cost of nonconforming product. The rework costs are our standard shop rates for those operations.

For scrap, it's the administrative cost for the red tag, plus whatever material and labor has been charged up to the point it was scrapped.

Not perfectly accurate, we know, but it's a good indicator of where to look for trends. And we make tooling, mostly one-off stuff, so this simple formula might not be adequate for high volume production.

Thank you very much Cari Spears for support