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Cost of Poor Quality (COPQ) Assessment

COPQ is defined as the difference between those costs that would disappear if everything in a process was done
perfectly, the first time and every time, versus the actual costs.
This journey is divided into three phases.
Phase l:

A focused assessment of current conditions with recommendations for change.

Phase 2: Additional on-site reviews.

Phase 3: The implementation of recommended changes.
By completing a COPQ Study, Company ABC will gain a descriptive picture of where these costs exist. This
will lead to focused Six Sigma improvement projects or rapid improvement teams that will ultimately improve
profitability by reducing costs and increasing revenue. To achieve this goal, Company ABC must understand the
degree to which poor quality (waste) exists within the organization.
Phase 1: COPQ Assessment and Data Mapping
Phase 1 will consist of completing a COPQ study.
To complete the study, the following activities will take place:
1. Conduct one-on-one interviews, along with small focus groups. Collect data to define and contribute to
the COPQ. Focus Phase 1 on identifying the key business processes from design, order entry, inventory,
supply chain, quality and regulatory, customer satisfaction, delivery of products, and before and after
sales support. Exclude the production facilities and the inherent non-value added activities that may
exist there. Estimate the value based on the information gathered.
2. Determine the layout of the COPQ format.
3. Accumulate the multiple categories of COPQ from existing financial, quality, and regulatory measures.
From this, analyze and determine the non-value added costs that contribute to the COPQ and extract
information that will form the basis of accumulating the COPQ. These costs will fall into the following
categories:
Non-value added activities in design, quality, regulatory, and other functions and tasks that create
no customer value or a disproportionately small customer value compared to cost.
Excess appraisal costs because of improper process control, inspection or activities and the
corresponding detection, correction and/or elimination process, and product defects.
Internal failures due to in-house process deficiencies.
External failures that require Company ABC to add excess costs to correct and reduce customer
dissatisfaction due to these failures.
4. Prioritize the opportunities and present a picture that will enable Company ABC to:

Better understand the proportion of COPQ total cost of operations.

Understand the costs as it relates to the five categories of COPQ and the balance or imbalance
between them.
Form the basis of the final COPQ Report.

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5. Create a Cost of Poor Quality Assessment Report which will include:

Multiple Pareto Analyses of classes and sources of costs of poor quality throughout Company
ABC business processes and supply chain.
A total estimate of the dollar value of the total COPQ and losses from each category and key
source.
Further ranking of opportunities based on criteria such as:
o Dollar value
o Proportion of value likely to be recovered
o Ease and probability of recovery
o The time estimate that it may take to reduce the costs

6. Prepare and present an Executive Summary Report which will include:

A summation of the combined, prioritized, recommendations for action based on the completed
assessment.
Proposed approaches to implement the recommendations to attack the excess costs. Possible
approaches may include:
o Simple execution of obvious improvements
o Replacement of an existing process or process steps with a known or easily discovered
better practice
o Other replications of known improvements
o Defined project teams to diagnose the unknown cause of a major problem, and design
and implement a remedy
o Six Sigma project teams to design specific needed capabilities
o Assignment of functional responsibility to address the identified problems
o Education and training on new skills to support the improved functions

Once Phase 1 is completed we will prepare a plan for Phase 2.

Phase 2: Additional On-Site Reviews
Expand the COPQ to other sites. If Company ABC feels the assessment is inclusive enough, move to Phase 3.
Phase 3: Begin Implementation of Recommended Changes
The specific deliverables in this phase will depend upon results from Phase 1. Typically it includes the
following:
Methods to significantly reduce inventories (incoming materials, work-in-process, and finished goods),
back orders, and cycle times.
Process designs and control that significantly improve capability and performance for resources applied.
Completion of Six Sigma projects to achieve the goals and targets set for key processes. Training and
design-support provided for these teams and other groups implementing the recommendations from the
assessments in Phases 1 and 2.
Training for key members of the workforce, administrative, and quality management staff in new roles
and skills required to:
o Execute the recommendations from Phases 1 and 2
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o Continue the on-going process of improvement redesign or improvement of the business

processes to achieve significant reductions in inventory cycle times and dramatically improve
customer satisfaction
o Review progress and prepare a plan for future assessments
Detailed Work Plan
This section describes the principal steps for each of the major components of the proposed approach, along
with the support that will be provided at each step.
Cost of Poor Quality Assessment Detailed Planning
1. Project Planning (Day 1)
The plan will be prepared. Interviews and site visits will be scheduled; resources and contacts will be identified
and notified of the schedule. Existing internal Company ABC will be assembled and reviewed for the raw data
and direction needed to conduct this study.
2. Process Identification and Definition (Day 2 - 3)
A series of high-level maps will be developed (if they do not exist) that define key work processes, from placing
an order, to delivery of product to the customer. Existing documentation, if available, will speed up this process.
3. Customer Needs (Day 4-5)
Through interviews, focus groups, and observation, the extent of external and internal customer satisfaction will
be determined, as well as to the extent in which their needs and requirements have been properly identified and
met.
4. Source Identification (Week 2)
During this step, the activities and costs associated with this absence of perfection will be identified. These are
the costs that can be saved when processes are improved. Examples include:
External Failures such as: credits, allowances, recall, liability, complaint investigation, accounts receivable,
etc.
Internal Failures such as: forecasting errors, invoice errors, new product development impacts, engineering
changes, excess final inventory, excess inventory in process, discarded raw material of finished product, less
than 100% yield, reprocessing, repeat of tests, cleaning up contamination, etc.
Excess Appraisal testing and assessment are absolutely required to provide Company ABC with the needed
assurance that processes continue to run at acceptable levels. Testing is also, in and of itself, required by the
FDA and others. Much inspection is often conducted because of past evidence that processes were not capable
of meeting their targets; then continuing inspection is added to detect when the process is off-target. Such
activities are sometimes viewed as prevention, but they are really only early warning of deficiencies actually
occurring. Excess inspections apply not only to the production process, but are also likely to occur in the
Quality Assurance processes as well, in effect, inspections of the inspections.
These sources of costs of poor quality will be identified through in-depth interviews with key executive,
operations, administrative, and quality management individuals, reviews of work flow diagrams (some are
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already in existence, others will be developed by the Business Process Efficiency and Effectiveness Assessment,
and still others may be developed for this purpose), analysis of existing financial and operational data, analysis
of data collected in the course of other projects, studies and reviews, and other methods that are identified from
the initial reviews.
5. Collection of Cost Data (Week 2 - 3)
Once the activities and occurrences that generate the costs are identified, estimate the costs associated with
each. Sometimes the cost data can be collected at the same time as the source of the cost is identified, but in
other cases the data needed to estimate the costs will need to be collected separately, often from several different
sources. In still other cases, new primary data may need to be collected.
6. Estimation of Costs by Source (Week 2 - 3)
There are many techniques available to estimate the costs of poor quality for an identified source. In each case,
select the easiest and most straight forward approach that will give a credible, adequate estimate for that source.
7. Prepare Analysis and Report (Week 4)
A report will be prepared that details the costs by source and prioritizes the source both by dollar magnitude and
by recommended order for action.
8. Present Final Report (Week 5)
An executive presentation will then be provided.

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