Don’t Let Poor Quality Costs Eat Your Profits!

COPQ

•Profits

•SYSTEMS Qua •lity Consulting 16

 “inspection with the aim of finding the bad ones and
throwing them out is too late, ineffective and costly.

Dr. W. Edwards Deming

Founder of the Quality Evolution
 Quality is “fitness for use” (Joseph Juran)

 Quality is “conformance to requirements”

(Philip B. Crosby)
Features (Quality of Design) refer to characteristics
of a product that differentiate functionally similar
products.
Example: Compare a Cadillac Seville with a Honda Civic.
The Seville is a luxury car with specially
designed features and the Civic is an economy
car with standard features. Both are designed
to provide transportation but the design qualities
are obviously different.
Quality of Conformance is a measure of how well
the product meets its requirements or
specifications.
Example: If a Honda Civic does what it is designed to
do and does it well, quality exists. For example, if
economy cars are designed to provide reliable, low-
cost, low-maintenance transportation, the desired
quality exists.
Total Quality Costs represent the difference
between the actual (current) cost of a product or
service and what the reduced cost would be if
there were no possibility of substandard service,
failure to meet specifications, failure of products,
or defects in their manufacture .
 Cost of Quality (COQ)

Out-of-pocket costs associated with quality

generally fall into two categories:

Costs associated with activities

to correct failure to control
quality.
(corrective)

Costs associated with

controlling quality.
(preventive)
The costs of all activities specifically
designed to prevent poor quality in
products or services.

Examples include:
• Quality planning
These are all
• Quality training planned,
• Engineering design proactive
• Preventive maintenance activities
The costs associated with evaluating or auditing
products or services to assure conformance to
quality standards and performance requirements.

Examples:

 Incoming inspection/test
 Calibration of inspection/test equipment
 Final inspection/test
All costs resulting from products or services
not conforming to requirements or customer/user
needs which occur BEFORE delivery/shipment of
product, or the furnishing of a service.

Examples include:
• Scrap/rework
• Reinspection/retesting
• Material Review Board

These are non-value added and reactive

• The goal is to identify all internal failures and
resultant costs, and then systematically identify
and eliminate root causes until internal failure
costs are eliminated.

• Remember, all firefighting is a the result of a

failure!
All costs resulting from products or services not conforming to

requirements or customer/user needs which occur AFTER

delivery/shipment of product, or the furnishing of a service.
 The costs incurred when the customer finds the failure
 Processing customer complaints
 Field repairs
 Recall costs
 Returned goods
 Processing returned mater
 Warranty costs
 Loss of reputation
 Penalties
 A key finding in a four-year study* for the
Institute of Management Accountants, of more
than thirty industry leaders, is the importance of
understanding the cause and effect relationship
among strategy, quality, productivity, profitability
and competitiveness.

* Atkinson, Hamberg and Ittner, Linking Quality to Profits, 1994

The study found that without exception the
successful companies in the study based quality
related decisions on a clear understanding of the
cause-and-effect relationship between the goals
they wanted to accomplish and the step required
to achieve those goals.

Increased Competitiveness
Effective Quality Improvement

Which Leads to
It all Starts Here!

Higher Quality

Which Leads to

Increased Productivity

Which Leads to

Increased Competitiveness
 OTHERS TRUCKS

Wrong directions Breakdown

from customer

Flat Tire

DEFECT =
Late Deliveries

Rain or snow,
Landslide, flood Too Slow
earthquake
Poorly trained

Disaster Don’t know the

route
Road work

ROAD CONDITIONS DRIVERS