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Page 1: Cost of Quality

Cost of Quality

Where Are We Now?

© Omnex All rights reserved

Page 2: Cost of Quality

Copyright 2006 Omnex. All rights reserved2

David A. Barber, QCE (ASQ)

• Mr. Barber is the General Manager and Senior Quality Consultant / Trainer for Omnex Canada Inc. He has been a full time consultant since 1998, and estimates a total of 5,000 hours of in-class instructional training and 3,000 hours of client consultation since that time.

•• Mr. Barber has over 20 years experience in the Quality profession with the majority of this

time being spent in Quality Director / Manager and Quality Engineering roles. He has a diverse background with experience in the automotive, medical devices, consumer electronic, telecommunications, plastics, machining, and stamping industries. Mr. Barber has assisted companies in the development and implementation of cohesive quality systems that have resulted in the achievement of ISO 9001:1994, QS-9000, TS16949:1999, ISO 9001:2000, TS16949:2002, TL9000, ISO/IEC 17025 and Six Sigma projects.

•• Mr. Barber is a fourteen-year senior member of the American Society for Quality (ASQ) and

is a Certified Quality Engineer. He received his Quality Assurance Certificate (accredited by the ASQ) from Centennial College of Applied Arts and Technology, has a diploma in Electronics from Radio College of Canada.

Page 3: Cost of Quality

Copyright 2006 Omnex. All rights reserved3

Omnex provides training, consulting and software to the international market with offices in the USA, Brazil, Canada, India, Mexico,

Venezuela, China (PRC) and Thailand. Omnex offers over 70 training courses in business and quality management systems worldwide.

Internet email: [email protected]: www.omnex.com

Page 4: Cost of Quality

Copyright 2006 Omnex. All rights reserved4

12

3

6

9

1951 Cost of Quality Concept – Dr. J.M. Juran

1950’s COQ in GE – AV Feigenbaum

1964 – Q100 Report IBM

1979 – Quality is Free – Philip Crosby

1980’s – Cost of Quality is Popularized

Late 80’s to 90’s – COQ loses favor

1998 – COPQ Reappears in QS-9000

2002 – COPQ present in ISO/TS 16949:2002

1990’s – COQ reappears with Six Sigma & Lean

History of Cost of Quality2006 – New Direction

Page 5: Cost of Quality

Copyright 2006 Omnex. All rights reserved5

Cost of Quality Classic Typology

• Cost of Quality is Categorized into– Prevention and Appraisal Costs

• Prevention Costs• Appraisal Costs

– Failure Costs• Internal Failure Costs• External Failure Costs

Maturity of Quality Management System and reduction in COQ

Page 6: Cost of Quality

Copyright 2006 Omnex. All rights reserved6

Cost of Quality is Categorized

Prevention Costs• New Product Reviews• Quality Planning• Process Capability Evaluations• Quality Improvement Team Meetings• Quality Education & Training• Improvement Transactional Processes

Prevention Costs• New Product Reviews• Quality Planning• Process Capability Evaluations• Quality Improvement Team Meetings• Quality Education & Training• Improvement Transactional Processes

Appraisal Costs• Incoming Inspection• In-process & Final Inspection & Test• Lab Testing• Calibration of Measurement & Test Equipment• Checking Activities to Verify Accuracy (PO’s)

Appraisal Costs• Incoming Inspection• In-process & Final Inspection & Test• Lab Testing• Calibration of Measurement & Test Equipment• Checking Activities to Verify Accuracy (PO’s)

Page 7: Cost of Quality

Copyright 2006 Omnex. All rights reserved7

Cost of Quality is Categorized

Internal Costs• Scrap• Rework/Repair• Downtime• Redesign• Excess Inspection• Excess Inventory•Re-doing any Activity (Not Right the First Time)

Internal Costs• Scrap• Rework/Repair• Downtime• Redesign• Excess Inspection• Excess Inventory•Re-doing any Activity (Not Right the First Time)

External Costs• Warranty• Retrofits• Service Calls• Recalls• Lost Sales• Long Cycle Times•Customer Service Resources due to a Complaint

External Costs• Warranty• Retrofits• Service Calls• Recalls• Lost Sales• Long Cycle Times•Customer Service Resources due to a Complaint

Page 8: Cost of Quality

Copyright 2006 Omnex. All rights reserved8

Problems with Traditional COQ Models

1. COQ undervalued based on traditional calculations2. COQ cumbersome and difficult to calculate3. Senior Management use other methods to drive

improvement4. Focus is on measuring cost, not using cost to

improve performance while reducing cost.

Page 9: Cost of Quality

Copyright 2006 Omnex. All rights reserved9

Problems with Traditional COQ Models

1. COQ is used as a status indicator rather than as a driver2. Focus is on the details of gathering and reporting3. Inadequate resources allocated to effect real prevention

and change4. False reporting to protect the guilty5. Viewed as too much administration to follow through6. Viewed as an unrealistic goal short on methods

COQ systems fail due to “poor management planning, implementation, and follow-up.”

Page 10: Cost of Quality

Copyright 2006 Omnex. All rights reserved10

COPQ is “The Hidden Factory”

As is Could be

Cost of failurein the field

Cost of failurein the field

Internal failurecosts

Internal failurecosts

Cost appraisaland inspectionCost appraisaland inspection

Cost to improveand preventpoor quality

Cost to improveand preventpoor quality

Opportunity lost

• Avoided capital cost• Opportunity cost of additional volume if

Sales > capacity• Lost customer loyalty• Time spent expediting• Cost to the customer

•• Opportunity cost of additional volume if

Sales > capacity• Lost customer loyalty• Time spent expediting• Cost to the customer• Improvement program costs• Process control• Quality engineering and admin

• Improvement program costs• Process control• Quality engineering and admin

• Inspection/test (materials, equipment, labor)• Vendor control• Quality audits

• Inspection/test (materials, equipment, labor)• Vendor control• Quality audits

• Warranty claims• Maintenance and service• Warranty claims• Maintenance and service

As is Could be

• Scrap/rejects• Rework• Longer cycle times and excess inventory

• Scrap/rejects• Rework• Longer cycle times and excess inventory

5%20

-25%

65-7

0%

?

Page 11: Cost of Quality

Copyright 2006 Omnex. All rights reserved11

Cost of Poor Quality (COPQ) the Tip of the Iceberg

Quality engineeringand administration

Inspection/test (materials,equipment, labor)

Expediting

Scrap

Rework

Rejects Warrantyclaims

Maintenance and service

Cost to customer

Excess inventory

Additionallabor hours

Longer cycle times

Quality auditsVendor control

Lost customer loyaltyImprovement program costs

Process control

Opportunity cost if salesgreater than plant

capacity

Page 12: Cost of Quality

Copyright 2006 Omnex. All rights reserved12

Cost of Poor Design Quality

1

10

100

1000+

X Millions

A change while still in design

In manufacturing

At customer location

Recall

Litigation

5

50

500

5-50K

10K - X Millions

In-house

In shipping

Customer incoming

Customer mfg

Field

Cost of Poor Manufacturing

Page 13: Cost of Quality

COQ Methods

Traditional Costing ApproachSix Sigma Approach

Lean ApproachMeasurables Approach

Page 14: Cost of Quality

Copyright 2006 Omnex. All rights reserved14

Traditional Cost Method % Method

1. Identify the total resources consumed in a category or item.

2. Determine the percentage of those resources used for activities associated with quality problems.

3. Apply the percentage to the total cost of resources to obtain a cost by category/ item

4. Add these costs by category/ item to find the total cost of poor quality.

5. Using Sales Revenue, calculate cost of poor quality as a percentage of sales revenue.

Page 15: Cost of Quality

Copyright 2006 Omnex. All rights reserved15

Traditional Cost Method % Method

Category/Item

Cost Source Cost ofResources

% resourcesassociated withpoor quality

Cost perActivity/Item

Scrap Production CostsWages & BenefitsDisposal Cost

$532,000 8% $42,560

CustomerComplaintSystem

Wages & BenefitsTrainingSystem Maintenance

$63,750 100% $63,750

Total Cost of poor quality $106,310Calculate asa % of Sales

Total COPQ $106,310 Assume $1Msales

10.63% of Sales

Page 16: Cost of Quality

Copyright 2006 Omnex. All rights reserved16

Traditional Cost MethodUnit Cost Method 1

234567

1234567

• Identify the frequency of activities in a category/ item

• Determine an average cost per occurrence• Multiply the frequency by cost per occurrence to

obtain a cost by category/ item• Add these costs by category/item to find the total

cost of poor quality• Using Sales Revenue, calculate cost of poor

quality as a percentage of sales revenue.

Page 17: Cost of Quality

Copyright 2006 Omnex. All rights reserved17

Traditional Cost Method Unit Cost Method

Category/ Item Cost Source Frequency Average Costper Occurrence

Cost perActivity/Item

Scrap Production CostsWages & BenefitsDisposal Cost

50 per year $500 $25,000

CustomerComplaintSystem

Wages & BenefitsTrainingSystem Maintenance

48 per year $2,000 $96,000

Total Cost of poor quality $121,000Calculate costas a percentageof sales revenue

Total cost of failurecategories: $121,000

Assume sales of$1 million

12.1 % of salesrevenue

Page 18: Cost of Quality

Copyright 2006 Omnex. All rights reserved18

Traditional Cost Method

• Aligned with traditional Accounting methods– Focus on responsibility accounting– Revolves around the “command and control”

structure– Allocation of costs to products and services

on some “fair and equitable” basis• Cost measures are (mis)aligned with operating

measures.

Page 19: Cost of Quality

Copyright 2006 Omnex. All rights reserved19

Activity-Based Costing• Focus on process rather

than responsibility– Clear assignment of all costs

to the process that uses the resource

• Identifies process steps wasting resources

• Costs not absorbed in overhead

Page 20: Cost of Quality

Copyright 2006 Omnex. All rights reserved20

Activity-Based Costing

• Steps1. Identify activities2. Determine cost for each activity3. Determine cost drivers that cause COQ4. Collect activity data5. Calculate product cost and COQ

Page 21: Cost of Quality

Six Sigma Approach

Page 22: Cost of Quality

Copyright 2006 Omnex. All rights reserved22

Cost of Poor Quality & Industry Average PPM’s

COPQ Sigma PPM30-40% of Sales 2.0 308,537 Non Competitive 20-30% of Sales 3.0 66,807 15-20% of Sales 4.0 6,210 Industry Average10-15% of Sales 5.0 233<10% of Sales 6.0 3.4 World Class

COPQ Sigma PPM30-40% of Sales 2.0 308,537 Non Competitive 20-30% of Sales 3.0 66,807 1515--20% of Sales20% of Sales 4.04.0 6,210 Industry Average6,210 Industry Average10-15% of Sales 5.0 233<10% of Sales 6.0 3.4 World Class

Page 23: Cost of Quality

Copyright 2006 Omnex. All rights reserved23

COPQ & Sigma/Yield RelationshipIndustry Averages

COPQ Sigma Yield30-40% of Sales 2.0 5% Non Competitive 20-30% of Sales 3.0 93% 15-20% of Sales 4.0 99.4% Industry Average10-15% of Sales 5.0 99.976%<10% of Sales 6.0 99.999655% World Class

COPQ Sigma Yield30-40% of Sales 2.0 5% Non Competitive 20-30% of Sales 3.0 93% 15-20% of Sales 4.0 99.4% Industry Average10-15% of Sales 5.0 99.976%<10% of Sales 6.0 99.999655% World Class

Page 24: Cost of Quality

Copyright 2006 Omnex. All rights reserved24

6050403020100

7

6

5

4

3

2

1

0

C O P Q (% S a les )

Sig

ma

Leve

l

Sigma is Correlated to Cost of Poor Quality

Industry average is 20% COPQ & 4 Sigma Company

Page 25: Cost of Quality

Copyright 2006 Omnex. All rights reserved25

Using the Six Sigma Approach

• A supplier to semiconductor industry has approximately 50,000 DPMO (internal and external).

• This translates to a 2.0 sigma system• Such systems average a COPQ of 20-30% of

sales. • This is a non-competitive situation since this

cost directly affects the bottom line.

Page 26: Cost of Quality

Lean Approach (Additions)

Page 27: Cost of Quality

Copyright 2006 Omnex. All rights reserved27

Lean Value Proposition

• What competitive advantages would you have if you could: – reduce manufacturing and overhead costs by

20%?– deliver products in 50 to 80% less time?– free up capital through a 75 to 90% reduction

in inventories?– improve labor productivity by 40 to 50%?– improve quality by a factor of 10x or 100x?– reduce the cost of poor quality by 50%?– reduce time-to-market by 50%?

Page 28: Cost of Quality

Copyright 2006 Omnex. All rights reserved28

Manufacturing Waste - Muda

• Inventory – Sleeping Money• Defects – Cost to find, fix or replace• Transportation of Parts & Materials• Unnecessary Motions• Unnecessary Operations• Waste of Waiting• Waste of Overproduction

Page 29: Cost of Quality

Copyright 2006 Omnex. All rights reserved29

Five Categories of the COQ1. The cost of failure in the field. This includes costs such

as warranty claims as well as the cost to service problems. Companies have access to data on the costs incurred by the customer as a result of the failure, but normally group these costs as part of the opportunity costs.

2. The internal failure costs, the costs in labor and material associated with scrapped parts and rework. These costs also include the additional inventory that we carry for safety stock to cover quality related problems.

3. The costs of appraisal and inspection. The material (for samples), test equipment, and labor costs to find defects before they escape out of our processes. It also includes the costs related to quality audits and monitoring vendors and dealing with their quality problems.

Page 30: Cost of Quality

Copyright 2006 Omnex. All rights reserved30

Five Categories of COQ (Cont.)

4. The costs related to improving poor quality,including: cost of equipment to better control processes; as well as, the cost of programs to improve quality (CARs, 8-D’s, etc.).

5. The opportunity cost of not producing more products with the same assets. This is in addition to the opportunity cost of lost sales due to poor quality in the past.

Page 31: Cost of Quality

Copyright 2006 Omnex. All rights reserved31

Cost of Poor Flow (COPF) - Addition

Extra Handling & Storage Costs

Expediting Costs

PremiumFreight

Charges

Late Deliveries

Long Leadtimes

Cost to Customer

Excess Inventory

Excess Scrap & Rework

Excess Capacity

Lost Customer loyalty

Excess Labor Costs

Opportunity cost if salesPotential is greater than

Current capacity

Page 32: Cost of Quality

Copyright 2006 Omnex. All rights reserved32

Cost of Poor Flow and Inventory Turns

COPF Inventory Turns Competitive Position20-25% of Sales 8 to 10 Non-Competitive15-20% of Sales 10 to 20 Average Company10-15% of Sales 20 to 505-10% of Sales 50 to 100<5% of Sales 100 Plus World Class Company

COPF Inventory Turns Competitive Position20-25% of Sales 8 to 10 Non-Competitive15-20% of Sales 10 to 20 Average Company10-15% of Sales 20 to 505-10% of Sales 50 to 100<5% of Sales 100 Plus World Class Company

Page 33: Cost of Quality

Copyright 2006 Omnex. All rights reserved33

The Hidden Factory

• The “hidden factory”– Up to ¼ of your plant equipment,

personnel, materials and floor space is wasted performing the non value-added work of finding, fixing and replacing mistakes and defects; and moving, counting and storing inventory.

Page 34: Cost of Quality

Copyright 2006 Omnex. All rights reserved34

OEE and The Six Big Losses

Scheduled Loading Time

Available Time

Productive Time

OverallEffectiveness

DowntimeLosses

SpeedLosses

Breakdowns

Setups/Adjustments

Idling/Minor Stoppages

Speed Loss

Defects

Startup/Yield Losses

QualityLosses

Page 35: Cost of Quality

Copyright 2006 Omnex. All rights reserved35

Cost Savings from OEE Improvement

• TPM not only reduces the frequency of breakdowns, it also improves the overall productive capacity of equipment by reducing the time lost due to minor stoppages and equipment running at less than intended speeds.

– O.E.E.’s of less than 50% are not unusual– T.P.M. with quick changeovers and six sigma

quality can improve O.E.E. to 85% or more.– Increasing O.E.E. to 85% would represent a 35%

increase in productive capacity.

Page 36: Cost of Quality

Copyright 2006 Omnex. All rights reserved36

OEE & Profitability an Example

• Current plant sales: $100 million• Current plant O.E.E.: 50%• Possible sales at 85% O.E.E. =

$100 million x .85 = $170 million.50

•Profit margin on incremental sales = 25% ($170M - $100M) x 25% = $17.5 million

Page 37: Cost of Quality

Copyright 2006 Omnex. All rights reserved37

01020304050

60708090

100

ProjectTeam

Member

Black Belt MasterBlack Belt

Champion Green BeltSeniorManagement

LineManagement

% Time Allocated toLean / Six Sigma

Page 38: Cost of Quality

Copyright 2006 Omnex. All rights reserved38

VA & NVA Timelines

Draw value-added time down on the timeline, draw non value-added time up

Total N.V.A. Time

Total V.A. TimeInventory Days Inventory Days

Cycle Time Cycle Time Cycle Time

Page 39: Cost of Quality

Copyright 2006 Omnex. All rights reserved39

PRODUCTIONCONTROL

Daily Order

6-weekForecast

90/60/30 DayForecasts

DailyOrder

State StreetAssembly

Daily Order

SHIPPING

Staging

C/O = 10minC/T = 1 Sec

STAMPING

Press Changeover

WELD+ASSY

C/T = 56 sec.C/O=0

Uptime=100%

2 ShiftsTotal work

168 sec

coil

coil

batch

Coils

(at the press)Weld

Changeover

Welderuptime Elim.

waste

tote 20 20

LR

1xDaily

2020

20

OXOX

Daily(Milk Run)

1 second 168 seconds1.5 days 1day 2 days

Lead Time = 4.5 days

VA Time = 169 sec

Michigan Steel Co.

Acme Stamping Future State Value Stream Map 3 From “Learning to See” Rother & Shook

Pull SchedulingPull

Scheduling

SupplierDevelopment

Page 40: Cost of Quality

Measurables Approach

Page 41: Cost of Quality

Copyright 2006 Omnex. All rights reserved41

Measurables Approach - COPQ• Focus is on COPQ• Identify product and process measurables which

impact quality (and consequently the COPQ)• Collect and track data on these measurables as

a proxy for the costs

Page 42: Cost of Quality

Copyright 2006 Omnex. All rights reserved42

Measurables Approach - COPQ• Internal Yield loss

(Failure) Costs– Incoming material

rejection (LAR)– Photo/Lithography

Rework – Fab line yield loss– Wafer Acceptance /

PCM test yield loss– Wafer / die test yield

loss– Assembly yield loss– Final test yield loss

• External Failure Costs– Customer returned

product cost– Returned product

failure analysis costs– Customer complaint

response costs– Replacement product

cost

Page 43: Cost of Quality

Cost Of QualityNew Directions

Page 44: Cost of Quality

Copyright 2006 Omnex. All rights reserved44

Cost of Quality Expanded Typology

I. “Hard” quality costA. Controllable quality cost

(1) Prevention cost(2) Appraisal cost (3) Lost opportunity cost (“valueless” activities)

B. Resultant (poor)quality cost (1) Internal error cost(2) External error cost

C. Equipment/process poor-quality cost

II. “Soft” quality cost A. Customer incurred costB. Customer dissatisfaction costC. Transaction costsD. Lost opportunity costE. Loss of reputation cost

Page 45: Cost of Quality

Copyright 2006 Omnex. All rights reserved45

COPQ is “The Hidden Factory”

As is Could be

Cost of failurein the field

Cost of failurein the field

Internal failurecosts

Internal failurecosts

Cost appraisaland inspectionCost appraisaland inspection

Cost to improveand preventpoor quality

Cost to improveand preventpoor quality

Opportunity lost

• Avoided capital cost• Opportunity cost of additional volume if

Sales > capacity• Lost customer loyalty• Time spent expediting• Cost to the customer

•• Opportunity cost of additional volume if

Sales > capacity• Lost customer loyalty• Time spent expediting• Cost to the customer• Improvement program costs• Process control• Quality engineering and admin

• Improvement program costs• Process control• Quality engineering and admin

• Inspection/test (materials, equipment, labor)• Vendor control• Quality audits

• Inspection/test (materials, equipment, labor)• Vendor control• Quality audits

• Warranty claims• Maintenance and service• Warranty claims• Maintenance and service

As is Could be

• Scrap/rejects• Rework• Longer cycle times and excess inventory

• Scrap/rejects• Rework• Longer cycle times and excess inventory

5%20

- 25

%65

- 70

%

? “Soft” Quality Lost

Page 46: Cost of Quality

Copyright 2006 Omnex. All rights reserved46

COQ – Doing it Right the First TimeIn the past COPQ has only been associated with product quality.

COPQ can be applied to any process within the company, if the “product or service” is identified

What is the product or service of the maintenance department?Of the design department?Of marketing?

What is the COPQ of each of these business processes?

• this can be tied to process measurement and used for continual improvement

This is the greatest opportunity for COQ….

Page 47: Cost of Quality

Copyright 2006 Omnex. All rights reserved47

COQ – Upstream and Doing it Right the First Time

• Design –– Failure costs in design include any

designs that do not make it first pass. – Engineering Changes = Rework– This is the biggest opportunity of

COPQ. • Technology Development –

– Failure costs should include any process that is not qualified on first pass.

Page 48: Cost of Quality

Copyright 2006 Omnex. All rights reserved48

COQ – Process Approach

• COQ is a fundamental characteristic of every process

• Every process has hard and soft quality costs associated with it

Page 49: Cost of Quality

Opportunities for COQ

Example -Semiconductor Design and Manufacturing

Page 50: Cost of Quality

Copyright 2006 Omnex. All rights reserved50

Criteria for First Pass Success in Design

• Within budget• On schedule• Meets die size and yield targets• Meets electrical performance targets• First mask set goes into production• Meets sales target• Meets Break Even Time

– recover design and development cost targets

Page 51: Cost of Quality

Copyright 2006 Omnex. All rights reserved51

First Pass Success in Design• Average number of passes per design

– 2.5 Passes.• Cost of second and third design pass as a ratio of the

initial cost– 1 to .5 to .3

• Development Budget for typical Business Line– $10 Million

• Costs for a Business Line – $50 Million

Cost of Quality – $6.5 Million using the development budget.

Some will argue that it should be calculated based on the entire Business line (i.e. COQ = $32.5 Million)

Page 52: Cost of Quality

Copyright 2006 Omnex. All rights reserved52

Internal Failure CostsYield, Rework, and Failure

Yield Loss by Process Step• FAB line loss: 1 – 2 %• Lithography rework rate: ½% to 1% • PCM test – wafer acceptance test: 1% to 1½ % • Wafer/Die electrical – varies by technology:

80% to 97% (newer technology and larger die) • Assembly – line loss: in defects per million• Final Test: 97 to 99%

Chute yield – 74% to 93% depending on complexity and maturity

Page 53: Cost of Quality

Copyright 2006 Omnex. All rights reserved53

Transaction Costs for Quality Problems

• Sales person (enter into system) calls customer service quality (sales office) or sends an email – 4 hours

• Open a complaint in the system• Team is consulted and made aware of issue – 4 hours• Product is received and then sent to plant – 1 hour• Their the quality person will take the product to F/A and put into the

system – 1 hour• Then F/A analysis is done and a F/A report is completed – 3 days• Then 8-D team also meets and 8-D is completed and sent to customer –

4 persons – 2 to 8 days• Goes to product quality engineer who reviews the problem – 4 hours• Goes to sales who sends to customer – 1 hour

Total of 13 to 27 person days at $1000 per day – minimum of $11,000 for analysis only.

And now we have to stop the bleeding and fix the problem

Page 54: Cost of Quality

Implementing COQ

Page 55: Cost of Quality

Copyright 2006 Omnex. All rights reserved55

Implementing COQ – Current Perspectives –

• Use COQ costing only if this method is going to be one of the key drivers for setting priorities for continual improvement– Calculate COQ once a year to identify top cost savings priorities

for processes identified– Identify projects for improving key processes

• Prioritize processes/areas for focus based on budget allocation – Design, R&D, Operations

• Identify key COQ drivers/measurables for each area• Do not monitor COQ each month, however measure the

key driver

Page 56: Cost of Quality

Copyright 2006 Omnex. All rights reserved56

Implementing COQ Integration into the Strategic Model

CustomerExpectations

CompetitiveBenchmarks

Mission, Vision &Values

Strategic Objectives

ResultsMeasurement

KeyProcesses

ProcessMeasurement

ImprovementProjects

COQ provides direction on selecting Improvement Actions and track effectiveness

Six Sigma/Varification

Lean/Value Stream Mapping

COQ Measurements

Value Engineering P

roje

ct P

riorit

izat

ion

Met

hod

Page 57: Cost of Quality

Copyright 2006 Omnex. All rights reserved57

Implementing COQ – If COQ Is Not a Driver –

• COQ is calculated because it is a mandated requirement?– Calculate using the easiest method, ie. six sigma method

covered earlier– Continue setting priorities for continual improvement using

other drivers like – six sigma, lean, activity based costing etc.

Page 58: Cost of Quality

Copyright 2006 Omnex. All rights reserved58

Summary: What is COQ?• The value of COQ using traditional methods

decreases as organizations’ poor cost of quality hit approx. 20 ppm

• In addition to the soft quality costs, the Process/upstream COQ approach and soft quality costs are important concepts to consider when using COQ

• Representing quality improvements using “management’s language” (i.e. $$ will surely get management buy-in)

Page 59: Cost of Quality

Thank youQ & A!