Cost of poor quality
Cost of poor quality (COPQ) or poor quality costs (PQC), are costs that would disappear if systems, processes, and products were perfect.
COPQ was popularized by IBM quality expert H. James Harrington in his 1987 book Poor Quality Costs.[1] COPQ is a refinement of the concept of quality costs. In the 1960s, IBM undertook an effort to study its own quality costs and tailored the concept for its own use.[2] While Feigenbaum's term "quality costs" is technically accurate, it's easy for the uninitiated to jump to the conclusion that better quality products cost more to produce. Harrington adopted the name "poor quality costs" to emphasize the belief that investment in detection and prevention of product failures is more than offset by the savings in reductions in product failures.
Harrington decomposes COPQ into the following elements:
Cost | Description |
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Direct poor-quality costs
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Direct COPQ can be directly derived from entries in the company ledger.[3]
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Indirect poor-quality costs
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Indirect COPQ is difficult to measure because it is a delayed result of time, effort, and financial costs incurred by the customer. These customer costs add up to lost sales and therefore do not appear in the company's ledger.[7] |
Examples
Cost element | Examples | ||
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Direct poor-quality costs | Controllable poor-quality cost | Prevention cost |
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Appraisal cost |
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Resultant poor-quality cost | Internal error cost | ||
External error cost |
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Equipment poor-quality cost | Micrometers, voltmeters, automated test equipment (but not equipment used to make the product) | ||
Indirect poor-quality costs | Customer-incurred cost |
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Customer-dissatisfaction cost | Dissatisfaction shared by word of mouth | ||
Loss-of-reputation cost | Customer perception of firm |
White collar COPQ
Harrington noted that expanding cost analyses to management and clerical workers could also make a significant dent in waste.[8] He defined the following costs by functional area:
Functional area | Controllable COPQ | Resultant COPQ |
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Controller COPQ |
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Software COPQ |
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Plant administration COPQ |
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Purchasing COPQ |
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Marketing COPQ |
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Personnel COPQ |
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Industrial engineering COPQ |
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Cost of poor quality by inception point
The damages of poor quality augment as the inception point is further down the supply chain:
TCFP [Total Cost of Faulty Part] =
Direct Cost (manufacturing cost)
➔ failure at supplier's site (bad)
+ Labor Cost (assembly and testing)
+ Overhead Cost (Inventory, handling, shipping costs)
+ Scrapping Cost (of part and attached parts assemblies: Sometimes assemblies cannot be disassembled and have to be scrapped altogether)
+ Rework (applying a new part instead)
➔ failure at manufacturer's site (worse)
+ Repair / Recall Costs (these are costs associated with repairing or replacing a new part / assembly under warranty)
+ Product Liability Costs (These are costs resulting from damages caused by the faulty part to 3rd parties)
➔ failure at customers' site (worst)
See also
References
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 128, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 13, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 14, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 23, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 25, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 125, ISBN 978-0-8247-7743-2, OCLC 14965331
- ↑ Harrington, H. James (1987), Poor-Quality Cost, American Society for Quality, p. 103, ISBN 978-0-8247-7743-2, OCLC 14965331