6 Sigma - Chapter6

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Chapter 6: Cost of Quality
Aim
This chapter discusses the concept of Cost of Quality (COQ) and compares it with Six
Sigma. The comparison has been done using a real life case study to help you
understand the difference better.
What is Cost of Quality?
A Cost of Quality System is used to quantify quality problems in the language of
money and turn those costs into bottom-line income in an organization.
It is a term used by many organizations to quantify the costs associated with
producing quality products. Typical factors taken into account are prevention costs
(training, work process analyses, design reviews, customer surveys), appraisal costs
(inspection and testing), and failure costs (rework, scrap, customer complaints,
returns).
Benefits of Cost of Quality
The cost of quality assessment provides an opportunity for companies to:
1. Set the tone for the improvement process and the projects that follow
2. Show support for the improvement process by making resources available,
3. Set a constructive attitude for uncovering and dealing with poor quality
practices
4. Demonstrate commitment to the improvement process by encouraging and
supporting the timely identification and elimination of the root causes of poor
quality
Cost of Quality
In many companies, the cost of quality assessment may be one of the first quality or
process improvement projects undertaken. For example if the costs due to internal
failures contribute the most while costs towards prevention are minimal.
However, if the company spends relatively more on prevention, the number of
failures would also come down and cut down the costs drastically too. The Six Sigma
philosophy supports this very concept.

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How would you decide on what process to act upon?
The COQ actually gives an indication of this too. You should first analyze which
failures contribute the most to the Cost of Quality. In our example, Press Downtime
seems to be the major factor. You could draw a Pareto diagram to isolate the defects
or errors that have the maximum impact on the Cost of Quality.
Next look for contributors in the process that cause these errors and act on these
contributors to reduce/remove defects. With the defects reduced, the costs against
failures go down. This cost reduction is substantial as compared to an increase in
the cost due to implementation of preventive measures.
Six Sigma is a program that works on minimizing defects. Cost of Quality is an
output measure expressing waste in financial terms.
Six key areas for improving Cost of Quality
Key Drivers: Basic Issue
1. Basic organizational capabilities
• Skills and tools required to implement improvements in business processes
are lacking
2. Industrial process variations
• Poor industrial process capabilities result in high COPQ (rework, scrap, field
failure)
• Customer demands are frequently not passed on to engineering
• Inefficient front-end engineering
3. Business process variations
• Product cost estimation is often widely off the mark, resulting in poor financial
performance and incorrect manufacturing decisions
4. Engineering/design process and documentation
• Engineering systems and design processes and documentation are often
inadequate and flawed
5. Quality of specifications
• Specifications sent to suppliers are not accurate.
• Subcontractors vary considerably in their quality, resulting in poor-quality
parts
6. Supplier capabilities
• Lack of quality suppliers, resulting in poor-quality parts/services, late
deliveries, higher parts/service costs, etc.
Six Sigma and Cost of Quality

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© Copyright 2004, All Rights Reserved. Edutech Dimensions Pvt. Ltd.
Summary
1. A Cost of Quality System is used to quantify quality problems in the language
of money and turn those costs into bottom-line income in an organization
2. COQ assessment provides an opportunity for companies to:
• Set the tone for the improvement process and projects that follow
• Show support for the improvement process by making resources available
• Set a constructive attitude for uncovering and dealing with poor quality
practices
• Timely identification and elimination of the root causes of poor quality
3. Factors taken into account in Cost of Quality assessment: Internal Failure,
External Failure, Appraisal and Prevention
4. By spending more on preventing errors or failures, a company can reduce
costs incurred due to failures.