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Cost of-poor-quality - juran institute

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Cost of-poor-quality

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Cost of-poor-quality - juran institute

  1. 1. Cost of Poor Quality
  2. 2. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 2 .PPT Managers and workers speak the language of things but Senior leaders speak the language of money... …COPQ allows us to translate the things into money.
  3. 3. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 3 .PPT Cost of Poor Quality  Prevention Cost of Attaining Quality  Appraisal: Prediction Audit  Appraisal: Detection Cost of Poor Quality  Failure: Internal External
  4. 4. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 4 .PPT Components Non-Conformance $ Conformance $ $ Quality Costs
  5. 5. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 5 .PPT I want my money back! Cost of Quality (COQ) Prevention Appraisal Internal Failure External Failure $ Total Quality Cost
  6. 6. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 6 .PPT COPQ Overview Definitions  All activities and processes that do not meet agreed performance and/or expected outcomes  Costs that would disappear if every task were always performed without deficiency  Actual Cost - Minimum Cost = COPQ
  7. 7. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 7 .PPT Traditional Cost of Poor Quality (4-5% of Sales) When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below. Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls
  8. 8. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 8 .PPT Cost of Poor Quality As an organization gains a broader definition of poor quality, the hidden portion of the iceberg becomes apparent. Late Paperwork High CostsPricing or Billing Errors Excessive Field Services Expenses Incorrectly Completed Sales OrderLack of Follow-up on Current Programs Excessive Employee Turnover Planning Delays Excess Inventory Excessive System CostsOverdue Receivables Complaint Handling Unused Capacity Time with Dissatisfied Customer Excessive Overtime Waste Testing Costs Rework Customer Returns Inspection Costs Rejects Recalls Development Cost of Failed Product Hidden COPQ: The costs incurred to deal with these chronic problems Premium Freight Costs Customer Allowances COPQ ranges from 15-25% of Sales
  9. 9. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 9 .PPT Sigma 6 sigma 5 sigma 4 sigma 3 sigma 2 sigma Cost <10% of sales 10-15% of sales 15-20% of sales 20-30% of sales 30-40% of sales Quantifying the Potential Benefit
  10. 10. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 10 .PPT The ratio of the individual category costs to total costs varies widely. Many companies exhibit ratios which look like the following: Quality Cost Category Percent of Total Internal Failure 25 to 40 External Failure 25 to 40 Appraisal 10 to 50 Prevention .05 to 5 What's Wrong With This Picture? What Does Reality Look Like?
  11. 11. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 11 .PPT Examples of Prevention Expense  Quality Planning  Training and Education  Process Definition  Customer Surveys  Preproduction Reviews  Technical Manuals  Detailed Product Engineering  Specifications  Purchase Cost Targets  Process Capability Studies  Preventive Maintenance  Supplier Qualification  Job Descriptions  Housekeeping  Zero-Defect Program
  12. 12. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 12 .PPT  Supplier Certification  Employee Surveys  Security Checks  Safety Checks  Reviews: – Operating Expenditures – Product Costs – Financial Reports – Capital Expenditures Examples of Appraisal Expense  Test  Inspection  Process Controls  Train QA Personnel  Product Audits  Quality Systems Audits  Customer Satisfaction  Surveys and Audits  Prototype Inspection  Accumulating Cost Data
  13. 13. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 13 .PPT  Supplier Problems – Scrap and rework – Late deliveries – Excess inventory  Equipment Downtime  Accidents, Injuries  Unused Reports  Missed Schedule Cost  Lost Sales (any cause) Examples of Internal Failure Costs  Substandard Product  Scrap or Rework  Re-inspection  Redesign/Engineering Change  Process Modifications  Payroll Errors  All Expediting Costs  Off-Spec/Waiver  Abandoned Programs
  14. 14. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 14 .PPT Examples of External Failure Costs  Product Recall  Handling Complaints  Customer Service Caused by Errors  Products Returned  Analysis of Returns  Evaluation of Field Stock  Late Payments and Bad Debts  Lawsuits  Reports – Sales and service – Returns and allowances – Failure Lost Sales Because of Customer Dissatisfaction!
  15. 15. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 15 .PPT Non-value Added Work Common activities that provide no benefit to customers.  Some result from internal or external failure  Some are unnecessary inspection Examples  Rarely used information systems  Memos never read  Financial reports not used  Irrelevant procedures  Meetings with no objectives or outcomes Definition
  16. 16. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 16 .PPT The Hidden Organization “Theoretical Cycle Time: The back-to-back process time required for a single unit to complete all stages of a task without waiting, stopping, or setups.” Product Step 1 Step 2 Floor Space Floor Space Floor Space Value Added Non-Value Added Philip R. Thomas, Competitiveness Through Total Cycle Time. McGraw-Hill (1990) The Hidden Factory Analyze Fix Test Analyze Fix Test
  17. 17. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 17 .PPT Why Cost of Poor Quality? Reporting Tool  Comparisons  Trends Analytical Tool  Priorities  Tradeoffs Investment Tool  ROI
  18. 18. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 18 .PPT Focus of COPQ Efforts  Identify and Quantify Quality Costs  Expose the “Hidden Factory”  Ongoing Measurement System  Breakthrough Improvement
  19. 19. All Rights Reserved, Juran Institute, Inc.Cost of Poor Quality 19 .PPT Advantages of Using Quality Costs for Management Advantages  Reducing the cost of poor quality is one of the best ways to increase a company's profit.  Provides manageable entity and a single overview of quality.  Aligns quality and goals.  Prioritizes problems and provides a means to measure change/improvement.  Provides a means to correctly distribute controllable quality cost for maximum profits.  Promotes the effective use of resources.  Provides incentives for doing the job right every time.

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