Cost of Quality

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Cost of Quality

  1. 1. OPERATIONS LEADERSHIP EXCHANGE™ Best in Class Cost of Quality Models Guiding Principles for Measuring Cost of Quality Presentation by George Dramowicz, VP of Quality at Merix Corporation Q&A and Next Steps 29 October 2009
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  3. 3. While Quality executives have some visibility into IGNORANCE ISN’T ALWAYS BLISS the cost of quality, they also believe current Estimated Cost of Poor Quality (COPQ) as a Percentage of Sales tracking methods capture 2008 Member Meeting; Instant Poll Results only a fraction of the true costs. Discussion Points ■ Members discussed the difference between 31% 31% the internally reported COPQ numbers (usually higher and more accurate) and the accountants COPQ numbers that are publicly reported. Members agreed that 19% there is a large disparity between the two often as a result of differences in calculations. ■ Some members brought up the issue of non- traditional COPQ calculations and reported including other measures such as future 6% 6% 6% lost sales, lost profit, and estimated brand damage. ■ All expressed frustration at the lack of a hard dollar figure for COPQ, citing that < 1% 1%–5% 5%–10% 10%–20% > 20% We Don’t Know this information would allow Quality to drive quality improvements more effectively in the business. n = 16. From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 3
  4. 4. Examining cost of quality allows the enterprise SETTING THE STAGE to identify, prioritize, and monitor quality Cost of Quality improvements. American Society for Quality (ASQ) Definition ■ It gets management Cost of Quality attention by taking quality The difference between the actual cost of a product or service and what the reduced cost would be if there were no out of the abstract and into possibility of substandard service, failure of products or defects in their manufacture. dollar terms. ■ It changes the way employees think about nonconformance. Prevention Appraisal Internal Failure External Failure ■ It enables Quality to identify The costs of all activities The costs associated Failure costs occurring Failure costs occurring and prioritize areas for specifically designed to with measuring, prior to delivery after delivery or corrective actions. prevent poor quality in evaluating or auditing or shipment of the shipment of the products or services. products or services product, or the product—and during ■ It allows Quality to track the to assure conformance furnishing of a service, or after furnishing effect of corrective actions. to quality standards to the customer. of a service—to the and performance customer. requirements. Includes costs of: Includes costs of: Includes costs of: Includes costs of: ■ New product review ■ Incoming and ■ Scrap ■ Processing customer ■ Supplier capability source inspection of ■ Rework complaints reviews purchased material ■ Reinspection ■ Customer returns ■ Quality improvement ■ In-process and final ■ Retesting ■ Warranty claims projects inspection/test ■ Material review ■ Product recalls ■ Product, process or ■ Downgrading service audits From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 4
  5. 5. GUIDING PRINCIPLES FOR MEASURING COST OF QUALITY Cost of Quality Design Diagnostic Recommended Resources Yes No 1. Clear Definition of Metrics a. Is there a standard, enterprise-wide definition for every metric? The Hidden Costs b. Was audience feedback sought while defining the metrics to verify relevance to decisions? of Poor Quality c. Does each metric have a target? Total Cost of Quality d. Are performance thresholds defined for each metric? Worksheet e. Does each metric have an “owner” responsible for taking actions when metric goes below target? 2. Simplicity of Presentation a. Do you have a “one-page” scorecard with the high-level metrics? Cost of Poor Quality b. Is the scorecard formatted to immediately draw attention to exceptions and key issues? Waterfall Monthly Cost c. Do you provide easily accessible drill-downs for metrics included in the high-level scorecard? of Quality Reporting 3. Tailored to Audience a. Do you have customized reports for key audiences (e.g., senior management, specific sites)? Total Cost of Quality b. Are reporting frequencies decided based on audience decision-making needs? Total Quality c. Does the level of detail provided enable actionability for audience context/priorities? Opportunity Cost 4. Driver of Quality Improvement a. Is the model intended to foster improvement rather than just to monitor? 1 Total Cost of Quality b. Do the metrics change over time as needs change? Optimization c. Do the metrics provide fast feedback to users and managers? Cost of Quality Variation d. Is each metric that is below target accompanied by a concise mention of action taken/status? Management Assessment: Total “Yes” Answers 11 Effective scorecard design 6–10 Some revision required 5 Potential redesign required From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 5
  6. 6. Standard definitions help to avoid confusion and 1. PROVIDE GUIDANCE ON DEFINING misallocation of costs. AND QUANTIFYING EACH METRIC The Hidden Costs of Poor Quality 1 ABB LTD; Sample Categories and Definitions COPQ Category Description Margin Slippage ■ The difference between “as sold” and actual costs ■ No netting with orders with positive variance ■ Recommended to measure negative variance from activities or functions within project scope Project ■ Recommended to measure negative variance from activities or functions Contingency Used within project scope Manufacturing ■ Scrap: All costs to fully reconcile scrap Scrap and Rework ■ Rework: All costs to fully reconcile rework Manufacturing ■ Any negative variances from engineered standards or standard costs Variances ■ Focus on all negative variances; no netting of positive/negative variances ■ Process yield is less than 100% Engineering ■ All costs to remedy engineering errors Variances and Wastes ■ All costs to process engineering changes Engineering Changes ■ Costs to process engineering change notices (ECNs) Software Errors ■ All costs incurred to remedy software errors Overtime ■ All costs incurred due to unplanned overtime Transportation: ■ All premium freight costs incurred (inbound or outbound) Premium Freight, ■ Air, dedicated truck, and express mail/packages Cost Overruns ■ Transportation cost overruns Under Absorption People: All costs associated with having more resources (people) (People and Expenses) on payroll than billable to customers orders From the OPERATIONS LEADERSHIP EXCHANGE™ Expenses: Actual expenses are greater than budgeted expenses www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 1 Full case study, including all 29 categories and their definitions are available on the Web site. 6
  7. 7. A Quality waterfall report emphasizes lost 2. FOCUS BEYOND COST TO TOTAL financial opportunities due to the poor quality VALUE CREATION between receipt of incoming materials and Cost of Poor Quality Waterfall 1 Kraft Foods, Inc.; Illustrative purchase of the product by consumers. “Hidden losses,” due to give-away, Supplier/Materials Quality over age, out of spec material Manufacturing Quality Percentage of Material Cost Incoming materials accepted but past expiry date Supply Chain Quality Retail Quality Consumer Materials lost/rejected during production Quality Give-away (overweight, under-weight) Damaged (not rejected) during All incoming materials = 100% Incoming materials rejected Over age during transport/ Incoming materials used Total sold to consumers transport/warehousing Out of spec shipped Lost in supply chain Unsaleable returns Available at retail Sold over age Total shipped Trade returns warehousing Hidden losses further 1 Full case study available on Web site. reduce the amount of material actually Source: Kraft Foods, Inc. sold to consumers. From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 7
  8. 8. The model enables three levels of drill downs into 3. REPORT DIFFERENT MEASURES the reports in order to track cost of quality in FOR DIFFERENT AUDIENCES the most relevant terms for each stakeholder Total Cost of Quality Scorecard 1 Amgen; Data is for Illustrative Purposes Only group. 1 Direct Opportunity Total 1. For specific discussions on operational Unplanned Downtime—Facility Cost Cost Cost performance, category Total for Facility 1 — — — elements such as total Total Facility 2 — — — unplanned downtime cost Operational are calculated for each Total Facility 3 — — — facility. Total Unplanned Downtime Cost — — — 2. Data from different facilities is added to 2 Quality calculate the total cost Category Quality Opportunity Quality Total for each CoQ category Cost Category Elements Direct Cost Cost Cost element, such as product 4. Ongoing A. Product yield — — — yield or unplanned Production B. Unplanned downtime to enable — — — Tactical Failure downtime Amgen-wide trend analysis. C. Rejected lots 3. Total costs for each (abnormal — — — CoQ category is then scrap) presented during D. Corrective quarterly management — — — maintenance reviews for higher-level executive discussions on 3 quality improvements. Cost Category Quality Cost 1. Complaints — 2. Returned goods — Strategic 3. Recalls/BPDs — 4. Ongoing production failure — 5. Inventory — From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com 6. Nonconformance investigations — © 2009 The Corporate Executive Board Company. 7. Rework/reprocess — All Rights Reserved. OLEX4993609SYN 1 Full case study available on Web site. 8
  9. 9. 1 The optimal level of total quality costs is a balance 4. MEASURE COSTS IN RELATIVE TERMS between prevention, appraisal, and failure Total Cost of Quality Optimization 2 costs. Epsilon Company; Illustrative Failure Costs 2Total Quality ■ In some cases operating at Costs total cost of quality (TCOQ) ratios less than one is preferred due to increased 1 TCOQ Ratio 14 0.07 customer perception of product quality. 12 0.08 Cost per Good Unit of Product 10 0.10 ■ Goal is to drive TCOQ ratio to one for optimal cost– Estimated Failure Costs 8 0.13 benefit ratio. 6 0.17 Point of Optimum Quality 4 0.25 2 0.50 1 Estimated Preventative and Appraisal Costs Cost of Prevention and Appraisal “Of course, the theoretical goal is the total elimination of quality issues seen by the customer, but realistically you must find a balance between 100% Defective 100% Good costs and outcomes.” Quality of Conformance Director of Quality 1 2 High Technology Company Total Cost Failure Costs of Quality Total Quality Costs = Cost of Prevention and Appraisal + Failure Costs = (TCOQ) Ratio Cost of Prevention and Appraisal From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com 1 Pseudonym. © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 2 Full case study available on Web site. Source: Epsilon Company; Juran, J. and A.B. Godfrey, Juran’s Quality Handbook, 5th Ed.,New York: McGraw-Hill, 1999, p.8.22. 9
  10. 10. COST OF QUALITY VARIATION MANAGEMENT COMPANY SNAPSHOT Merix Corporation Industry: Printed Circuit Boards Merix Corporation, a leading seamless global manufacturer of technologically advanced, highly reliable, printed circuit 2008 Sales: US$287.13 M boards (PCBs) with facilities in the United States and China. 2008 Employees: 2,950 Merix delivers multilayer PCBs for original equipment manufacturer customers and their electronic manufacturing service providers in North America, Europe, and Asia. Merix also provides product design, engineering, and quick-turn prototyping services. QUALITY ORGANIZATION Structure: Hybrid Number of Quality Employees: 200 Head of Quality Reports To: CEO KEY METRICS USED TO ASSESS COST OF QUALITY ■ Typical Cost of Quality metric, comprising of prevention, appraisal, internal failure, and external failure costs. ■ Two overarching metrics are used to monitor overall progress: 1) cost of quality (CoQ) as a percentage of sales, and 2) CoQ as a percentage of cost of goods sold (COGS). From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 10
  11. 11. MEMBER PERSPECTIVES ON COST OF QUALITY An Interview with Merix Corporation What are some of the factors that influenced your choice of metrics? Merix just started measuring cost of quality in 2008 when George Dramowicz joined the company. There was a strong interest from the CEO and the Board of Directors to look at this data. In fact, the request for gathering and monitoring this data was communicated to George during his first meeting with the CEO, on the first day of his employment with Merix. How do you calculate cost of quality? George Dramowicz The cost of quality (CoQ) model at Merix includes prevention, appraisal, internal failure, and external failure costs. It is based on the Certified Vice President Management Accountant (CMA) cost of quality guidelines. The dollar value of each cost element within the model is pulled from a specified of Quality cost center value within the existing accounting system. Merix then estimates the percentage of that cost center value that should be allocated to CoQ. As such, there is minimal dispute across the organization about the validity of the data. How often and to whom do you report these costs? CoQ data is collected and reported on a quarterly basis. Quality leadership shares this information with the extended senior management team and the Board of Directors during quarterly business reviews. During this session, the group reviews the cost of quality as a percentage of sales and as a percentage of standard unit cost (PCB panel) globally, as well as for each site. Quality also presents the distribution of quality costs across the four categories and the level of improvement in each category in percentages and absolute savings. The group then analyses the reasons for cost variation. What type of decisions do you make based on the data? Erika Johnston Cost of quality data analysis enables Quality to monitor cost variation in each of the four categories both at a global and site level. Quality also Financial Business analyses each individual site’s dollar and percentage contribution to the cumulative cost of quality. Based on the analysis, each site identifies Partner, NA the top two to four issues that have the biggest impact on cost of quality and then focuses on specific initiatives to eliminate the root causes Manufacturing of those costs. Operations Do you anticipate any future changes or improvements to your cost of quality approach? The Quality organization is confident that their existing approach is optimal for their current needs. However they do continue to tune up the model at the end of each quarter based on new trends and their reactions to observed variations. With a mature model in place, Quality plans to focus more on CoQ reduction projects. Are there any lessons learned that you’d like to share with other companies? 1. Set up a standard model to enable variation analysis, 2. Launch a pilot program to proof the concept, Randy Collins 3. Examine variation from a cost of goods sold and a revenue perspective to appreciate the different forces behind observed trends, and Global QMS Manager 4. Make sure that the Finance team is an integral part of the program. From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 11
  12. 12. ROAD MAP FOR THE PRESENTATION Identifying Establishing a Cost Collecting and Reporting Cost Improvement of Quality Model Analyzing the Data Sources and Impact Opportunities From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 12
  13. 13. The cost of quality model is based on established MODEL OVERVIEW accounting principles, resulting in fewer Cost of Quality Model disputes over the data. Merix Corporation ■ The model is based on Prevention Appraisal Internal Failure External Failure the Certified Management Category Accountant (CMA) cost of 34% 33% 28% 6% quality guidelines. ■ Quality and ■ Quality and ■ Internal Rejects ■ Warranty ■ Quality leadership uses Production Staffing Production Staffing ■ Internal Scrap ■ Customer this slide to communicate ■ Quality Engineering ■ Continuity Test Accommodations ■ Evaluation and to senior management the for Value-Add ■ Process ■ Calibration of Rework extent and dollar impact Engineering Tools/Equipment ■ RMA Activities of quality improvement ■ Waivers initiatives. ■ Reliability Lab ■ Hipot Fixtures ■ Credit and Rebill ■ Cost of Rework Activities Elements ■ Analytical Lab— ■ Metallurgical Lab— ■ Quality presents the Process Control Process Control distribution of quality ■ Quality ■ Incoming costs across the four Improvements— Inspection categories as well as the Maintenance level of improvement in each ■ Manufacturing category in percentages and ■ Produceability Audit absolute savings. Analysis ■ ISO Documentation ■ These estimates are Control calculated each quarter ■ ISO Certification to show ongoing progress on cost reduction initiatives. Quarterly $X $Y M $X $Y M $X $Y M $X $Y M Cost Reduction XX% XX% XX% XX% From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 13
  14. 14. ROAD MAP FOR THE PRESENTATION Identifying Establishing a Cost Collecting and Reporting Cost Improvement of Quality Model Analyzing the Data Sources and Impact Opportunities From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 14
  15. 15. A standard site-level spreadsheet is the basis QUARTERLY DATA COLLECTION AT EACH SITE for all cost of quality data analysis. Site Cost of Quality Data Spreadsheet 1 Merix Corporation; Data Are for Illustrative Purposes Only ■ Each site fills out the Percentage standard spreadsheet Owner of Non-Labor Total Cost Prevention Cost Center Allocated Labor Costs and submits it to Quality Process Area Costs Center Charges to CoQ on a quarterly basis. Elements within Site employee Related cost Percentage Cost center Cost center Sum of labor the cost category that is center within of cost center charges related charges not and nonlabor ■ Absolute values of each responsible for the existing value that to labor related to labor cost center metric are pulled directly tracking the accounting should be charges from the accounting system metric system that allocated to based on the cost center the dollar value cost of quality number. comes from Quality and ■ The most critical step in E.g., John Smith 2110 80% $800,000 $100,000 $900,000 Production Staff developing this spreadsheet is establishing the right Quality E.g., Anna Green 2670 30% $150,000 $50,000 $200,000 percentage of the cost Engineering center charge that should be Process allocated to cost of quality. Engineering Reliability Lab Process Control— Analytical Lab Quality Improvements— Maintenance Produceability Analysis ISO Document Control ISO 9001 Certificate Fees From the OPERATIONS LEADERSHIP EXCHANGE™ Site Subtotal $1,100,000 www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 1 Available in Project Acceleration Toolkit. 15
  16. 16. Quarterly targets set a quantifiable and QUARTER-TO-QUARTER COMPARISONS objective improvement goal for each site. Cost of Quality Summary Spreadsheet 1 Merix Corporation; Data Are for Illustrative Purposes Only ■ Based on the data submitted by each site, Quality records Site One F09 Improvement Targets Percentage of current Last quarter’s total cost of quality the distribution of costs Baseline $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX Quarter allocated to each category across the four categories Cost Elements Q4 FY 08 Q1 FY 09 Q2 FY 09 Q3 FY 09 Q4 FY 09 Ratio for each site and enterprise- Prevention $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 29% wide in this spreadsheet. Appraisal $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 35% ■ The data enable comparative Internal Failure $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 27% analysis by site, quarter, and External Failure $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 9% cost category. Total Cost $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 100% of Quality ■ The data lead to discussions Actual Reduction N/A $XXX,XXX $XXX,XXX $XXX,XXX $XXX,XXX 17% such as: why did external Current quarter’s reduction failure costs in one specific as a percentage of previous facility go up from one quarter’s total cost of quality quarter to the next? Site One Only ■ The data also enable Quality External Failure to identify correlations in specific costs across the four Appraisal categories. For example, Internal Failure between Quality headcount Prevention and customer service levels. Q4 FY 08 Q1 FY 09 Q2 FY 09 Q3 FY 09 Q4 FY 09 1 Available in Project Acceleration Toolkit From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 16
  17. 17. ROAD MAP FOR THE PRESENTATION Identifying Establishing a Cost Collecting and Reporting Cost Improvement of Quality Model Analyzing the Data Sources and Impact Opportunities From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 17
  18. 18. The analysis helps sites understand their relative SITE COMPARISON REPORTS contribution to the overall cost of quality value. ■ Quality compares each Cost of Quality (per Site)— Cost of Quality (per Site)—Current Quarter site’s current quarter Current Quarter Versus Previous Quarter and Baseline Data Are for Illustrative Purposes Only distribution of costs to Data Are for Illustrative Purposes Only the previous quarter and baseline quarter. This is done 100% External Failure to monitor the outcomes 100% Internal Failure 92% of cost improvement 90% initiatives, changes in Quality Appraisal 82% cultural awareness, and 80% Prevention improvements in customer 70% quality. Any major variation 61% U.S. Dollars 60% is analyzed at the lower cost center level to better 50% understand the source of 40% variation. 30% ■ Quality also analyses each 20% individual site’s dollar and 10% percentage contribution Baseline Q3F09 Q4F09 Baseline Q3F09 Q4F09 Baseline Q3F09 Q4F09 Baseline Q3F09 Q4F09 Baseline Q3F09 Q4F09 to the cumulative cost of 0% quality. This allows Quality Site 1 Site 2 Site 3 Site 4 to observe longer term correlations between actions Cost of Quality Cumulative Global Site 1 Site 2 Site 3 Site 4 per Site (Q4F09) Percentage taken and the resulting outcomes. From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 18
  19. 19. The analysis help sites understand two COST OF QUALITY RATIO REPORTS driving forces behind quarterly trends: 1) actual demand—based on the Revenue Ratios revenue, and 2) actual Cost of Quality as a Percentage of Revenue Cost of Quality—Fraction of Revenue COGS—based on product Data Are for Illustrative Purposes Only Data Are for Illustrative Purposes Only mix and complexity, and Revenue Impact in Dollars Percentage of Revenue labor efficiencies. ■ Quality conducts two-level analysis of cost of quality (CoQ)—as a percentage of sales and as a percentage of the cost of a panel (i.e., cost to create a single unit Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 of product). ■ Quality uses the revenue- Global USA Site 1 Site 2 Low-Cost Global USA Site 1 Site 2 Low-Cost based graphs to make it Geographies 1 Geographies easier for the rest of the Cost of Quality Cost of Quality organization to understand the impact of these costs Cost Ratios to the top-line. Cost of Quality as a Percentage of Total COGS (per Panel) Cost of Quality—Fraction of Cost of Panel ■ The cost-based graphs Data Are for Illustrative Purposes Only Data Are for Illustrative Purposes Only indicate the difference in complexity of products Cost Impact in Dollars Percentage of Cost produced across sites. For example, the low-cost site produces simpler products so cost per panel and cost of quality tend to be lower than those of the other sites. This helps to contextualize differences in performance. Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com Global USA Site 1 Site 2 Low-Cost Global USA Site 1 Site 2 Low-Cost Geographies Geographies © 2009 The Corporate Executive Board Company. Cost of Quality per Panel Cost of Quality per Panel All Rights Reserved. OLEX4993609SYN 1 Individual site performance in low-cost geographies is typically also included, but omitted in this presentation due to limited space on the page. 19
  20. 20. The analysis enables senior executives to COST OF QUALITY SUMMARY REPORT easily understand and relate to the impact Cost of Quality as a Percentage of Revenue of quality on top and Merix Corporation; Current Quarter and Previous Two Quarters bottom line results. XX% ■ During quarterly business XX% reviews with senior XX% XX% management and the Board XX% XX% of Directors, Quality reviews progress on cost reduction efforts both at enterprise- wide and site levels. XX% XX% XX% ■ Typical discussions based XX% XX% XX% on the data include analysis Quarter- and reasoning of last quarter to-quarter comparisons variation, go forward plans related to further reduction of cost of quality. XX% XX% XX% “Cost of Quality along with a Customer Quality metric has become our top-level measuring stick of the overall effectiveness Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 Q2F09 Q3F09 Q4F09 of our Quality Management System and its leadership.” George Dramowicz Vice President of Quality Global USA Site 1 Site 2 Low-Cost Geographies Cost of quality Since Q3 FY 09, Cost of Quality as a Percentage impact on From the OPERATIONS LEADERSHIP EXCHANGE™ of Revenue dropped by X% = $X Millions in Savings bottom line www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 20
  21. 21. ROAD MAP FOR THE PRESENTATION Identifying Establishing a Cost Collecting and Reporting Cost Improvement of Quality Model Analyzing the Data Sources and Impact Opportunities From the OPERATIONS LEADERSHIP EXCHANGE™ www.OperationsLeadershipExchange.com © 2009 The Corporate Executive Board Company. All Rights Reserved. OLEX4993609SYN 21

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