HES Cost of Quality

8/19/2019 HES Cost of Quality

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Cost of Quality - COQ



COQ – The Issue

• "The cost of quality” is a widelyused term

• …….and widely misunderstood.

• Knowin what it is means!nowin how to imro#e it



COQ – The $e%nition

• The "cost of quality" isn&t the rice ofcreatin a quality roduct or ser#ice.

• It&s the cost of 'OT creatin a qualityroduct or ser#ice the %rst time

• (#ery time wor! is redone) the costof quality increases



COQ – (*amles

• The rewor!in of a manufactureditem.

•

The retestin of an assem+ly.• The re+uildin of a tool.

• The correction of a +an! statement.

•

The rewor!in of a ser#ice) such asthe rerocessin of a loan oerationor the relacement of a food order ina restaurant.



COQ – The ,oal

• In short) any cost that would notha#e +een e*ended if quality

were erfect contri+utes to thecost of quality.

• The oal is to et it riht” the%rst time) e#ery time



COQ – It is not ree

• Total Quality Costs are the total ofthe cost incurred +y/

•In#estin in the re#ention ofnonconformance to requirements.

• 0raisin a roduct or ser#ice forconformance to requirements.

• ailin to meet requirements.

• ailure to meet customersatisfaction



COQ – The 1 Comonents

• Prevention Costs

• Appraisal Costs

• External Failure Costs

• Internal Failure Costs



COQ – 2re#ention Costs

• The costs of all acti#ities

seci%cally desined to re#entoor quality in roducts orser#ices.



COQ – 2re#ention Costs

• 'ew roduct desin

• Quality lannin

• 3ulier caa+ility sur#eys• 2rocess caa+ility e#aluations

• Quality imro#ement team

meetins• Quality imro#ement ro4ects

• Quality education and trainin



COQ – 0raisal Costs

• The costs associated withmeasurin) e#aluatin or auditin

roducts or ser#ices to assureconformance to quality standardsand erformance requirements.



COQ – 0raisal Costs

• Incomin and source insection5testof urchased material

•

In-rocess and %nal insection5test• 2roduct) rocess or ser#ice audits

• Cali+ration of measurin and test

equiment• 0ssociated sulies and materials

meet seci%cation



COQ – (*ternal ailure Costs

• ailure costs occurrin afterdeli#ery or shiment of the

roduct - and durin or afterfurnishin of a ser#ice - to thecustomer.

• Commonly called escaes” fromthe rocess



COQ – (*ternal ailure Costs

• 2rocessin customer comlaints

• Customer returns

• 6arranty claims

• 2roduct recalls



COQ – Internal ailure Costs

• ailure costs occurrin rior to

deli#ery or shiment to thecustomer) or +efore ro#idin aser#ice



COQ – Internal ailure Costs

• 3cra

• 7ewor!

• 7e-insection

• 7e-testin

• 8aterial re#iew

• $ownradin



COQ – The 3um Total

• The sum of the a+o#e costs. Thisreresents the di9erence

+etween the actual cost of aroduct or ser#ice and what thereduced cost would +e if therewere no ossi+ility of su+standardser#ice) failure ofroducts5ser#ices or defects intheir manufacture5deli#ery.



3i* 3ima and COQ – The 2icture

Customer

Loyalty and

Market Share

Right

Features

Lower

Deficiencies

Right

Price

Efficient

Processes

Market

Share Higher Revenue

And

LTV

Low I/E

Failure Costs



Quality is 'OT ree

• irst 3te – :ow to 0ccess 7esources tomeet o#erall orani;ational oals

• The is an in#estment u front to etthe quality le#els and cost sa#insreali;ed

• (#ery orani;ation will need to ha#e aninternal 7OI to 4ustify the e*enditures



0raisal 2rocess

• Identify your Quality Cost7eduction ,oals

• (stimate the a#erae return foreach quality imro#ement

• Then calculate how many ro4ectsare required

• This dri#es the resource ande*ense requirements



0raisal 2rocess – cont.

• The use of 2areto charts will showwhere the ro+lems5oortunitiesare

• The si;e of the imro#ement isdirectly correlated to the sta<nand e*enses required

• The tarets are/ re#ention)araisal) internal) and e*ternalfailure areas




• (*amle – 0ssume a =>? millionoal in the ne*t @> months

• If you assume a =>?A)AAA return er

ro4ect) then you need @AAro4ectsBD

• If you assin one Elac! Eelt) and 1

ro4ect team mem+ers) with aro4ect duration of F months…..

• It is 60G too costly…so what to doH




• The answer is to de#elo a arallellist of ro4ects

• The %rst list is comrised of the to

-? initiati#es that imact the+usiness at the enterrise le#el –28O le#el

• The second list is comrised oflocal otimi;ation dri#en +y frontline emloyees – $eartment le#el



0ccountin for COQ

• Trac!in the send le#els allows for acali+ration of in#estment in5results out

• Traditional accountin is used for scra)

warranty) in#entory) oeratin costs• Time reortin is used to trac! seci%c

acti#ities that are directly related toCOQ

• 3ecial data collection can +ede#eloed to aument this



0ccountin for COQ – cont.

• $ata is critical to inform and dri#edecisions/• Quality assurance data

• 6arranty data• ield ser#ice reortin

• Customer comlaints

•

(nineerin studies• Internal quality audits

• 3ecial e#aluations



0ccountin for COQ – cont.

• $ata collection and rocess is !ey/• :ow the data is collected

• Know how the data is analy;ed

• 6ho will collect it• $esin and imlement a standard

rocess

• 2ro#ide a data communications lan

• Train all users and reciients• Institutionali;e and maintain

• 0lin will rewards



3i* 3ima 8etrics

• 0 sima rocess has FF)JA$28O. 0t =@)AAA er defect) that is=FF.J million

• 0 1 sima rocess has F)>@A$28O. 0t =@)AAA er defect) that is=F.> million.

• 0 si* sima rocess #irtuallyeliminates all defects) and has acost of =)1AA



COQ Eottom Line

• Quality in the eyes of the customeris e#erythin

• Cometin on quality is a

requirement to sur#i#e and thri#e

• Comanies that utili;e thismethodoloy will +e ahead of

comanies that donMt• :owe#er) quality is only one facet of

success……donMt rely on this alone



COQ Eottom Line – cont.

• 2roacti#e lannin for quality hasthe most le#erae in the desinhase

• 2re#entin escaes” in crucial tocustomer satisfaction

• Quality ercetion is ained +yreutation and trust +uildin

HES Cost of Quality

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