(P-QU-8) Design and Initial Implementation of a Cost of Poor Quality (COPQ)

Background/Case Studies:

Maintaining the highest standards of quality is essential for ensuring customer satisfaction and operational excellence. One often overlooked aspect in this pursuit is the cost of poor quality (COPQ). COPQ encompasses not only direct financial losses stemming from errors or deficiencies but also indirect costs such as rework, customer dissatisfaction, and compromised product integrity. By tracking COPQ, organizations gain invaluable insights facilitating targeted interventions and continuous improvement initiatives. Leveraging COPQ as a diagnostic tool enables proactive measures to prevent recurrence of errors and optimize resource allocation. This abstract describes the design and implementation of a COPQ metric at our center.

Study

Design/Methods:

The objective was to devise a comprehensive metric ensuring simplicity for personnel to grasp the impact of poor quality on the bottom line. Drawing inspiration from best practices in other industries, the formula: (#Units * COT/COGS) + Rework + Investigation Costs + Scrap Costs + Penalty Costs was generated. "Units" represent the impacted services or products, while "COT/COGS" denotes the costs associated with testing or collection relative to the cost of goods sold. "Rework" encapsulates the expenses incurred when repeating processes to rectify errors, while "Investigation" encompasses the costs of conducting systemic inquiries and implementing corrective/preventative actions. "Scrap" entails the costs linked to the disposition of affected products or services, and "Penalty" encompasses fees or compensations necessitated by quality lapses. The COPQ was generated for deviations throughout the organization.

Results/Findings:

Table 1: Examples of COPQ in action

Event	Units Affected	COT	Investigation Time Costs	Scrap	Rework	Penalties unit costs	Penalty Costs	COPQ
Dev-7191	102	$0.00	$354.42	$0.00	$731.34	$0.00	$0.00	$     1,085.76
Dev-7306	0	$0.00	$433.18	$0.00	$0.00	$0.00	$0.00	$       433.18
Dev-7440	1	$1,278.00	$315.04	$0.11	$0.00	$0.00	$0.00	$     1,593.15

The examples of COPQ in Table 1 demonstrate its utility in quantifying the financial impact of deviations.

Conclusions:

The Cost of Poor Quality (COPQ) formula presented offers a structured approach to assess the financial ramifications of quality deficiencies. Through diligent application of this framework, stakeholders are empowered to make informed decisions and cultivate a culture of continuous quality enhancement. Ultimately, integrating the COPQ formula into quality management practices enables organizations to mitigate risks, elevate performance standards and foster a long-term competitive advantage.