Using Copq to Drive Cost Improvement

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Using the Cost of Poor Quality to
Drive Process Improvement
March , 2006
Presented by:
Dan Olivier, Certified Software Solutions, Inc.
Javad Seyedzadeh, Bayer Healthcare Diagnostic Division

Page - 1

Objectives: To Understand COPQ
1. What is COPQ
2. Elements of the model
3. Calculating COPQ
3. Real World Applications
4. Implementing Improvement actions

Page - 2

1. COPQ Introduction
1. COPQ Introduction

Page - 3

The Cost of Poor Quality
• Represents the difference between
– The actual cost of production or service

– What the cost would be if the process were
effective in manufacturing products that
• met customer needs and
• were defect free.
Page - 4

COPQ Equation
COPQ = Costs (external failures + internal
failures + appraisal + preventive action)

Many times white collar poor quality costs are not
included in COPQ calculations (out of
conformance purchases, excess inventory, ...)
Page - 5

Why Cost of Poor Quality?
• Speaks in the language of management, $$$
• Shows how profit is affected by quality
• Can prioritize quality improvement actions
• Serves as the impetus for actions
In the US about a third of what we
do consists of redoing work
previously “done”. (Juran)

Page - 6

Related Quality Initiatives
• Six Sigma uses defect costs to quantify
• Lean Manufacturing focuses on reducing
appraisal costs
• Design Controls focuses on early review
and test activities to find defects early
Defects are not free. Somebody makes them and
gets paid for making them. (Deming)
Page - 7

2. Elements of the Model
2. Elements of the Model

Page - 8

Cost of External Failures
• Costs for defects found by the customer:

Reports of corrections and removals,
Field service corrections,
Field service bulletins, and
Software patches.

Page - 9

Cost for Internal Failures
Cost for defects found by R&D or Mfg
• Unclear requirements
• Improper design and implementation
• Improper design and implementation
• Incorrect test documentation
• Incoming inspection defects
• In-process testing defects
• Final acceptance testing defects
• Rework
Page - 10

Cost for Appraisal
Costs for checking defects including:
• Review of system specifications (R&D),
• Review & inspection during manufacturing
• Review of quality records, and
• Audits

Page - 11

Cost for Preventive Action
Cost for initiatives to improve processes:
• Use techniques to better understand requirements
• Employ programs to reduce design defects
• Implement tools to reduce manufacturing defects
• Institute quality improvement programs

Page - 12

3. Calculating COPQ
3. Calculating COPQ

Page - 13

Estimating the Numbers
Calculate full time personnel
– $200,000/year for full time personnel
– Assume 2000 hours per year
• 50 weeks x 40 hours
• $100/hour

Page - 14

Sample Spreadsheet Worksheets
Labor Rates
Defect Costs (External and Internal)
1. Estimate the number of defects
2. Estimate the hours to address each defect
3. Estimate the cost per defect including various labor rates 4. Estimate any additional costs that may be incurred for defects 5. Estimate the total cost per defect category
6. Estimate the total cost for all defects for a year period Appraisal Costs
1. Estimate appraisal labor costs
2. Estimate appraisal capital costs
3. Estimate appraisal total costs
Preventive Action Costs
1. Estimate total preventive action costs
Total COPQ
Page - 15

4. Real World Applications
4. Real World Applications

Page - 16

Implementing COPQ

• With little or no financial system changes Medical Device Manufacturers can
– Identify their external failure costs
– break these costs out by product, complaint symptom, part usage, serial number, customer and region
– Pareto these costs and prioritize corrective...
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