The Cost of Poor Quality: Tools for Effective Control & Reduction

Tools Used for Arriving at Cost of Poor Quality (COPQ)
ARAVIND, Member
Failure Mode and Effects Analysis (FMEA) can be used to estimate the COPQ. In FMEA, we will arrive at the risk priority number (RPN). Based on this, it is possible to arrive at COPQ.
For further details plese refer the article published by Mr. Pankaj Sharma.

Tools to Determine Cost of Poor Quality
MARIO ALVARADO, Member
(Translated by Editor)
To determine the cost structure, I recommend to initially use the CTQ Tree (Critical to Quality) from which you can derive "non-conformities" that can then be translated into costs of poor quality.
After having determined the structure of quality costs, the accounting department has a key role in measuring these costs. Their reports would form the basis for further analysis.
In reducing these costs I recommend starting with the use of Lean tools from the analysis of the molting process, as well as more advanced statistical tools including correlation analysis among others.

Cost of Poor Quality
Ajay Deshpande, Member
@ARAVIND: Good input. But in real time working, the challenge is correlation of risks to cost. My experience of FMEA application in the manufacturing industry is that it is not widely used for identification of risks that are associated with the cost of poor quality.
Although it is good idea that someone assign risks to cost related risks. Thanks.

CTQ to Determine Cost of Poor Quality
MARIO ALVARADO, Member
(Translated by Editor)
The structure of the costs of poor quality can cover a lot of elements, however using the CTQ tree technique allows us to focus on KEY metrics of customer satisfaction.
The CTQ tree translates the client's initial requirements into numerical requirements for the product. These are the critical requirements that the organization should meet, and from where we should derive the parameters for determining the costs of poor quality.

Cost of Poor Quality versus FMEA
Jim Johnstone, Member
@Ajay Deshpande: if you are using PFMEA (Process FMEA) as a prevention tool, perhaps you can adjust the severity ranking in the PFMEA analysis to focus on cost so that it is more tailored to what you want to accomplish.
If you already know where the costs are coming from, use the fault tree to go back upstream and find the root cause of the problems. Prioritize the problems by severity, frequency, and cost to correct (lower cost to correct is higher priority ranking number ) then compute your RPN and work from highest to lowest.

Value Steam Mapping Tool
Yingtao Zhang, Member
When you know the quality is poor, I think you had better to investigate where the poor quality is caused. For this value stream mapping can be adopted. With this tool, you can find where the poor quality is caused (defect, overproduction, waiting, non use of employees, transportation, inventory, movement, extra-processing).
Then you can focus on that issue to eliminate, reduce or reorganize it.

Tools Used for Arriving at Cost of Poor Quality (COPQ)
Ger de Waard, SIG Leader
COPQ (annualized) = [Sum of (RPNi x ACRi) / Sum of (RPNi)] x Annual Reduction in Events

i = item (all the RPN's lines in your FMEA!)
RPN = Risk Priority Number
ACR = Average Cost to Resolve
Weighted Average Cost to Resolve (WACR) = (RPN x ACR) / RPN

If your Lean Six Sigma project team is struggling to calculate the COPQ and is approaching the end of the Measure phase, then it is advisable to use the FMEA approach to obtain this calculation using the RPN. This approach provides objectivity to the estimation of COPQ in particular when no measurements or initial data are available at the Define stage. Also as FMEA offers a structured approach, the above formula becomes easy to use. When capturing the dependence of any event’s cost on its severity, occurrence and detection (i.e. RPN), the determined COPQ will offer a closer estimate to the actual project benefit.
Example: Your lines in the FMEA calculates a total RPN of 1000. it also tells that the total Number of Events (the happenings) are 500 times that year and you want (in first instance) to reduce it by 400 times. (80% less)
Your ACR = $ 25000
This means your COPQ(ann) = ((1000 * $25,000)/1000) * (500-400) = $ 2,500,000.