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Cost Of Quality

Six Sigma – iSixSigma Forums Old Forums General Cost Of Quality

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  • #37600

    Tom Dyer
    Member

    Hello.
    Does anyone have been through the process of calculating “Cost of Quality” for a mass production facility? I thought it is best using process approach of  ISO 9001:2000 to map various business processes to identify Appraisal & Preventive costs. There are lot of clues for failure cost in the standards. I find that in the traditional methodology, the contribution coming from support functions like Purchasing, Logistics, warehousing, Production Planning are too often underestimated.
    Any more ideas on different approach?
    Regard,
    Tom.

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    #110975

    Mike Carnell
    Participant

    Tom,
    Before you get started you need to think through what you want to know. When we talk COQ we are speaking about the traditional 4 catagories. It maintains consistency with the historical numbers.
    If we want Cost of Poor Quality (COPQ) we add on waste, defined by the 7 forms of waste from the traditional definitions, as well as anything else that is non-value added (country club memberships, donuts for incoming inspection departments, etc). This is the number that defines the potential for savings from project work.
    COQ can be about 85% done from the General Ledger. COPQ can be done about 25% from the General ledger.
    Good luck

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    #110979

    Dog Sxxt
    Participant

    I doubt traditional accounting system can provide much needed info for COQ and COPQ computation.

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    #110983

    Mike Carnell
    Participant

    Dog Sxxt,
    From most of your answers the fact that you doubt it is either because it is just another random thought passing through your head or you haven’t managed to read about it in some magazine, paper, book etc since you virtually never seem to have actually have done anything yourself. The logical place to start in the traditional calculation of COQ is at the general ledger because that is where the actual numbers are for inspection, test, salaries, travel (source inspection), etc.
    Once again you don’t seem to be able to put any data to your glittering generalizations.

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    #110988

    Johnny Guilherme
    Participant

    Tom
    Firstly I would define my cost catogories. they are as follows:
    Failure costs, appraisal costs and prevention costs. Failure costs can be divided into Internal and external failure costs. Internal failure costs can be as follows: Scrap(nett loss in time/labour or material resulting from defectives that cannot be repaired or used), Rework (cost of correcting defectives to make them fit for purpose), Retest (cost of reinspection of products that have been reworked), Downtime (lost time due to defects or defectives in systems), Yield loss and Disposition(effort required to determine if non conforming products can be used)
    Then we have External failure costs. Complaint Adjustment (investigation and correction costs for complaints), Returned material (defects returned from the field), Warranty costs(costs involved in service to customers under waranty), Allowances (costs incurred when concessions are made due to substandard products.
    Then we have appraisal costs: Incomming goods and material inspection, inspection and test, laboratories and test houses, maintenance to standard of test equipment, materials and services consumed, evaluation of stocks (testing products in field storage).
    Prevention costs: Quality planning (activities which collectively create the overall quality plan), New products review, Training, Process control, quality data acquisition and analysis, quality reporting and improvement projects.
    Once the above are undertsood then I suppose you need to find out if anyone is keeping track of such costs. The catogories above cover the whole production facility i.e. purchasing, warehousing etc.
    Its a bit long winded, but hope this helps.
    Johnny

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    #110990

    Dog Sxxt
    Participant

    Costing standard compiled by me when I worked as IE is something more practical than your so-called COQ book.
    Talking about generalization, no other people can do better job than you. BTW, I will not publish any lean book if I have no clue on what is takt time.

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    #110993

    Mike Carnell
    Participant

    Sxxt,
    Actually it looks like not only will you not publish a book but you don’t seem to do much of anything except read and report on what someone else has done.
    I am fine on takt time and our expert on Lean were Chuck and Barbara both of whom have absolutely no fear of getting involved and actually making a difference. Actually Barbara was trained at Ambrake.

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    #110996

    Dog Sxxt
    Participant

    My humble question to you, do you invent new concept in your professional life?Sorry, I thought someone who claimed he championed and pioneered lean in Motorola must be good enough to comprehend lean basic concept. I overrated you anyway.

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    #111021

    Tom Dyer
    Member

    Thanks Johnyy.
    Quite surprisingly both Mike & Dog lack clear business focus on this occasion.

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    #111403

    vishwakarma
    Member

    Dear Johnny,
    You have mentioned ‘ downtime ‘ in cost of quality. Does it mean           ‘ Breakdown cost of machines ‘ as well ?
    Thanks,
    Sandeep

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    #111407

    Ijaz Yusuf
    Participant

    Unplanned downtime falls under the heading of cost of quality. Planned downtime is the   pre requisite of the process. It should not the be the part of cost of quality.
    Ijaz Yusuf

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    #111410

    Johnny Guilherme
    Participant

    Sandeep
    Downtime is part of the “Internal Failure Costs”. It can be as follows: lost time costs that are the result of any defects or defectives in sub systems i.e. printing press down due to a paper breaks, vehicle idle time due to part failure).
    Hope this helps
    Johnny

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    #111421

    Deanb
    Participant

    Tom,
    There is a wealth of information out there offering more categories and angles on COQ than you can ever use. To give you some red meat on this, check out ASQ’s books, articles and cases (see links below). But what may be more important to you than this material is your management strategy in using COQ. COQ requires “consensus” on what the cost categories ought to be for a given operation. This requires significant attention to involving the accounting department and other involved parties to form consensus around the cost categories your operation will measure and include. COQ has been extremely valuable for organizations in the past in finding hidden costs, winning management committment to invest in quality, prioritizing improvement efforts, and leveraging improvement efforts to improve sales and financial performance. However, COQ’s downfall usually is more a people failure ( in not getting the involvement and consensus needed) than a technical failure. Good luck.
    COQ Books
    http://qualitypress.asq.org/perl/catalog.cgi?page=category&category=Cost+of+Quality
     
    Articles and Cases
    http://www.asq.org/info/library/faq/costofquality/articles.html
     

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    #111431

    S.Lakshminarasimhan
    Member

    According to Juran by attacking the Internal failure cost ( due to waste products,process rejects before despatch inside the factory) we will be digging a gold mine.
    Hence substantial results can be obtained by aiming at improvement by having Internal failure cost as driver.

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    #113419

    Rajeev Chadha
    Participant

    Hi there,
    Apart from PAF costing, Process approach to COQ is also very popular in Europe.It is very straight forward in a way that you have to workout COC(Cost of Conformance) & CONC (Cost of nonconformace) of each unit process.
    Now you check your Process flow chart of individual function(Department) and start calculating COC & CONC for each step based on your & your peer group experiance.
    Remember, Process COQ Mamorandum account is a live document which changes with the change in your organisational activities and your personal mastery.
    THX

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