quality issues

1. Quality Reliability & Management
Assignment Topic: Cost of Poor Quality
Submitted to: Submitted by:
Dr. P.C. Tiwari Shashank Srivastava
MED (NIT Kurukshetra) ResearchScholar
6180012
MED (NIT Kurukshetra)

2. Q.1 Write Short notes on Cost of Poor Quality (COPQ).
Answer:
Emphasizing that quality is neither intangible nor immeasurable, Philip Crosby, in his book
“Quality is Free”, maintained that quality is a strategic imperative that can be quantified and
used to improve the bottom line. Quality has always been difficult to measure for most
organizations, largely because there are several factors, which may or may not be linked to
each other, that contribute to poor quality. An organization’s COPQ can be reduced by
identifying the different areas in which there are potential wastes, failures, and additional
costs.
COPQ consists of those costs which are generated as a result of producing defective
material. This cost includes the cost involved in fulfilling the gap between the desired and
actual product/service quality. It also includes the cost of lost opportunity due to the loss of
resources used in rectifying the defect. This cost includes all the labor cost, rework cost,
disposition costs, and material costs that have been added to the unit up to the point of
rejection. COPQ does not include detection and prevention cost.
Cost of poor quality can be defined as the “combination of all activities and processes
that do not meet agreed performance and/or expected outcomes”. It is the Cost of 'not doing it
right the first time. It includes cost of lost goodwill, and expenses incurred in refund,
replacement, rework, scrapping, etc. The costs related to making or acquiring goods and
services that directly generates revenue for a firm. It comprises of direct costs and indirect
costs. Direct costs are those that are traceable to the creation of a product and include costs
for materials and labor whereas indirect costs refer to those costs that cannot be traced to the
product such as overhead. Sum of costs incurred in maintaining acceptable quality levels plus
the cost of failure to maintain that level (cost of poor quality). The Cost of Poor Quality
(COPQ) quantifies the negative outcomes due to waste, inefficiencies and defects in a
process.
The damages of poor quality augment as the inception point is further down the
supply chain:
TCFP [Total Cost of Faulty Part] = Direct Cost (manufacturing cost) + Labor Cost (assembly
and testing) + Overhead Cost (Inventory, handling, shipping costs) + Scrapping Cost
(of part and attached parts assemblies: Sometimes assemblies cannot be disassembled
and have to be scrapped altogether) + Rework (applying a new part instead) + Repair /
Recall Costs (these are costs associated with repairing or replacing a new part /
assembly under warranty)+ Product Liability Costs

3. HarringtondecomposesCOPQintothe followingelements:
Cost Sub -Cost Description
Direct poor-quality
costs
Controllable poor-
quality cost
Controllable COPQ is directly controllable
costs to ensure that only acceptable
products and services reach the customer.
Resultant COPQ are costs incurred because
unacceptable products and services were
delivered to the customer, resulting from
earlier decisions about how much to invest
in controllable COPQ. Equipment COPQ
are costs to invest in equipment to measure,
accept, or control a product or service. It is
treated separately from controllable costs to
accommodate the effects of depreciation.
Prevention cost
Appraisal cost
Resultant poor-
quality cost
Internal error cost
External error cost
Equipment poor-
quality cost
Indirect poor-quality
costs
Customer-incurred
cost
Customer-
dissatisfaction cost
Loss-of-reputation
cost
Indirect COPQ is difficult to measure
because it is a delayed result of time, effort,
and financial costs incurred by the
customer. These customer costs add up to
lost sales and therefore do not appear in the
company's ledger
Cost element Examples
Controllable
poor-quality
cost
Prevention
cost
 Quality planning (for test, inspection,
audits, process control)
 Education and training
 Performing capability analyses
 Conducting design reviews
Appraisal
 Test and inspection
 Supplier acceptance sampling

4. Direct
poor-
quality
costs:
cost  Auditing processes
Resultant poor-
quality cost
Internal
error cost
 In-process scrap and rework
 Troubleshooting and repairing
 Design changes
 Additional inventory required to support
poor process yields and rejected lots
 Re inspection and retest of reworked
items
 Downgrading
External
error cost
 Sales returns and allowances
 Service level agreement penalties
 Complaint handling
 Field service labor and parts costs
incurred due to warranty obligations
Equipment poor-quality cost
Micrometers, voltmeters, automated test
equipment (but not equipment used to make the
product)
Indirect
poor-
quality
costs
Customer-incurred
cost
 Loss of productivity due to product or
service downtime
 Travel costs and time spent to return
defective product
 Repair costs after warranty period
 Backup product or service to cover failure
periods
Customer-
dissatisfaction cost
Dissatisfaction shared by word of mouth
Loss-of-reputation
cost
Customer perception of firm