Cost Reduction through Quality Improvement by Allan Ung


Presentation Description

The COQ methodology is a practical approach to quantifying the financial impact of the Cost Of Non-Conformance (CONC) and Cost Of Conformance (COC), shifting the problem-solving focus from quick fix to prevention, and prioritizing quality improvement opportunities based on the expected financial return. To download this complete presentation, please go to:


Presentation Transcript

Cost Reduction through Quality Improvement: 

Cost Reduction through Quality Improvement


Objectives Upon completion of this program, you will be able to: Understand the principles and basic concepts of the Cost of Quality (COQ) Understand how quality improvement reduces costs Calculate COQ and conduct COQ assessments Identify COQ cost drivers within your organization Develop a COQ strategy Use COQ to drive prevention in your organization Apply COQ to manage improvement projects in your organization NOTE: As this is a PREVIEW , only selected slides are shown. To download the complete presentation, please visit: http://

Contents 1: 

Contents 1 Introduction & Basic Concepts of COQ Business case for quality Impact of quality improvement program Link between quality costing and profits Why are quality costs important? Why measure COQ? What is COQ? COQ iceberg COQ versus Lean & Six Sigma Goal of COQ system Preparation Four phases of a COQ system Phase 1: Identifying COQ Items PAF model Internal failure costs External failure costs Appraisal costs Prevention costs COQ Strategies Financial structure P&L Seven types of waste CONC checklists Guidelines for identifying COQ items

Contents 2: 

Contents 2 Phase 2: Collecting COQ Data Matching accounts with CONC items Quality costing COQ Data source Example calculations of Failure cost, Appraisal cost and Prevention cost COQ scorecard and indices Process flow for COQ reporting Collecting and reporting COQ data Role of Finance Role of line managers/supervisors Practical guidelines Phase 3: Analyzing COQ Data Selecting quality cost bases Trends analysis Pareto analysis Variance analysis SMART criteria Set targets for improvement Case study Phase 4: Reducing COQ & Improving Quality Reduce COQ through quality improvement programs Tools and techniques System for quality is prevention Some results from industries Sustaining COQ

Vicious Cycle of Poor Quality: 

Vicious Cycle of Poor Quality

Link Between Quality Costing & Profits: 

Link Between Quality Costing & Profits

What is COQ?: 

What is COQ? Cost of Quality (COQ) is the total cost of ensuring product and service quality Total COQ is the sum total of the Cost of Non-Conformance (CONC) and the Cost of Conformance (COC)

What COQ Is Not: 

What COQ Is Not Cost of quality is NOT the price of creating a quality product or service. It is the cost of NOT creating a quality product or service. Everytime work is redone, the cost of quality increases. Examples include: The reworking of a manufactured item The retesting of an assembly The rebuilding of a tool The correction of a bank statement The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant

Cost of Non-Conformance (CONC): 

Cost of Non-Conformance (CONC) The costs incurred as a result of not doing things right the first time Examples Mistakes Scrap Rework Equipment Downtime Handling customer complaints Warranty claims Customer return analysis

Poor quality costs a typical company 15-20% of sales annually: 

Quality engineering and administration Inspection/test (materials, equipment, labor) Expediting Scrap Rework Rejects Warranty claims Maintenance and service Cost to customer Excess inventory Additional labor hours Longer cycle times Quality audits Vendor control Lost customer loyalty Improvement program costs Process control Opportunity cost if sales greater than plant capacity We See Only the Tip of the Iceberg Poor quality costs a typical company 15-20% of sales annually Less Visible Visible

COQ and Lean (Waste Elimination): 

COQ and Lean (Waste Elimination)

Goal of COQ System: 

Goal of COQ System

Four Phases of a COQ System: 

Four Phases of a COQ System

PAF Model: 

PAF Model

External Failure Costs: 

External Failure Costs The costs occurring after delivery or shipment of the product — and during or after furnishing of a service — to the customer Examples: Warranty claims Replacements Customer returns Product recalls Customer return analysis Handling customer complaints Loss of customer goodwill

Internal Failure Costs: 

Internal Failure Costs The costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer . Examples: Scrap Rework Retest Re-inspection Redesign Downtime Corrective action Downgrading

CONC Checklist 1: 

CONC Checklist 1

Matching Accounts with CONC Items 1: 

Matching Accounts with CONC Items 1

Quality Costing: 

Quality Costing Whole account Unit pricing Labor/resource claiming Whole person

Example 1: Calculating a Failure Cost Item: 

Example 1: Calculating a Failure Cost Item

COQ Scorecard: 

COQ Scorecard

COQ Indices: 

COQ Indices

Practical Guidelines 1: 

Practical Guidelines 1

End of Preview: 

End of Preview To download this entire PowerPoint presentation, please visit : Operational Excellence Consulting