This article discusses the concept of Cost of Quality (COQ) and compares it with Six Sigma. The comparison has been done using a real life case study to help you understand the difference better.
What is Cost of Quality?
A Cost of Quality System is used to quantify quality problems in the language of money and turn those costs into bottom-line income in an organization.
It is a term used by many organizations to quantify the costs associated with producing quality products. Typical factors taken into account are prevention costs (training, work process analyses, design reviews, customer surveys), appraisal costs (inspection and testing), and failure costs (rework, scrap, customer complaints, returns).
Benefits of Cost of Quality
The cost of quality assessment provides an opportunity for companies to:
1. Set the tone for the improvement process and the projects that follow
2. Show support for the improvement process by making resources available,
3. Set a constructive attitude for uncovering and dealing with poor quality practices
4. Demonstrate commitment to the improvement process by encouraging and supporting the timely identification and elimination of the root causes of poor quality
Cost of Quality
In many companies, the cost of quality assessment may be one of the first quality or process improvement projects undertaken. For example if the costs due to internal failures contribute the most while costs towards prevention are minimal.
However, if the company spends relatively more on prevention, the number of failures would also come down and cut down the costs drastically too. The Six Sigma philosophy supports this very concept.
How would you decide on what process to act upon?
The COQ actually gives an indication of this too. You should first analyze which failures contribute the most to the Cost of Quality. In our example, Press Downtime seems to be the major factor. You could draw a Pareto diagram to isolate the defects or errors that have the maximum impact on the Cost of Quality.
Next look for contributors in the process that cause these errors and act on these contributors to reduce/remove defects. With the defects reduced, the costs against failures go down. This cost reduction is substantial as compared to an increase in the cost due to implementation of preventive measures.
Six Sigma is a program that works on minimizing defects. Cost of Quality is an output measure expressing waste in financial terms.
Six key areas for improving Cost of Quality Key Drivers: Basic Issue
1. Basic organizational capabilities
* Skills and tools required to implement improvements in business processes are lacking
2. Industrial process variations
* Poor industrial process capabilities result in high COPQ (rework, scrap, field failure)
* Customer demands are frequently not passed on to engineering
* inefficient front-end engineering
3. Business process variations
*Product cost estimation is often widely off the mark, resulting in poor financial performance and incorrect manufacturing decisions
4. Engineering/design process and documentation
* Engineering systems and design processes and documentation are often inadequate and flawed
5. Quality of specifications
* Specifications sent to suppliers are not accurate.
* Subcontractors vary considerably in their quality, resulting in poor-quality parts
6. Supplier capabilities
* Lack of quality suppliers, resulting in poor-quality parts/services, late deliveries, higher parts/service costs, etc.
7. Six Sigma and Cost of Quality
1. A Cost of Quality System is used to quantify quality problems in the language of money and turn those costs into bottom-line income in an organization
2. COQ assessment provides an opportunity for companies to:
* Set the tone for the improvement process and projects that follow
* Show support for the improvement process by making resources available
* Set a constructive attitude for uncovering and dealing with poor quality practices
* Timely identification and elimination of the root causes of poor quality
3. Factors taken into account in Cost of Quality assessment:
Internal Failure, External Failure, Appraisal and Prevention
4. By spending more on preventing errors or failures, a company can reduce costs incurred due to failures.