all rights reserved, juran global how to leave less dollars on the table more profits, less costs...
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All Rights Reserved, Juran Global
How to Leave Less Dollars on the TableMore Profits, Less Costs for Your
Organization
Dr. Joseph A. DeFeo, CEO Juran Global
All Rights Reserved, Juran Global
By ignoring the magnitude of hidden costs in our organizations today, we are
basically underestimating our profit.
This is rooted in the limited understanding of the costs related to
poor performing processes or the Cost of Poor Quality”
Why Pay More Than Necessary?
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Today’s Agenda
1. Helping Leaders see the magnitude of lost profit and sales through a Cost of Poor Quality estimate.
2. Understand the link between eroding prices, operational costs and profitability due to COQ.
3. Gain knowledge on the key components of Cost of Quality (COQ)
4. Learn how to determine the magnitude of COPQ in your organization
5. Develop internal expertise on this important subject
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“Managers and employees speak the language of things but senior leaders
speak the language of money.
… COPQ allows us to translate the things
into money.”
Why Cost of Poor Quality (COPQ)?
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WHICH FEELS BETTER?
Profit
Total Operating
Costs
Profit
True Operating
Costs
COPQ
Profit
Sales Erosion
COPQ
True Operating
Costs
Profit
COPQ
True Operating
Costs
Lean Six Sigma
Why Focus on COPQ?
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Prevention
Appraisal
Internal Failure
ExternalFailure
I want my
money
back!
Cost of Quality (COQ)
$Total Cost of Quality = Prevention + some of Appraisal + all
Failure Costs
Total Quality Cost
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Appraisal
Internal Failure
ExternalFailure
I want my money back!
Prevention
COAQ COPQ
Cost of Poor Quality = some of Appraisal + all Failure Costs
What Part of COQ is COPQ?
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COPQ Definitions
All activities and processes that do not meet agreed performance and/or expected outcomes.
Costs that would disappear if every task were always performed without deficiency.
Actual cost - minimum cost = COPQ.
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Only 5% of Actual COPQ
When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below:
Traditional Cost of Poor Quality
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COPQ ranges
from 10-25%
As a company gains a broader
definition of poor quality, the hidden
portion of the iceberg becomes
apparent.
Cost of Poor Quality
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Ratio of the individual category costs to total costs vary widely. Many companies exhibit ratios which look
like the following:
WHAT'S WRONG WITH THIS PICTURE?
What Does Reality Look Like?
Cost Category Percent of TotalInternal Failure 25 to 40External Failure 25 to 40
Appraisal 10 to 50Prevention .05 to 5
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Review Review
Redo Redo
Variation
Non-Value Added (NVA)
Steps
Check Check Product or Service
Step 1 Step 2
Where is COPQ Found?
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The Approach to Assessment
1. Determine the use of COPQ against Business Strategy
2. Establish the Assessment/Development Team
3. Define the Scope and review all current documentation and tactics
4. Develop an enhanced list of COPQ elements, process and documentation
5. Develop an implementation plan
6. Conduct a pilot assessment
7. Adjust Process and Drive Projects
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Steps: 1. Identify the Process
2. Process Map to Understand Value
3. Classify NVA as a COPQ Category
4. Estimate COPQ Based on Fiscal Year
5. Prepare Quality Cost Report (Paretos)
6. Define Projects for Improvement
COPQ Assessment Process
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Planning for Self-Sufficiency
1. Initially work with a reputable source!a. Establish an internal teamb. Develop the categories and process to collect datac. Get some experience (practice)d. Start small (a Division or Business Unit)
2. Determine what and where the expertise gaps are!a. What are the Knowledge, Skills and Abilities necessary?b. Who will do it and what skills do they need?c. What will they do?
3. Develop an Organizational metric of COPQa. % of Sales, Costs, Share Value?
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Self-sufficiency: Developing internal expertise
Communicate: Helping Leadership see the opportunity
Educate: What is COPQ made up of?
Why: The link between COPQ and profitability
Assess: How big is our opportunity?
Review
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