Determining the cost of poor quality is a key ingredient for the success of any improvement initiative. Whether you need to engage top management, obtain resources, or inspire your team, placing a monetary value on the costs of a problem helps to accomplish all of the above. Additionally the COPQ metric shows all interested parties how much the problem hurts.
One failure of many problem solving systems is lack of management commitment. In the current climate of trying to do more with less, top management attempts to guide the company by addressing issues as they arise. The decision makers in many organizations simply don’t know or understand the financial depth of cost of poor quality. This failure, however, cannot be blamed singularly on management. It's more likely that problem solving teams are not convincing in their approach to get resources. Teams haven't been taught the language to communicate with decision makers. Management speaks in the language of money, the bottom line approach.
How many times have you heard a member of your organization being refused when requesting additional money, equipment, or personnel? Was their idea refused because it wasn’t worthy of consideration? Their improvement concept was probably adequate. They more than likely did not convey the urgency or pain associated with a problem. This is the cost of poor quality.
COPQ is calculated by identifying the internal and external costs of the specific issue you are trying to fix. Internally your company faces issues such as scrap, rework, and failure analysis. Externally the costs include complaints, return costs and warranty repairs. Monetary values can be attached to each of these costs. When summed, that figure is the cost of poor quality.
Management, when shown how much the problem is costing the company, will feel compelled to allocate the necessary resources to eliminate the problem. COPQ will clearly detail to them the costs of the types of expenses associated with the problem you are facing. And do so in terms that they best understand; how much the issue affects the company profitability!
Additionally, determine the return on investment (ROI). Calculate how much will be saved by the elimination of the problem or by the purchase of better equipment. Then determine how long it will take your organization to realize this savings.
The ROI coupled with the detailed COPQ should enable you to regularly obtain the problem solving or infrastructure resources necessary to make required process improvements. Always remember to speak the language of top management, the language of money. Explain exactly how much pain is caused by not eliminating the problem, or by not improving the process.
The next critical metric is defects per million opportunities, or DPMO It defines how well your process is performing while including process complexity withing the metric.