Cost of poor quality (COPQ) is the total cost that quality problems create for the organization.
Four categories
- Prevention costs: Training, planning, error-proofing investments
- Appraisal costs: Inspection, testing, calibration, audits
- Internal failure costs: Scrap, rework, downtime, sorting
- External failure costs: Warranty, recalls, customer complaints, loss of reputation
Below the iceberg
The visible costs consist of scrap, rework and warranty claims. The hidden costs are much larger in most organizations:
Additional inventory holding, late shipments, overtime, sorting and containment labour, engineering time, expedited freight, loss of customer confidence, lost business opportunities.
Why should it be calculated?
Quality improvement projects struggle to find resources because their benefit cannot be put into numbers. The COPQ calculation solves this problem: it expresses quality problems in financial language and captures the attention of top management.
The calculation is also the soundest basis for setting improvement priorities; it provides data for selecting the areas where root cause analysis will be carried out.
Defining the cost items, the calculation method and reporting to top management are addressed in the CQI-22 cost of poor quality training and, more generally, in the Cost of Quality training.
For reducing external failure costs, see also the CQI-14 warranty management programme.