Reducing the Cost of Quality (COQ) (PowerPoint PPTX)

Most successful companies understand that it is cheaper to prevent a problem from occurring than it is to rectify it—especially after it is pointed out by a customer. Poor quality costs a company money and decreases its competitive advantage. On the other hand, good quality saves a company money and increases its competitive advantage. The important question then becomes, "How does a company measure and improve its performance on quality?" The answer lies in the establishment of a system which reduces the Cost of Quality (COQ). This is a business measurement system that "dollarizes" the impact of ensuring that customers get the best quality products and services—and the consequences when they don't.

By definition, the 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). COQ can be summed up by the Prevention, Appraisal and Failure model, or, as it is more commonly known, the PAF model. Both prevention and appraisal costs are also commonly known as COC—the cost of doing things right the first time. Internal and external failure costs are known as the CONC—the cost incurred as a result of things not being done right the first time.

The primary objective of measuring COQ is to facilitate quality improvement efforts that will lead to cost reduction, improved customer satisfaction and increased sales. With the use of COQ, an organization can assess its performance using a key indicator, "Total COQ/Sales Turnover", and set targets for improvement.

This Reducing the Cost of Quality PPT presentation describes the four essential steps of setting up a measurement system to track COQ: identification, collection, reporting and analysis, and reduction of quality costs. By teaching this presentation, you can prioritize quality improvement opportunities based on their expected financial return, and shift your problem-solving focus from quick fixes to preventing issues before they occur.

LEARNING OBJECTIVES

1. Understand the principles and basic concepts of the Cost of Quality (COQ).
2. Understand how quality improvement reduces costs.
3. Calculate COQ and conduct COQ assessments.
4. Identify COQ cost drivers within your organization.
5. Develop a COQ strategy.
6. Use COQ to drive prevention in your organization.
7. Apply COQ to manage improvement projects in your organization.

CONTENTS

1. Introduction and 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 model
•  COQ versus Lean & Six Sigma
•  Goal of COQ system
•  Preparation
•  Four phases of a COQ system

2. Step 1: Identifying COQ Items
•  PAF model
•  Prevention costs
•  Appraisal costs
•  Failure costs
•  Internal failure costs
•  External failure costs
•  Eight types of waste
•  CONC checklists
•  Guidelines for identifying COQ items

3. Step 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

4. Step 3: Analyzing COQ Data
•  Selecting quality cost bases
•  Trends analysis
•  Pareto analysis
•  Variance analysis
•  SMART criteria
•  Set targets for improvement
•  Case study

5. Step 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

This presentation includes real-world examples, such as the Tylenol recall, to illustrate the impact of poor quality on a company's bottom line. It also emphasizes the importance of continuous cost management and the role of finance in tracking COQ.