All Rights Reserved, Juran Global How to Leave Less Dollars on the Table More Profits, Less Costs for Your Organization Dr. Joseph A. DeFeo, CEO Juran

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


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?


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


“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)?


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?


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


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?


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.


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


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


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


Review Review

Redo Redo

Variation

Non-Value Added (NVA)

Steps

Check Check Product or Service

Step 1 Step 2

Where is COPQ Found?



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


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


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?


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


Thank You!

If you would like a copy of this presentation or would like me to

conduct this for your organization, contact me at

[email protected]

Documents

All Rights Reserved, Juran Global How to Leave Less Dollars on the Table More Profits, Less Costs for Your Organization Dr. Joseph A. DeFeo, CEO Juran