Cost of Poor Quality (COPQ): A 6 Sigma Tool

Also known as cost of waste, COPQ measures the costs incurred by an organization due to defects and poor quality in an existing process. It is not strictly a part of a Lean Six Sigma project itself, but rather is a Six Sigma tool commonly used to evaluate potential projects and prioritize the order in which they will be conducted. COPQ is a very effective way of identifying non-value adding activities associated with a process, making it easier to then eliminate those activities to generate cost savings.

COPQ analysis is not an exact science because accurate measurements are often not available prior to initiating a Lean 6 Sigma project. Skilled practitioners, however, can use COPQ analysis effectively and thoroughly enough to produce estimated measurements that are accurate enough for effective prioritization of Six Sigma projects.

The Purpose of COPQ Analysis

COPQ is an estimation tool, not an exact measurement tool. It is used to help identify Lean Six Sigma projects, determine their likely financial viability, and set priorities among potential projects. It can help an organization identify those projects where the Six Sigma effort will produce the greatest return on investment.

The primary purpose of COPQ is to determine the financial costs of waste/poor quality in an existing process. These costs are generally referred to as failure costs, and they fall into four primary categories:

• Internal Failure Costs
• External Failure Costs
• Appraisal Costs
• Prevention Costs

While not all failure costs can be captured with 100% accuracy, it is usually possible to capture enough of them with enough accuracy to have a good level of confidence in the results.

Let’s look at each of these categories in more detail.

Lean 6 Sigma Tool: Internal Failure Costs

This category contains costs incurred by an organization due to defects that are found before the product or service reaches the customer. Examples of internal failure costs are things such as:

• Scrap: Material generated from not maximizing the use of raw materials or from products/services that are sent to scrap because they are not fit to go out to the customer.

• Rework: Activities that are required to correct defects in products and services, or to produce new products and services to replace those that are sent to scrap.

• Failure Analysis: Time and effort needed to analyze defective products or services, especially when defect levels are high and a great deal of analysis is required.
• Re-Inspection and Re-Testing: Costs associated with repeat inspections or tests necessary to ensure defects have been properly corrected.

Lean Six Sigma Tool: External Failure Costs

This six sigma tool category contains costs incurred by an organization due to defects that are found after the product or service reaches the customer. Examples of external failure costs are things such as:

• Warranty Charges: Costs to the company for honoring the warranty on defective products and services; may include everything from shipping to repair to outright replacement of the product or service.

• Adjustments for Complaints: Reductions in retail charges or addition of added value items/service as a way to resolve customer complaints.

• Returns: Costs associated with refunding money on returned items, re-furbishing and/or re-stocking of returned items, and labor costs associated with the returns process.

• Allowances: Typically given to distributors or other parts of the distribution chain as credits against defective products or services

Lean 6 Sigma Tool: Appraisal Costs

This category contains costs incurred by an organization to inspect and measure a product’s or service’s adherence to quality specifications and requirements. Examples of appraisal costs are things such as:

• Inspection: All regular activities associated with inspecting products or services, whether during development, manufacturing, delivery, etc.

• Testing: All regular activities associated with putting products and services through testing procedures to ensure quality levels.

• Quality Audits: Periodic but generally random audits conducted to assess all or some quality aspects of a product or service.

Six Sigma Tool: Prevention Costs

This Lean Six sigma tool category contains costs incurred by an organization to conduct all forms of defect prevention for a product or service. Examples of prevention costs are things such as:

• Design Reviews: Assessment and evaluation of product and service designs to look for defects or problems prior to production.

• Policies and Procedures: Development, enforcement and review of the rules and standards that affect the incidence of defects; may include quality of materials, labor requirements, etc.
• Training and Education: Those activities related to training and education of employees with the goal of increasing skill levels and decreasing the likelihood of defects.

Lean 6 Sigma Tool: The Seven Deadly Wastes

Another approach to COPQ analysis is to include evaluation of the so-called Seven Deadly Wastes. These are areas where waste is most common and organizations have a great deal of potential for improvement.

• Overproduction: Making more than is necessary or called for in the schedule of production.

• Waiting: Down time due to lack of work balance, leaving operators and others standing or waiting to perform their tasks.

• Transportation: Moving materials and components during production, such as from one process to another, stacking, picking up, and putting down.

• Processing: Preparation, protection and packing of components for transport to another area or part of the production process.

• Inventory: Too much raw material on hand too far ahead of production needs

• Motion: Range of movement required during process, such as steps to reach parts, distance between work stations, etc.
• Defects: Points at which material and/or labor are wasted, creating bottlenecks in the overall process.

Lean 6 Sigma Tool: Putting it All Together

When you take the sum of costs from the four categories of failure along with the costs from the Seven Deadly Wastes, you can produce a generally accurate estimation of the costs an organization incurs due to poor quality and waste. This lean six sigma tool estimate can then be used to determine appropriate lean Six Sigma projects and prioritize which projects will provide the maximum return on investment. A solid COPQ is critical, then, to lean Six Sigma planning and should be an integral part of every organizational Lean 6 Sigma initiative.

Learn more information about 6Sigma.com’s Lean Six Sigma training coursework, available as classroom, onsite, or Six Sigma training online options.

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As with most disagreements of this sort, the reality probably lies somewhere in between the two extremes of thought. Our position is that Lean Six Sigma incorporates TQM concepts and methods and then expands upon them, therefore creating a more robust overall quality solution for all types of organizations.

What is TQM?

Before we can more fully support our position, let’s first look at what TQM is and how it works. Definitions vary somewhat depending on which school of TQM thought you follow, but most agree that TQM includes the following elements:

Customer Focus – The TQM philosophy approaches decision making and operations from the perspective of the customer’s needs rather than the company’s needs. Processes are designed to maximize the benefit to the customer by producing the highest quality product or service possible.

Taking the Long View – TQM approaches quality improvement as a long term, entire philosophical adjustment rather than a short term program. There is a beginning to the embrace of TQM strategies, but no defined end because TQM is a total commitment rather than a temporary practice.

Say Goodbye to Waste – TQM activities view waste in a process as extraneous to the operation and something to be eliminated. A broad definition of waste is used, taking into account things like time and effort in addition to physical materials.

Check the Numbers – Decisions in the TQM methodology are based on data gathered as part of the TQM process. Statistics are analyzed carefully, and all changes made are based on data-supported facts rather than personal opinions or judgments.

Prevention and Continuous Improvement – The TQM approach does not wait for problems to occur or settle for status quo performance. Instead, there is active searching for ways to prevent problems from developing in the first place and a continuous focus on process improvement.

Employees are Important – In a TQM environment, employees are empowered and expected to actively participate in decision making and quality improvement. Traditional departmental barriers are reduced or eliminated, opening up opportunities for cross-functional cooperation and innovation.

How is TQM different from Lean Six Sigma?

In some cases, Lean 6 Sigma is dramatically different from TQM, and in others, the differences are more incremental. The following table shows some of the most common comparisons between the two approaches.

 TQM                                                                                          Lean Six Sigma

These are just a few of the differences between the two. In the next section, we will look in more detail at how Lean Six Sigma expands on TQM processes to create a more comprehensive approach.

How Does Lean Six Sigma Expand on TQM?

lean Six Sigma takes the best parts of TQM and makes them better. Examples include:

Comprehensive Approach – Rather than limiting efforts to improving product or service quality, Lean Six Sigma broadens the improvements to include all business issues. This is important because products and services do not exist in isolation from the rest of the business operation, so we should not expect to maximize their performance in isolation either.

Practical Tools for Measurable Business Results – Lean Six Sigma takes the tools of process improvement and applies them to achieve measurable business results, not just theoretical improvements.

Infrastructure Adjustments – Instead of an isolated quality department, Lean Six Sigma practitioners work throughout the organization. They apply their expertise and experience in a wide variety of ways to their everyday job responsibilities, along with periodic special assignments to focus on specific Lean Six Sigma projects.

Maximum Performance – Lean 6 Sigma goes beyond minimal standards of acceptability and creates the maximum levels of performance possible. In other words, it is not enough to meet expectations; Six Sigma methodology requires you to exceed them.

Which is Better – Lean Six Sigma or TQM?

There is no single right answer to this question, and we certainly cannot begin to provide a comprehensive answer within the scope of this article. Neither methodology – Lean 6 Sigma or TQM – is easy or simple to implement. They both require a commitment of time and resources that is significant and long lasting.

With that said, though, the very best business results are produced with a Lean 6 Sigma initiative that is fully supported, widely applied, and comprehensive in scope. Only 6 Sigma goes beyond specific products and services to transform entire processes and organizations, creating exceptional performance that shows up as real, tangible business results.

TQM is certainly a valid, worthwhile methodology that has produced some dramatic success stories over the years. It tends, though, to produce successes that are relatively short lived in comparison to 6 Sigma results. Most experts say this is because TQM does not fully integrate overall business issues and strategies into the improvement initiative.

Learn more information about 6Sigma.com’s Lean Six Sigma training coursework, available as classroom, onsite, or online options.

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The Highest Degree

Six Sigma certification has a ranking system that it borrows from the “belt” system in martial arts. A Six Sigma Master Black Belt or MBB holder is an individual who has completed the highest degree of training within this methodology and has completed six sigma black belt, green belt, yellow belt and white belt programs.

Six Sigma black belt is a process improvement method in which individuals receive instruction and are certified to help companies in analyzing and improving their operations. The end result is the elimination of variance and increased revenue.

What do Six Sigma Master Black Belts Do?

With the popularity of the Six Sigma black belt process, certified Master Black Belts are required in all types of organizations, whether it is a product or service based company. They possess the skills to improve the workflow of any business allowing the company to save millions of dollars every year. This is done by creating a framework within the organization that allows for continuous efficiency.

Six Sigma Master Black Belts can also help businesses improve relations with clients. This is because improvements in the workflow will result in improved product/service quality, reduced cycle times, and low costs/unit (resulting in low prices).

Multinationals also require individuals with Six Sigma Master Black Belt skill levels. This is because in global operations, the core problems of the company are hard to spot. But with the analytic approach taught to Six Sigma black belt trainees, these can be easily spotted and resolved.

More importantly, Master Black Belts can literally rescue companies on the verge of closure or bankruptcy.

What a Certified Six Sigma Master Black Belt Brings to the Organization

It is important to note that hiring a Six Sigma Master Black Belt does not necessarily mean that the company already uses the methodology. The Master Black Belt will be called in to train competent employees and managers, and communicate with them in lucid terms the necessary changes to be implemented in the company.

If an organization has already incorporated Six Sigma in its operations, the Master Black Belt will start by selecting the best Yellow, Green, and six sigma Black Belt professionals to create the most efficient project team.

Next, Master Black Belts will work with six sigma Black Belts in leading Six Sigma projects. One of the most important aspects of the methodology is the gathering of data or statistics that the Six Sigma Master Black Belt will observe and analyze to reach proper conclusions about the business processes.

To sum it up, a Six Sigma Master Black Belt is responsible for:

• Training Green and Black Belts
• Providing innovation tools to Black Belts
• Conducting Workshops
• Designing and implementing Six Sigma projects

Who Can Go for Six Sigma Master Black Belt Training?

Usually companies choose individuals from upper level management to go for Six Sigma Master Black Belt training. These are usually leaders and managers who have already received six sigma Black Belt certificates. In most cases, Master Black Belt trainees will have some level of experience working as a Black Belt or other project management position that has required the completion of 10 projects or more.

Master Black Belts are expected to use Six Sigma tools and management skills with ease and develop customized designs for individual companies or specific projects within a single company.

Who Provides Six Sigma Master Black Belt Level Training?

Various institutes provide Master Black Belt Training. Moreover, this training is also provided by the organization to their upper level employees. There are a limited number of organizations that provide a recognized Master Black Belt training program. A traditional classroom approach is preferred for this level of training and certification compared to other six sigma courses.

Duration of Courses

Finally, a Six Sigma Master Black Belt training course should require at least two weeks of training spread out over one to two months. However, employees receiving onsite six sigma black belt training may complete this program in a shorter time.

Learn more information about 6Sigma.com’s Lean Six Sigma training coursework, available as classroom, onsite, or online options.

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