Organizations often incur more costs because they do not identify the hidden costs of poor quality.
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Lean Six Sigma prevents errors from deteriorating the quality of the end product. It does that by optimizing processes and production procedures. To prevent errors from occurring in the first place, Lean Six Sigma helps to determine the actual cost of poor quality – those hidden costs that cause the most damage.
What Does COPQ Include?
COPQ includes both apparent and hidden costs. It does not consider costs in the identification and prevention of errors and defects. COPQ includes the following:
- Cost in producing defective material
- Cost in improving the quality of a product to match consumer expectations
- Cost due to errors by human resources or machines
- Rework cost
- Cost in fixing defects
The Iceberg of Visible and Hidden Costs
The imagery of the iceberg is often used to understand COPQ. Just like more than 90% of the volume of an iceberg is not visible because it is underwater, hidden costs make up the bulk of costs. Not evaluating them in planning because they are not visible is a mistake that can lead to more costs without any benefit. For reducing cost of production while maintaining quality, organizations need to assess all the hidden costs that impact the quality of the end product.
Advantages of COPQ
Calculating the COPQ help organizations to know their costs in relation to the quality of their product. To cut down costs in reworking, and in fixing or enhancing a product, the errors and defects that are leading to the poor quality of product are identified. Factors that lead to more costs and that are not apparent are evaluated during planning so that they can be avoided or eliminated.
When planning, organizations spot areas that can result in the poor quality of the product. Lean Six Sigma uses COPQ to determine the visible and hidden costs for the ultimate aim of customer satisfaction at reduced costs. Some of the hidden costs that are identified and evaluated are administration costs, cost of lost sales, returns, costs of conflicts, excessive overtime, delays, excess inventory, and waste. Many organizations do not consider these hidden costs and base their planning on the apparent costs.
COPQ and other methods used under Lean Six Sigma provide a holistic view of the costs aimed at reducing increase in costs due to errors that can be prevented. This helps organizations to create more impactful plans regarding the quality of the end product, customer expectations, cost of production, and pricing.
To ensure that expected quality is maintained, and expenditures on managing and fixing errors is reduced, organizations must control their costs before they are made and not after. Lean Six Sigma helps to achieve this goal without adding costs in prevention.
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