Where do we start?
In many cases, we know exactly what we want to work on. We have a chronic problem that generates scrap, or we may have many customers complaints resulting in returns or recalls. In such cases, we get our team of Lean Six Sigma experts to start working…
But what if we don’t have one specific BIG problem? Should we relax and forget about it? Not really! A report on costs of quality (CoQ), especially those concerning non-conformance, will be worth our efforts.
It is estimated that between 20% to 40% of sales are quality-related costs. One third of CoQ is related to conformance (Prevention and Appraisal). The rest, or 67%, is related to non-conformance (failure). Failure costs are divided into two types: (1) Internal Failure: Failure cost incurred before release of the product to the customer or providing the service, and (2) External Failure: Any quality-related cost incurred after the product gets to the customer. Examples of internal failure include scrap, rework, re-testing, etc. As for external failure, warranty charges, returns, recalls, remedial upgrade of software are some of many examples.
There is a lot that can be done if we are able to separate our failure costs from the overall costs of goods sold, don’t you think?