Cost of Quality
(CoQ)
An analysis of the cost of maintaining a
state of compliance.
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A Little History
Joseph Juran first discussed cost of quality analysis in
1951 in the first edition of Quality Control Handbook
Armand Feigenbaum identified the four cost categories
in 1956 in “Total Quality Control” in the Harvard
Business Review, Vol. 34, No 6
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Cost of Poor Quality
The Cost of Poor Quality (CoPQ)
“CoPQ is the sum of all costs that would disappear if
there were no quality problems.”
Joseph Juran
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"The Cost of Quality."
It’s a term that's widely used – and widely misunderstood.
The "cost of quality" isn't the price of creating a quality product or service. It's the cost of
NOT creating a quality product or service.
Every time work is redone, the cost of quality increases. Obvious examples include:
• Reworking a manufactured item.
• Retesting a product.
• Rebuilding or repairing a machine.
• The correction of mistakes in documents and records.
• Reworking a service, such as the replacement of an erroneous order.
In short, any cost that would not have been expended if quality were
perfect contributes to the cost of quality.
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CoQ Categories
Armand Feigenbaum identified the four cost categories
in 1956 in “Total Quality Control” in the Harvard
Business Review, Vol. 34, No 6:
– Prevention costs
– Appraisal costs
– Internal failure costs
– External failure costs
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Prevention Costs
Costs incurred in planning, implementing and
maintaining a quality management system that is
intended to ensure conformance to quality
requirements.
Th i
si
sth e cost of p re ve nti
ng fai
lure .
This represents the application of a QA approach to
quality and focuses on developing robust, reliable
systems.
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Appraisal Costs
Costs incurred in measuring and auditing design,
products, components and materials in order to
establish the degree of conformance with quality
requirements.
Th i
si
sth e cost of ch e cki
ng fai
lure .
This represents the application of a QC approach to
quality and includes checking and testing.
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Quality Assurance/Quality Control
 If an activity is carried out to PREVENT the possibility of
occurrence of defects it is usually QUALITY ASSURANCE
 If an activity is carried out to appraise an outcome or DETECT
defects it is usually QUALITY CONTROL
“Quality cannot be tested into products; it should be built-in or
should be by design.”
FDA, Guidance for Industry: Process Analytical Technology
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Internal Failure Costs
Internal failure costs arise where products, components
and materials fail to conform to quality requirements
prior to transfer of ownership to the customer.
Th i
si
sth e cost of de ali
ng wi
th i
nte rnalfai
lure .
This category will include scrap, rework, etc.
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External Failure Costs
External failure costs are incurred when products fail to
conform to quality requirements after transfer of
ownership to the customer.
Th i
si
sth e cost of de ali
ng wi
th e x te rnalfai
lure .
This is the most damaging as it results in significant
customer dissatisfaction as well as cost.
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Genentech
“Defects cost us money . . . and the closer the defect
gets to the customer, the more expensive it is. The
earlier we address defects, the more cost-efficient
and effective we can be as an organization.”
Matt Pearson, Associate Director, Operational Excellence
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CoQ Application
Although used widely in many industries - automotive,
consumer goods, electronics, aerospace, etc. – the
take-up in the pharmaceutical industry is low.
This is symptomatic of an industry that is generally very
slow to adopt modern methodologies.
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Calculating CoQ
Using a simple, but detailed questionnaire, data is collected under the four
categories:
– Prevention costs: quality planning; audits; reviewing and verifying designs;
process and equipment qualifications and validations; training; quality
improvement programmes; etc.
– Appraisal costs: in-process inspection; inspection and test equipment; finished
product inspection and test; product and material identification and traceability;
standard documents and records – use, control and storage; etc.
– Internal failure costs: non-conforming product; replacements, rework; reinspection; downtime, breakdown; scrap, write offs, low yields and wastage;
quality records investigations - errors & corrections; surplus inventory; etc.
– External failure costs: loss of reputation; customer complaints, investigations
and reports; market withdrawals; product rejected and returned; customer
defections/sales loss due to poor service; total cost of recalls and product
liability, etc.
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How Much Quality Costs
Total Cost of Quality is, on average, 25% of the value of
sales.
Source: Cost of Quality as a Driver for Continuous Improvement, Roger E Olson, Systems Quality Consulting
“You can easily spend 15% - 30% of your sales dollars on
non-conformance.”
(Philip Crosby)
“In most companies, the cost of poor quality runs at 20% 30% of sales.”
(Joseph Juran)
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How Much Quality Costs
At 25% CoQ:
• the first two hours of the 8 hour working day are spent
covering the cost of poor quality!
or
• you haven’t cleared the cost of poor quality until some
time Tuesday!
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Managing CoQ
The most expensive cost is that of external failure.
Not only does it have a financial impact, it is severely
damaging to the company’s reputation.
Activities should focus on e li
mi
nati
ng external failures.
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Managing CoQ
The focus should then be on reducing internal failure
costs to zero.
If a goal greater than zero is selected, it’s like saying
defects and failure are OK in this organisation!
Internal failures create scrap.
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Managing CoQ
Appraisal costs result from checking and testing – QC.
“Inspection with the aim of finding the bad ones and
throwing them out is too late, ineffective and costly.
Quality comes not from inspection but improvement of
the process.”
Dr W. Edwards Deming
Activities should focus on developing robust processes
that require minimal inspection.
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Managing CoQ
The most effective way of achieving the highest quality
at the lowest cost is by developing robust, reliable
processes that produce quality product on a
consistent basis – right first time, right every time.
This is a QA approach to quality.
Aim for aerospace levels of reliability – 6-sigma and
beyond!
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Maintaining Performance
“You can’t manage what you don’t measure.”
Quality mantra, incorrectly attributed to Dr W. Edwards Deming.
“If you don’t keep score, you’re only practising.”
Jan Leschly, CEO, SmithKline Beecham, 1994 - 2000
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Maintaining Performance
The key to running any operation is timely measurement of the drivers
of the desired output.
Simply measuring the output without an understanding of how it is
derived will lead to frustration and inappropriate, and possibly
damaging, tampering with the process.
Process
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Output
Presenter Information
Robert J Hayes is a Chartered Mechanical Engineer, a Fellow of the Institution of
Mechanical Engineers and a Fellow of the Institution of Engineering and
Technology.
He is Vice-Chair of the IMechE’s Pharmaceuticals Technical Activity Committee.
Bob has spent over 30 years working in the pharmaceutical industry in a variety of
roles with major international manufacturers, including production and
engineering management positions in secondary manufacturing sites.
He has also worked in other industries including: aerospace, finance, construction,
precision engineering, food, packaging.
Bob sits on the Pharmaceutical Manufacturing Advisory Council of Cogent, the Sector
Skills Council for the Life Sciences industries.
Bob runs SeerPharma (UK) – www.seerpharma.co.uk – and can be contacted on +44
(0)1347 833 101 or by e-mail to: bob.hayes@seerpharma.co.uk
www.seerpharma.co.uk
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