Congratulations on your COPQ metric. I can comment your your post in several ways:
- You are correct: DPPM is not a good engagement metric for top leaders. cost of quality is better, as all strategy is ultimately measured in dollars.
- Not having a cost of good quality component in your metric handicaps you. Are you spending enough on investments (improvement or prevention) relative to the areas of major COPQ? Using only COPQ limits your strategic planning.
- With rapid growth, you DO need to divide your cost of quality by some measure of volume. COGS is convenient but suffers from the problem of timing. Cost of quality changes with production cost cycles, not with sales. Cost of quality needs a 'leveling' divisor that cycles with production. How about cost of production?
Finally, I try to promote language that fits today's business. Prevention could be called 'Investments', Appraisal could be 'Monitoring', Internal Failure is really just 'Waste', and External Failure might be called 'Downstream Consequences' to allow for supply chain details.
Douglas C. Wood
ASQ CQE, SSBB, CMQ/OE, CQA
5507 Mission Road, Fairway, KS 66205
Office Cell: (913) 669-4173
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Any thoughts on a target? In terms of what % should we shoot for ("best in class").
I believe a better approach might simply be to target a certain % reduction each year.
Interesting topic. I was looking for the same type of information. I noticed that you didn't get any hints about the best class target in the previous comments. Here is my little contribution and I would like to see others posted in this discussion as well. The best plants I'm tracking with the same indicator are less than 1% (% CoQ of COGS). If anyone has better numbers, let us know.
Here's another way to look at it: If your COQ was equal to or better than the best-in-class (BIC) number, would you stop trying to improve it?
Being able to say you are better or worse than BIC has no real value. Being able to say you are continuously reducing it does.
1% GoGS suggests you are looking at internal waste, but not measuring downstream consequences, monitoring costs, or investments in prevention. It is also possible (as Duke Okes has suggested here) that you are only measuring the easy-to-collect kinds of waste.
I think more important than the % of CoGS is the proportion of expenditures between prevention, appraisal, and failure costs (or investments, monitoring, waste, and downstream consequences). I would target proportions of 1:4:9, or $1 for investing in prevention, $4 in monitoring quality, and $9 in waste and downstream consequences.
I am late to the party here. However I do have a relevant publication from September 2021 Quality Progress on Cost of Quality. Your questions are answered in this publication.
Many of the contributors to this thread have made great points. I wanted to add a few more.
- I led a ISO TC 176/ SC3 work Group to revise from scratch and publish ISO 10014:2021. This standard provides guidelines for realizing financial and economic benefits from Quality Management Systems.
- ASQ TR2:2018: Cost Of Quality: Guidelines For Development, Implementation And Monitoring To Improve Quality And Performance - Doug Woods in this thread replies and I along with another professional co authored this National Standard. This is another helpful document for COQ.
- I published a Standard Issues column this month (September 2021) - Standard Issues: Demystifying Cost Of Quality An In-Depth Look At The Importance Of Meeting Quality Standards - introduces the ASQ TR2 standard and also discusses implementation strategies, failure modes, and lessons learned. You may find it helpful.