Welcome

Gayathri Lean consultancy

Gayathri Lean consultancy
Service offered:
Training & Hands hold implementation support
1. Lean manufacturing techniques
2. TPM (Total productive maintenance)
3. Job method for Assembly operation
4. Micro motion study for Assembly & Robotic operation
5. Dust reduction in painting parts – Robotic and manual spray paint shops

gayathri.leanconsultancy@gmail.com
Contact: 9786257107, 7010378025
Pondicherry –India
The Cost of Poor Quality (COPQ)
The price paid for not doing the
right things, right the first time. The
price could include scrap, rework,
(which would include material and
labor),
The Cost of Poor Quality (COPQ)
COPQ is only the tip of the iceberg!
BECAUSE:

Maintenance and service

Rejects Warranty claims
Rework and sorting Materials Obsolescence
Scrap Additional labor hours
Opportunity cost if sales Quality engineering and
greater than plant capacity administration
Improvement program costs Expediting
Lost customer loyalty Excess inventory
Process control Supplier control
Quality audits Longer cycle times
Cost to supply chain Cost to customer
Inspection/test (materials, equipment, labor)
Juran and Crosby on COPQ
 5
W HAT IS C OST OF P OOR Q UALITY ?
 In addition to the direct costs associated with finding and fixing
defects, “Cost of Poor Quality” also includes:
• The hidden cost of failing to meet customer expectations the first time
• The hidden opportunity for increased efficiency
• The hidden potential for higher profits
• The hidden loss in market share
• The hidden increase in production cycle time
• The hidden labor associated with ordering replacement material
• The hidden costs associated with disposing of defects

 For most companies today, the cost of poor quality is likely to be

25 % of sales contribution .

 In almost every company where the COPQ is unknown, the COPQ

exceeds the profit margin.
•COPQ on the average is 17% of sales of contribution

•Total COQ on the average is 25 % of sales contribution

•COPQ for some companies is as high as 40 % of

sales contribution

•COPQ is typically 3 to 6 times as large as profit

 C OST OF P OOR Q UALITY

 Prevention

Cost of Attaining Quality

 Appraisal: Prediction
Audit

 Appraisal: Detection

Cost of Poor Quality

 Failure: Internal
External
 Q UALITY C OSTS
Components

Conformance Non-Conformance
 T OTAL Q UALITY C OST

I want my
money
back!

Internal External
Prevention Appraisal
Failure Failure

Cost of Quality (COQ)

E XAMPLES OF P REVENTION E XPENSE
 Quality Planning
 Training and Education
 Process Definition
 Customer Surveys
 Preproduction Reviews
 Technical Manuals
 Detailed Product
Engineering
 Early Approval of Product
 Specifications
 Purchase Cost Targets
 Process Capability
 Studies
 Preventive
Maintenance
 Supplier Qualification
 Job Descriptions
 Housekeeping
 Zero-Defect Program
E XAMPLES OF A PPRAISAL E XPENSE
 Test  Supplier Certification
 Inspection  Employee Surveys
 Process Controls
 Security Checks
 Train QA Personnel
 Safety Checks
 Product Audits
 Reviews:
 Quality Systems Audits
– Operating Expenditures
 Customer Satisfaction
– Product Costs
 Surveys and Audits
– Financial Reports
 Prototype Inspection
– Capital Expenditures
 Accumulating Cost Data
E XAMPLES OF I NTERNAL FAILURE C OSTS
 Substandard Product  Supplier Problems
– Scrap and rework
 Scrap or Rework
– Late deliveries
 Re-inspection
– Excess inventory
 Redesign/Engineering
Change  Equipment Downtime
 Process Modifications  Accidents, Injuries
 Payroll Errors  Absenteeism
 All Expediting Costs  Unused Reports
 Off-Spec/Waiver  Missed Schedule Cost
 Abandoned Programs  Lost Sales (any cause)
 E XAMPLES OF E XTERNAL FAILURE C OSTS
 Product Recall  Lawsuits
 Handling Complaints  Reports
 Customer Service – Sales and service
Caused by Errors
– Returns and allowances
 Products Returned
– Failure
 Analysis of Returns
 Evaluation of Field
Stock
 Late Payments and
Bad Debts

Lost Sales Because of Customer Dissatisfaction!

The Cost of Poor Quality (COPQ)
Quality performance of a 3s organization:
Defect Level Poor quality casts a
5 to 7 % of External failure
long cost shadow! cost
Output

Internal failure
cost

Resultant
Poor Quality
Costs 20 to 40 %
of Cost of Goods

Level of Cost of
Internal Defects Poor Quality
The Cost of Poor Quality (COPQ)
New view on quality performance:
Quality improvement is achieved not by adding inspectors, who are not
very efficient, but by improving the process to eliminate the root cause(s)
of poor quality, so that problems are resolved once-and-for-all, rather than
replicated in new generations of new products.

Defect Rate
Cost of Control

Failures Cost
3s
4s
5s
6s
Preventing Poor Quality (Comparison)

Prevention Costs

Benefit
Appraisal Costs

Repair Costs Prevention Costs

Failure Costs Appraisal Costs

• Internal Repair Costs
• External
Failure Costs

Before Quality After Quality

Cost Cost
Alignment Alignment
Price of Conformance and Price of Non conformance
Over Time
The Cost of Poor Quality (COPQ)
“An ounce of prevention is worth a pound of cure.”
 s Verses PPM
19

Sigma

s PPM

2 308,537
3 66,807
4 6,210
5 233
6 3.4

Sigma is a statistical unit of measure that reflects process

capability. The sigma scale of measure is perfectly
correlated to such characteristics as defects-per-unit,
parts-per million defective, and the probability of a
failure/error.
 Q UANTIFYING THE P OTENTIAL
B ENEFIT
Sigma Cost
6 sigma <10% of sales contribution
5 sigma 10-15% of sales contribution
4 sigma 15-20% of sales contribution
3 sigma 20-30% of sales contribution
2 sigma 30-40% of sales contribution
T HE C USTOMER S UPPLIER I NTERACTION

Supplier Customer
Delivery

Cycle Time

Price Need
Do Cost

Quality

Defects
 TOTAL Q UALITY M ANAGEMENT (TQM)

Customers will seek out Improved quality that exceeds

the highest quality customer expectations will generate
product. more revenues that exceed the cost of
quality.

Therefore,
quality is “free”.
 TOTAL Q UALITY M ANAGEMENT (TQM)

W. Edwards Deming proposed that

improving quality reduces cost and improves Quality can be and should be
profitability. improved continuously.

Revenues
Total Revenues & Costs

Max Profit

Cost

Max Quality

Quality
 R ETURN ON Q UALITY (ROQ)

Profit is maximized at the The optimum quality level is always achieved before
optimum quality level. maximum attainable profit is reached.

Cost
Total Revenues & Costs

Revenues

Max Profit

Optimum Quality

Quality
 M ETRICS - D EFINITIONS

Classical Yield:
 The number of good units divided by the number of units
tested or inspected

Rolled Throughput Yield (RTY):

 The probability of a unit going through all process steps
with zero defects. This is used to identify and quantify the
“Hidden Factory”

Hidden Factory:
 The amount of work above and beyond the requirements
necessary to produce a unit of output
Hidden Factory
 C LASSICAL Y IELD

Out
In Factory Out Yield = In

Scrap

The number of good units produced which have no

defects, divided by the number of units started, tested
or inspected.
 C LASSICAL Y IELD
Not all Yields are alike!

100 Factory A 85 100 Factory B 85

15
Scrap 50 35

Rework
Factory C: The Hidden Factory
15 Scrap
 C LASSICAL Y IELD
Not all Yields are alike!

100 Factory A 85 100 Factory B 85

15
Scrap 50 35

Rework Equal Yields … Unequal Costs

Factory C: The Hidden Factory Yield does not correlate to cost, cycle time
Classical
or inventory levels 15 Scrap
 D EFECTS AND THE H IDDEN
FACTORY
Each defect must be detected, repaired and
placed back in the process. Each defect
costs time and money.

OK
Inputs Operation First Time 90%
Inspect Customer Quality
Yield
NOT
Rework OK Yield After
Inspection or Test
Hidden Factory
Scrap • Wasted Time
• Wasted Money
• Wasted Resources
• Wasted Floor space

Manufacturing Variation Causes A "Hidden Factory"

Increased Cost - Lost Capacity
 RTY V ERSUS FTY
OK
Inputs Operation First Time 90%
Inspect
Yield = Customer Quality
Yield After
Rework Inspection or Test
NOT
Hidden Factory OK
Scrap

Process Final Test

A B C D
66%  90%
90% 90% 90% 90%
Yield Yield Yield Yield ... why not?
Rolled Yield 81 % 73 % 66 %

Rolled-Throughput Yield Classical First-Time Yield

Using “final test (or first time) yield” ignores the hidden factory. Final test
performance is a function of inspection & test not actual defect data.
R OLLED T HROUGHPUT Y IELD (Y RT )

YRT = .955 x .97 x .944 = 87.45%

95.5%
Initial Review Yield (YTP)

97.0%
Application Processing Yield (YTP)

94.4%
Final Approval Yield (YTP)

Wasted resources (time, money, etc.)

131,000 PPM defective = 87.45%
Scrap
 R OLLED T HROUGHPUT Y IELD

1000 Process 1 950 The probability of going through

95.0% all process steps with zero defects

Process 2 930 97.9%

50 820
Process 3 88.2%
20
Process 4 810
110 98.8%
10

Rework 90 900
47.4% 90.0%
Y IELD C OMPARISON

Final Classical Yield

- Rolled Throughput Yield

=
Hidden Factory
The High Level Cause and Effect View
Short Term Cost of Quality and Total
Quality management ( Quick Fix )
Long –Term Cost of Quality and Total
Quality Management
 PHILOSOPHY

• Our survival is dependent upon growing the Business

•Our Business growth is largely determined by customer satisfaction
•Customer Satisfaction is governed by Quality ,Price and delivery
•Quality ,Price and delivery is greatly limited by VARIATION
•Process VARIATION leads to an increase in defects ,cost and cycle
time
• To eliminate VARIATION ,we must apply the

Right knowledge
Lean or Six Sigma?
Which one to select ?
Two most recognized productivity
improvement platforms…

by world class companies around

the world…

LEAN SIX SIGMA

 Billions Dollars Club

LEAN SIX SIGMA

TOYOTA MOTOROLA
Wiremold GE
Lantech DuPont
Boeing Honeywell
Solectron Kodak
more to the lists…
 Key Points Summary

1 2 3

Lean SixSigma Lean Sigma

Lean Benefits 6 Sigma Benefits LeanSigma

Key Tools Key Tools LSS X-plan
Success Factors Success Factors LSS Speed Loop
Challenges Challenges Benefits
LEAN BENEFITS:

y Deploying effective ways to eliminate WASTE

(Non Value Added) with the goal of
- reducing process cycle times
- improving delivery performance
- reducing cost of operation
LEAN BENEFITS:
Space Saving 2004 Shingo Prize Winners
Productivity Improved DELNASA 5&6 - DELPHI
WIP Reduction - 41% productivity improvement
Lead Time Reduction - 70% inventory turn improvement
Quality Improvement - 40% improvement on 1st time quality
- 200% participation in employee suggestion
- 22 million work-hour without a lost day
Cost Reduction
Shorten Delivery
 LEAN TOOLS
5S Workplace One Piece Flow
Value Stream Mapping Cellular Production
Kaizen Pull Production
Work Standardization Poka-Yoke
Demand/Load Leveling Quick Changeover
Visual Management Total Productive Maintenance
Employee Involvement Supply Chain Management

not complete list

 LEAN SUCCESS
lies in

finding the Effective Ways

to eliminate wastes
 5Q that influence success
5S Workplace
Cellular Production Which one to use?
Value Stream Mapping
Pull Production
How to use?
Poka-Yoke
Quick Changeover
How often?
Demand/Load Leveling
Partial or full impact?
Visual Management
Employee Involvement Who is leading?
Total Productive Maintenance
 LEAN CHALLENGES
y Process Incapability and Instability
y Demand Fluctuation
y People Issues
SIX SIGMA BENEFITS

y Using statistical techniques to understand,

measure and reduce process VARIATION
with primary goal of
- reducing process variation
- reducing defects
- reducing cost of poor quality
SIX SIGMA BENEFITS:
Critical Process Stability
Simplified Process
Reliability & Stability
Defect Reduction
Yield Improvement

Cost Saving
Customer Satisfaction
 SIX SIGMA Tools
Process Mapping Cost of Quality
SIPOC –supplier Input Process output customer ANOVA
CTQ- Critical to Quality Multi-Variance
Hypothesis Testing
SPC – Stastical process control
FMEA- Failure Mode Effect Analysis Regression
Statistical Tools
DOE – Design of experiments
MSA Gauge RR
QFD- Quality Function deployment
Root Cause Analysis
DFSS- Design for six sigma

Not complete list

 H ARVESTING THE F RUIT OF S IX
SSweet
IGMA Fruit
Design for Manufacturability
5 s Wall, Improve Designs

Bulk of Fruit
Process Characterization
and Optimization

--------------------------------------- 4 s Wall, Improve Processes

Low Hanging Fruit
Seven Basic Tools

--------------------------------------- 3 s Wall, Beat Up Suppliers

Ground Fruit
Logic and Intuition
We don't know what we don't know
We can't act on what we don't know
We won't know until we search
We won't search for what we don't question
We don't question what we don't measure
Hence, We just don't know
SIX SIGMA SUCCESS
lies in
Expert application of
Statistical Tools
to eliminate process variation
 5Q that determine success
Process Mapping
SIPOC
Which one to use?
SPC
FMEA
How to use?
DOE How often?
QFD
Partial or full impact?
MSA Gauge RR
ANOVA Who is leading?
Multi-Var and Hypothesis
Regression
SIX SIGMA CHALLENGES
y Dedicated Black Belt Program
y Long Project Duration
y Candidate Issues
 LEAN or SIX SIGMA

Which one is for us ?

 COMPARISON
Lean Six Sigma
Theme of Reduction Waste Variation
Key Justification Speed 3.4 DPMO
Saving from OpCost CoPQ
Enhance Value Delivery Quality
Phase 1 Learning Curve Short Long
Technicality Moderate High
Project Leadership Kaizen Black Belt
Seeking a suitable
IMPROVEMENT
PLATFORM
Integrating Lean and Six Sigma

Lean Sigma
 Lean 6 Sigma
Speed combine
Quality
DIFFERENCE

LEAN SIGMA via Pareto Principle

80% of problems come from 20% of the causes
y By employing the Pareto’s 80/20 rules
y 80% of benefits can be derived via
application of 20% of the tools at one time
LEAN SIGMA unique features
y Rapid Deployment
y Clear Targets
y Higher Improvement Yield
y Higher Improvement Pace
 Thanks
Gayathri Lean consultancy
Gayathri Lean consultancy
Service offered:
Training & Hands hold implementation support
1. Lean manufacturing techniques
2. TPM (Total productive maintenance)
3. Job method for Assembly operation
4. Micro motion study for Assembly & Robotic operation
5. Dust reduction in painting parts – Robotic and manual spray paint shops

gayathri.leanconsultancy@gmail.com
Contact: 9786257107, 7010378025
Pondicherry –India