Halve Your COPQ. Double Your Profit.
The Chairman of a large steel plant, in the 1980s, resisted any formal quality intervention on the grounds that even 3 percent seconds (read – rejects) of steel from his plant had a pent-up demand.
Is seconds an opportunity or a threat?
By translating the 3 percent seconds into the language of top management, the legacy opportunity converted to a threat. What was this language? MONEY.
The Cost Of Poor Quality (COPQ) for 3 percent seconds, was 30 percent of total cost!
The Chairman compared this figure with his profit. He was first embarrassed. And within minutes he paced his cabin in rage. He called for his Managing Director to his cabin.
The Chairman asked: How have we allowed this to happen? Is this true for our competitors too?
The Managing Director smiled: Mr Chairman, if this is the case, I see an opportunity.
Not amused, the Chairman screamed: Are you being funny?
A calm Managing Director articulated a Vision: I see us becoming the lowest cost steel producer in the world!
How?
Elementary, Mr Chairman. By halving the COPQ. It will also double our profit….(pause) …..and with no capital investment.
Ten years later, the same steel plant became the lowest cost, steel producer in the world, by making a habit of Continuous Quality Improvement.
THINK
- What are the Best Practices you have harvested?
- What should the Chairman do next?
COPQ is MUDA = Money = Potential Profits waiting to be harvested b and must become a Financial Mgt and Budgetary focus for every Board and Top Mgt on which improvements must be driven by them organisation wide and reviewed with metrics . Preparing annual budgets cannot become an acounting exercise based on historical data. It Is the foundation of Financial planning done every year on with Marketing New Product Development , etc.
COPQ is approximately 25 % of total costs in batch mode manufacturing.
COPQ is lower for continuous process industries.
COPQ is higher for service industries.
Are we so rich that we can ignore these numbers???