Cost of Poor Quality

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9 hours 53 minutes
Video Transcription
Hi, guys. Welcome back. I'm Katherine McKeever, and today we're going to go over the custom of poor quality.
So for this one, I particularly enjoy this topic because I always find it's very enlightening when we go through the exercise of actually calculating are poor quality. But today we're going to understand the cost of poor quality.
So when we talk about what is the cost of poor quality, the easiest way to think about it is from the NBA's on the crowd.
It's an opportunity cost. It's what do we lose when we do these other things? So this is fundamentally a measure of loss. Um, we'll talk through a little bit about how that lost manifest,
but we want we think of it this way because we spend money in detection and prevention, but so that money is gone, that that's our son cost. But we believe that the money that we spend in detection and prevention is in fact less
than what we would spend in product failures.
So if I use my money here, what don't I spend my money elsewhere? That's what opportunity cost is. That's what the context of cost of poor quality is from Lean and six Sigma,
So there are five fundamental types of poor quality that have cost associated with him. You have prevention, which is how much it costs to prevent poor quality. So so it never happens in the first place. You have appraisal, which is fundamentally auditing. It's How do you check to make sure
that your product meets your customer standards or your organization standard?
You have failure. This is going to be when it doesn't meet those standards. So you see this CA manifest in different ways, like rework, scrap, those sorts of things you also have controllable. Um, so this is when we make sure that our customers with our customers only get the good stuff
and you have resultant, which is what happens if the bad stuff touches the customers. So these are not mutually exclusive. Prevention, an appraisal are often clumped together.
Failure and resultant are also generally clumped together. You can use them together, but they are different. So the example that will give because between prevention and appraisal, which those seem very similar, is prevention would be what you're doing. Now you are getting a lean six sigma training, so that you learn how to improve the processes
so that we make less poor quality
that is independent from learning how to do a Q A department and maybe being able to figure out how do we check to make sure that we're meeting our standards. So
five different types, not mutually exclusive. You can have multiple types at the same time with that when we talk about,
um, opportunity costs. So fundamentally cost of poor quality is about the stuff you don't see. So I love the iceberg analogy because I mean, some of it's pretty straightforward. How much does it cost to run a Q A department? We know what that is. How much do we spend in scrapper rework. We know what those are,
but these are the things that we don't necessarily know to quantify. So these are the ones that hide under the surface.
So things like, how many customer complaints are we getting? What does that mean for us? How often does our process slow down that changes are throughput rate or are cycle time? What about our customer confidence? So remember we talked quite a bit about voice of the customer and customers feel variation
Eso That's where fundamentally consistency is key.
Um, what about loss of employee morale? How does that relate to process slowdown? These are all costs associated with poor quality that don't necessarily ever really get quantified.
But because we are now lean and six Sigma people, there is a formula for everything. So we actually can articulate the custom poor quality in a dollar volume.
So we're gonna look at the probability of failure event. So how likely is it? We're gonna have an event that needs the resultant so the customer knows about it? What about the impact or severity of the failure? Is this You put pickles on my burger when I didn't want TEM?
Or is this you gave me salmonella?
Um, we're gonna also look at So now we're gonna have a base number. So we have a probability compounded with our impactor severity. We're gonna now look at the current cost associated with it. So these were going to be our appraisal tools. These are going to be our audits. They could be our prevention. So taking classes like this, um,
and they could be You see it a little bit and material But primarily we're going to say that this is prevention and, um, audits. Then you're gonna look at how much does it cost? A result of the failure. So if I take my burger back and it's got pickles on it,
how much do you spend on giving me a burger without pickles as compared to, say, like hospital bills.
All of this comes out to a dollar value, So cost of current appraisal and cost to result failure. These have dollar values associated with him, which means at the end of the day, your metric is a dollar value. This is a very eye opening number when we start thinking about this. So,
um, where you start seeing some of the things that are a little difficult to quantify, But we still want a factor.
Things like consumer confidence that goes into your impact or severity of failure. So if you have a type of failure that your customers will never come back to, that's a solid 10 guys. We want to pay attention to that so cost of poor quality formula
when we talk about having ways to articulate our metrics
to our leadership, we talk about defects or DPM most of defects per 1,000,000 opportunity. Another way that I like to report our leadership is our c o P. Q. So how much are we spending to make sure that our customers don't feel it?
So I wanted to give you guys a real life example. So we're gonna talk about controllable and resultant. So remember, controllable is what we spend to make sure that our customers don't feel the poor quality. These are completely different list. This is not a 1 to 1 relationship and but
controllable. What do we do so the customers don't feel it?
Resultant. This is poor quality. The customers do feel it. So from a software perspective, some of the things we do for a controllable cost, a poor quality design reviews, costs money. Everybody sitting around that table has a salary quality assurance and testing
same type of thing as your cue. A department's cost money you haven't associated with it.
Code reviews back to the capacity everybody there gets a salary. We have these things associated with how to be how we're spending our money to prevent poor quality.
Conversely, let's talk about the costs that associate when our customers get it. So crashes. Um, how many times have you guys heard about customer complaints when your system crashes like you just got that big thing done? And boom, it doesn't work.
Downtime. If you're the type of servants software
that requires a lot of updates, this is going to have those under the water iceberg affect things where you're gonna have the customer complaints, loss of confidence, those sorts of things. Last one system errors. Anytime something's glitchy, you run the risk of losing your customer again. So remember, opportunity cost is a factor in this.
These are some examples of costs that are associated with poor quality.
So with that today, we talked about the cost of poor quality we talked about. There is money associated with preventing poor quality and that we want to look at how we invest that this is important from a positioning perspective
because it also gives you a platform to talk about why it's important to invest in decrease into improving.
Your quality is a whole decreasing your poor quality.
In our next video, we're going to switch gears a little bit, and we're gonna talk about Project Select selection, so build upon what we learned in Yellow Belt. So I will see you guys there
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