Cost of Poor Quality - Can you calculate it?

[Music] welcome to complexity made simple my name is Paul Allen and the subject of today's newsletter well it's an answer to a question someone's asked me on YouTube and we're going to take a look at the cost of poor quality fat we're going to take a look at the cost of quality the cost of poor quality and we're also going to take a look at the lean wastes so that's a look at these three subjects we're gonna look at the cost of quality by different different the cost of pure quality the cost of quality the cost of poor quality and we're gonna take a look at what a lien gets up to because lien really doesn't look at cost we like to look at waste she's a completely different it's a completely different tack so we got it look we're gonna look at these three areas and I've deliberately put them in that order when you guys cover them in that order but the first one I want to cover really is the one that's really I think is most important and it's the cost of quality because the cost of quality tells you whether you need something like Six Sigma in your company and by the way it doesn't have to be called Six Sigma you might just have you know a project to dramatically improve quality in your company and the cost of quality is going to tell you so what is this thing gonna look like well it's a graph it's a Pareto diagram pretty much and you're going to put on it three totals the first temple you're going to put on this thing and this is probably going to be the biggest one the cost of repairs rejects reworks remakes etc okay anything that's a touch of the Ruiz we got to work out in money what is this costing us so what's the cost of our mistakes basically then the next one over well the next one over typically is the method that you use to try and prevent this one and normally what you do is you inspect and of course this doesn't prevent this what it tends to do tends to find this so the more you do it is then will you find it is so if you put effort here these things are going to be big they're going to be costly they're gonna be expensive so the cost of rejects repairs remakes etc the appraisal cost how much money do you spend just checking stuff because ultimately this is a saying you don't know what you're doing yeah because if you knew what you were doing you only have to inspect it after you've made it and finally of course the last category on the cost of quality how much money do you spend on prevention how much money do you spend on prevention costs making sure that you get it right first time and that's the first thing you should look at what is the cost of quality because that tells you whether you need to take a look at something like Six Sigma whether you need to take a look at the works of Deming Duran shoots yeah whether you need to do a lot of work here to shift this diagram in the opposite direction now he couldn't be your diagram he's already in the opposite direction by the way there are great companies out there Toyota by the way whatever completely in the opposite direction they won't do Six Sigma they've already said publicly they won't be doing it then I'll need to they've got their processes under control okay so first thing cost of quality then of course we come to this fine so cute the cost of poor quality which really of course potentially is just this one although there is an argument to be said both of these are the cost of poor quality because if you didn't have it you would enough to keep checking for it yeah so you know if you get rid of your defect rate this these columns here just disappear so potentially the cost of poor quality is these two here but actually there's a difference these two here are essentially what I would call known costs costs that you can calculate and quantify so the cost of your quality these are going to be internal efforts you're gonna now how many repairs you've done you're gonna know what your reject costs are like you're gonna know how many remakes you do so this is going to be something that is relatively easy to calculate not only is it relatively easy to calculate it's not going to be a contentious number people are going to agree if you are throwing ten thousand pounds with a material in the bin every year so everybody's going to agree that so these aren't known costs you know of course the cost of poor quality what what are you gonna use it for well mostly what you gonna use it for really his project selection and of course the other thing you're going to use it for is you're gonna major success with it all right they're the two there are the two main reasons that you work out the cost of quality because of course you've probably got too many problems down here you can't do them all at once you got a picks up how you going to work it out well maybe the biggest cost of poor quality might be the way however I have a problem with this because quite honestly the true cost of poor quality you're never going to know it you can never calculate it and the projects that you should pick the projects that have the biggest cost of poor quality the cost of poor quality is on calculate able and here's the issue because if your cost of poor quality is with the customers and this is about dissatisfied customers the cost of a dissatisfied customer is uncalculated ball you know you could get any satisfied customer and he could be twenty years of age and he could decide I am never buying from your company again you've lost them for a lifetime 60 years with the business gone the same mistake could be made with an 80 year old maybe there's only two years worth of business left so the cost of poor quality you can never know new the thing with the customer you can never know you've just upset you could have upset someone who goes on to be head of a major corporation who could be your biggest customer and because you upset that person when they were in a small organization you will never know that that business doesn't come your way because you let them down 20 years ago now this is not calculate about the true cost of poor quality you can do this this is straight forward money in the bins rejects in the bit what I tend to do with my clients I say look let's work this out let's make sure there's plenty of money that if we stop the money dribbling in the drain money goes straight in your pocket cash in your pocket is a great project to do high defect rates we know that you know customers customers download defects yeah so it's easy to know that we're gonna we're gonna sort out these satisfied customers it's easy to know that it's money in the back but can I put the true cost to this now motorola boy let's just go back to Margaret kind of started Six Sigma Ralph in terms of the phrase in the target etc that was their problem you know to Motorola you know poor quality was life and death to the company they needed to improve their quality by 1800 times this is there by the way this is their in market quality at the customer that I needed to improve their quality by this much now you could say to them well what's this worth if you what's the cost of poor quality worth and and Motorola could have said it's worth the business you we will lose the business if we don't so peace out because by the way this is where their competition was they don't get to this they don't equal fair competition they are literally toast so every project you do doesn't even have the cost of poor quality of the total value of Malcolm now of course it doesn't what honey should say is I've got some known costs and what it should say she's contributing to this in a major major way and that's what it should be doing it should be talking about how it improves the defect rate it can never work up the money though it can never work out the money by improving the marketplace quality so don't try don't tie yourself in knots trying to work out something that isn't necessary I don't do this I work this out and I say this is really important for the for the biggest customer for the success of the company whatever and I put these two together this is a statement this is money you put the two together it's a great project to do don't tie yourself he knows and he's one of the reasons why I like lead okay so lean what lean does is he doesn't go off the money if you want advice by the way on the best way to implement some lean techniques which I out to Whitefield book by Jeff liken and David Meyer so the - I feel book that's my favorite lean text book in it one of the things they talked about don't go and work out the amount of money that you're going to save or not save from angeline implementation that you if you do that you'll do the wrong things at the wrong time go and chase lean waste now what is the lean waste measured in its measured in time its measured in time and what they work out is the total flow time from the point where you get the order from the customer to the point where you deliver it that was two points that's the total flow time and what they do is they remove early waste out of that and they compress the time compress the term compress the time compress the time that's the way leans Darlene is not done about money now what will happen if you do that you will become super efficient and you make piles of money but they not they're not chasing the pound are chasing the dollar when they do that work and that's a much better way to work it keeps you more honest so what you don't do for instance is you don't go on buy a cheaper supplier but extend the flow time that would go right against the the target of the business if you're chasing away lean waste you've got to find a cheaper supplier and compress the time at this at the same time you can do that then it's allowable if not suppliers not allowed so lean different way of finding the projects we're going to take a waste and off the flow time and one last thing about floatin this this is the one and only measure you need people talk about and I think part of the question that I was asked via YouTube I was asked about the balanced scorecard there is no such thing as a balanced scorecard what you will do if you use a balanced scorecard is you will create tension you will create conflict in your business some some months you'll chase one number one measure other months you'll chase another number another measure and you will chase yourself around in circles the best thing to do is to put flow time as the number one measure and everything else has to report in it's a flow time and if you can't make the measure move in the right direction at the same time we're improving approving the flow time you can't do it everything is subordinate to flow time and if you do that you will all push in the same direction do projects and achieve great things and the business will just travel in the same direction constantly and that's the way to do it that's have to pick your your project some other way this doesn't have to be about Six Sigma it doesn't have to be about lean but your continuous improvement projects have to be selected how do they have to be selected well you could use cost of quality cost of poor quality or you could take lean waste out of the system my favorite even though I'm a Six Sigma guy I love this one because this one there is no argument about time there is nobody arguing about what's the cost what's the cost of D satisfied customers it's dead easy to work out yeah so it didn't why take a hell of a lot of time here there's no value in working this out in your business really you know we want something that's simple easy to understand and everybody can push in the right direction that's the cost of quality the cost of poor quality and lean waste look at this guy and make parts and parts morning [Music]

Channel: Paul Allen

Views: 5,140

Keywords: Lean, Lean Six Sigma, Six Sigma, Cost of poor quality, COPQ, TPS, Shewhart, Motorola, janam sandhu, fkiQuality, Gemba Academy, Paul Akers, Fastcap, QualityGurus, MIT OpenCourseWare, QuikSigma, Quality HUB India, Juran, Deming, Siddharth Agarwal Classes, Amir H. Ghaseminejad, Saravanan Kuppusamy, MrNystrom, Six Sigma Pro SMART, Narendar Sumukadas, Capability Statistics - Cp/Cpk vs Pp/Ppk and Sigma level, Project Management Videos, Brian Tracy, https://www.youtube.com/watch?v=QH984PnwRDE

Id: p_5nLXOsdjI

Length: 16min 17sec (977 seconds)

Published: Wed Oct 03 2018