Cost of quality or Cost of Poor Quality

welcome to complexity made simple my name is paul allen and before we get into today's video just a reminder some great news the design of experiments for 21st century engineers the minitab version has just been released i know for those of you unfortunate enough to have selected minitab you have a great deal of difficulty in understanding this software so we've created this special version of this text with the minitab screenshots the link to lulu.com where you can buy this book is in the description below and of course you also have the option of purchasing drink tea and read the paper which is the perfect book to go with your green belt or six sigma black belt training the link to lulu dot com for that book is also in the description below and of course the other thing that we'd really love you to do please go to buy me a coffee dot com and make a small donation all of these things the purchase of the books and the donations they help keep the channel moving i'm really grateful to all of those people who are currently donating many thanks for your support and your help and now let's get on with today's video welcome to complexity made simple my name is paul allen i'm 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 in fact we're going to take a look at the cost of quality the cost of pool quality and we're also going to take a look at the lean wastes so let's have a look at these three subjects we're going to look at the cost of quality by the way different different to the cost of poor quality the cost of quality the cost of poor quality and we're going to take a look at what lean gets up to because lean really doesn't look at cost um lean likes to look at waist which is a completely different it's a completely different tack so we're going to look we're going to look at these three areas and i've deliberately put them in that order we're going to cover them in that order but the first one i want to cover really is the one that's it 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 um 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 going to 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 total 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 wreath we're gonna 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 with this the more you find it is so if you put efforts here these things are going to be big they're going to be costly they're going to 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 sign you don't know what you're doing yeah because if you knew what you were doing you wouldn't have to inspect it after you'd 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 shut yeah whether you need to do a lot of work here to shift this diagram in the opposite direction now it could be your diagram is already in the opposite direction by the way there are great companies out there toyota by the way would have a diagram in completely the opposite direction they won't do six sigma they've already said publicly they won't be doing it they don't need to they've got their processes under control okay so first thing cost of quality then of course we come to this final subject 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 pull quality because if you didn't have it you wouldn't have 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 yeah so the cost of your quality these are going to be internal efforts you're going to know how many repairs you've done you're going to know what your reject costs are like you're going to 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're throwing 10 000 pounds with the material in the bin every year everybody's going to agree that so these are known costs now of course the cost of poor quality um what what are you going to use it for well mostly what you're going to use it for really is project selection and of course the other thing you're going to use it for is you're going to measure success with it right there the two they're the two main reasons that you work out the cost of pool quality because of course you've probably got too many problems down here you can't do them all at once you've got to pick some how you're going to work it out or 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 uncalculatable 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 uncalculatable you know you could get a dissatisfied customer and he could be 20 years of age and he could decide i am never buying from your company again you've lost them for a lifetime 60 years worth of 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 pool quality you can never know the other thing with the customer you can never know who 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 calculatable the true cost of poor quality you can do this this is straightforward money in the bin rejects in the bid 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 the 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 don't like defects yeah so it's easy to to know that we're gonna we're gonna sort out dissatisfied customers it's easy to know that it's money in the bank but can i put the true cost to this now motorola by the way let's just go back to motorola who kind of started six sigma off in terms of the phrase and 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 their by the way this is their in market quality at the customer they needed to improve their quality by this much now you could say to them well what what's this worth if you what's the cost of poor quality worth and motorola could have said it's worth the business you we will lose the business if we don't sort these out because by the way this is where their competition was they don't get to this they don't equal their competition they are literally toast so every project you do does it have the cost to pull quality of the total value of mountain roller now of course it doesn't what what it should say is i've got some known costs and what it should say this is 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 and it's a great project to do don't tie yourself in nuts and it's one of the reasons why i like lean okay so lean what lean does is he doesn't go after money if you want uh advice by the way on the best way to implement some lean techniques the toyota way field book by jeff leicher and david meyer so the outward film book that's my favorite lean textbook uh in it one of the things they talk about don't go and work out the amount of money that you're going to save or not save from each lean implementation that you do if you do that you'll do the wrong things at the wrong time go and chase lean waste now what is lean waste measured in it's measured in time it's 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 those two points that's the total flow time and what they do is they remove lean waste out of that and they compress the time compress the turn compress the time compress the time and that's the way lean's done lean is not done about money now what will happen if you do that you will become super efficient and you'll make piles of money but they're not they're not chasing the pound they're not 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 and buy a cheaper supplier but extend the flow time that would go up 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 the same time you can do that then it's allowable if not supply is not allowed so lean different way of finding the projects we're going to take a waste out of the flow type and one last thing about floating um 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'll 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 to flow time and if you can't make the measure move in the right direction at the same time of 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 how to pick your your projects and by the 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 dissatisfied customers it's dead easy to work out yeah so it doesn'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 pots and pots of money [Music] you

Channel: Paul Allen

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Keywords: lean, six sigma, Six Sigma greenbelt training, Six Sigma Blackbelt Training, Shewhart, Juran, Deming, Taguchi, SPC, MSA, FMEA, DOE, X bar chart, Wheeler, Janam Sandhu, Mrnystrom, Gemba Academy, Full Factorial, Central Composite Design, Ronald Fisher, Hypothesis Test, p value, Histrogram, minitab, Pareto, multi-vari chart, https://youtu.be/QH984PnwRDE, https://youtu.be/f_fjqCpd67Q, https://youtu.be/AGJ1QYI2B4c, https://youtu.be/gsD8V2_eZ0A, https://youtu.be/mM6EyMvvAKk, quality hub india, simplilearn

Id: aHtJvegeXyI

Length: 17min 46sec (1066 seconds)

Published: Fri Nov 05 2021