What does COQ stand for?
Joseph Juran introduced the concept of Cost of Quality (COQ) in 1951, which Armand Feigenbaum expanded in 1956, defining four quality cost categories.
Crosby believed that the sole performance indicator a business needs is the Cost of Quality (COQ). He argued that COQ represents the cost of not meeting standards. Through his research, he found that most companies allocate approximately 15% to 20% of their yearly revenue to quality expenses. He suggested that a properly structured quality system could be implemented at a significantly reduced cost.
Today, you will encounter the COQ concept associated with different quality cost concepts. Among the most common are the total cost of quality, the cost of good quality, and the cost of poor quality.
Below is a visual representation of their connection, along with the four standard quality cost classifications established by Feigenbaum.
Prevention: Refers to the expenses related to the actions taken to avoid producing and delivering low-quality products and services.
Appraisal: These are costs intended for examining, testing, assessing, and auditing products and services to verify that they are defect-free. It is important to note that inspection is recognized as one of the 8 wastes in lean manufacturing.
Internal failure: Refers to the expenses incurred in identifying, correcting, or discarding defective items before their delivery to the customer.
External failure: External failure costs occur when a non-conforming item is shipped to and received by the customer.
3 advantages of COQ
The advantages of COQ stem from using quality systems and focus more on prevention than detection. By avoiding the production of non-conforming products initially, there is no need to be concerned about internal and external failure costs.
1. Lower expenses
It is more expensive to produce, catch, and rework non-conforming products than to make them correctly. If you have to rework or create a new product, your customer will not pay for the same product twice.
2. Improved customer satisfaction
Shipping defective products consistently is the quickest way to ruin your customer relationship. By making smart investments to lower your cost of quality (COQ), you can increase customer satisfaction and boost profits. Keep in mind that around 15% to 20% of your sales typically represent your COQ, presenting a significant opportunity for profit enhancement.
3. Advantage in Competition
Many companies assert that they create or provide high-quality products and services. However, most of them make the mistake of emphasizing detection rather than prevention. You will outperform your competitors if you genuinely offer a superior product or service, and your expenses are reduced because of your lower Cost of Quality (COQ).
Although quality comes at a cost, it is a valuable investment.
Many organizations believe that attaining high quality comes with a high price tag. This misconception stems from a lack of understanding of the expenses incurred by not delivering high quality. If organizations could accurately assess the actual cost of subpar quality, they would realize that implementing quality prevention systems offers one of the most lucrative returns on investment.
Quality cannot be achieved through inspection.
The third point of Dr. W. Edwards Deming's 14 Points suggests that organizations should avoid depending on inspection to ensure quality. It recommends prioritizing integrating quality into the product early to minimize the need for extensive inspection.
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