I interviewed Sanjay Kshirsagar who discussed Cost of Poor Quality in Supply Chain.
Hello, Dustin and all
Thank you very much for your time and patience for listening me, My Name is Sanjay Kshirsagar, and I am going to discuss to you today about COPQ, To begin COPQ is important because it will help us to increase our profitability as well as our customer satisfaction.
Brief about me, I started career in manufacturing and supply chain back in India with biggest Dairy Company of India, called as AMUL "The TASTE of India". I was taking care for warehouse and distribution, supply chain, it was good learning for me. After that I had joined Givaudan (It is Swiss MNC), they were in Flavor business, after that I joined as Leader Demand Planning in Galaxy Surfactants (Indian MNC). In Galaxy I had established various system, Like S&OP and Demand Planning process.
After that my next Assignment with Ampacet (American MNC) they were in Master batch business, where I was working there as HEAD Supply Chain for India. At present I am working with HENKEL SOUTH AFRICA as HEAD Supply Chain and taking care of end to end supply Chain.
During my above experience in my various companies, I learned importance of COPQ in Supply chain and sharing the same with you.
Everyone interested in reducing the costs within their organization and improving their effectiveness in their respective roles within their company.
From my perspective "It is all about cost" but not by sacrificing what the organization does best or what they should do in order to transform your business to meet your operational goals and objectives.
As per Industry Norms, Cost of Poor Quality typically amounts to 5-30% of gross sales for manufacturing and service companies. Independent studies reveal that COPQ is costing companies millions of dollars each year and its reduction can transform marginally successful companies into profitable ones. Yet most executives believe that their company's COPQ is less than 5%, or just do not know what it is. All levels of executives recognize that quality is an absolute necessity to survive and succeed in today's business environment.
Traditionally Cost of Poor Quality will be calculated as per below formula
COPQ = Function of Costs (External Failures+ Internal Failures+ Appraisals+ Preventive Cost)
It is in the range of 4-5 % of Sales
Actual Cost of Poor Quality: Hidden COPQ: The costs incurred to deal with these chronic problems, it is in the range of 15-25 % of Sales
Cost of Poor Quality in Supply Chain
Below is some example of COPQ in Supply Chain, for better monitoring we had divided in below part of Supply chain
- Planning - Obsolete and Slow moving inventory/Incorrect line sequencing/Order loss/Urgent purchase on Higher price/Production Loss due to non-availability of Material
- Purchase - Airfreight Cost/Purchase on urgency/Non utilization of FTA/RM rejection
- Export/Import - Outbound Airfreight/Detention and demurrage at Port/Damages/Documentation Error
- Logistics and warehouse - Unscheduled dispatch/LCL shipments/Vehicle capacity Utilization/Wrong Documentation
- Customer service- LCL consignment/Return products/wrong shipment due to Customer order error
In addition below are some hidden COPQ examples
- Excessive overtime
- Late paperwork
- High Costs
- Pricing or Billing errors
- Excessive Field Services Expense
- Incorrectly completed sales order
- Excessive Employee Turnover
- Planning Delays
- Excess Inventory
- Complaint Handling
- Unused Capacity
- Time with dissatisfied Customer
- Overdue receivables
- Development Cost of failed product
How to Reduce COPQ in SUPPLY CHAIN
Managers and Workers speak the Language of things but senior leaders speak the language of money…
COPQ allows us to translate the things into money.
Below are the foursteps to reduce COPQ in Supply chain.
- Expand the COPQ beyond manufacturing, incorporate quality measures from other supply chain functions such as plan, source, deliver and service
- Include each and every function of Supply chain
- Explore each and every activity and try to find waste if any
- Employ Cost-Modelling approaches to prevent COPQ impacts before they happen
"Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it"
So measurement of COPQ in money is very important.
- Once the different elements of COPQ are understood, Supply chain Managers can make intelligent cost/service trade-offs that minimize COPQ across the supply, manufacturing and distribution network to achieve the customer defined level.
- Create a matrix to monitor COPQ
- Create KPI for individual about COPQ
- Start maintaining data on monthly basis of COPQ in different section of Supply Chain
- Do analysis on Monthly basis
- Share this analysis with your team for improvement
Last but not least COPQ is journey for continuous improvement and not a destination.
If there are any questions about COPQ, I'm always available. If you have any questions, you can shoot me an email at firstname.lastname@example.org, and I will answer them as well.
Good luck on your continuous improvement journey….
About Sanjay Kshirsagar
Supply Chain Development Manager at Henkel South Africa (Pty) Ltd