1. All Rights Reserved, Juran Global How to Leave Less Dollars on the Table More Profits, Less Costs for Your Organization Dr. Joseph A. DeFeo, CEO Juran Global

2. All Rights Reserved, Juran Global By ignoring the magnitude of hidden costs in our organizations today, we are basically underestimating our profit. This is rooted in the limited understanding of the costs related to poor performing processes or the Cost of Poor Quality” By ignoring the magnitude of hidden costs in our organizations today, we are basically underestimating our profit. This is rooted in the limited understanding of the costs related to poor performing processes or the Cost of Poor Quality” Why Pay More Than Necessary?

3. All Rights Reserved, Juran Global Today’s Agenda 1.Helping Leaders see the magnitude of lost profit and sales through a Cost of Poor Quality estimate. 2.Understand the link between eroding prices, operational costs and profitability due to COQ. 3.Gain knowledge on the key components of Cost of Quality (COQ) 4.Learn how to determine the magnitude of COPQ in your organization 5.Develop internal expertise on this important subject

4. All Rights Reserved, Juran Global “Managers and employees speak the language of things but senior leaders speak the language of money. … COPQ allows us to translate the things into money.” Why Cost of Poor Quality (COPQ)?

5. All Rights Reserved, Juran Global WHICH FEELS BETTER? Profit Total Operating Costs Profit True Operating Costs COPQ Profit Sales Erosion COPQ True Operating Costs Profit COPQ True Operating Costs Lean Six Sigma Why Focus on COPQ?

6. All Rights Reserved, Juran Global Prevention Appraisal Internal Failure External Failure I want my money back! Cost of Quality (COQ) $ Total Cost of Quality = Prevention + some of Appraisal + all Failure Costs Total Quality Cost

7. All Rights Reserved, Juran Global AppraisalInternal Failure External Failure I want my money back! Prevention COAQ COPQ Cost of Poor Quality = some of Appraisal + all Failure Costs What Part of COQ is COPQ?

8. All Rights Reserved, Juran Global COPQ Definitions  All activities and processes that do not meet agreed performance and/or expected outcomes.  Costs that would disappear if every task were always performed without deficiency.  Actual cost - minimum cost = COPQ.

9. All Rights Reserved, Juran Global Only 5% of Actual COPQ When quality costs are initially determined, the categories included are the visible ones as depicted in the iceberg below: Traditional Cost of Poor Quality

10. All Rights Reserved, Juran Global COPQ ranges from 10-25% As a company gains a broader definition of poor quality, the hidden portion of the iceberg becomes apparent. Cost of Poor Quality

11. All Rights Reserved, Juran Global Ratio of the individual category costs to total costs vary widely. Many companies exhibit ratios which look like the following: WHAT'S WRONG WITH THIS PICTURE? What Does Reality Look Like? Cost CategoryPercent of Total Internal Failure25 to 40 External Failure25 to 40 Appraisal10 to 50 Prevention.05 to 5

12. All Rights Reserved, Juran Global Review Redo Variation Non-Value Added (NVA) Steps Check Product or Service Product or Service Step 1Step 2 Where is COPQ Found?

13. All Rights Reserved, Juran Global

14. The Approach to Assessment 1.Determine the use of COPQ against Business Strategy 2.Establish the Assessment/Development Team 3.Define the Scope and review all current documentation and tactics 4.Develop an enhanced list of COPQ elements, process and documentation 5.Develop an implementation plan 6.Conduct a pilot assessment 7.Adjust Process and Drive Projects

15. All Rights Reserved, Juran Global Steps: 1. Identify the Process 2. Process Map to Understand Value 3. Classify NVA as a COPQ Category 4. Estimate COPQ Based on Fiscal Year 5. Prepare Quality Cost Report (Paretos) 6. Define Projects for Improvement COPQ Assessment Process

16. All Rights Reserved, Juran Global Planning for Self-Sufficiency 1.Initially work with a reputable source! a.Establish an internal team b.Develop the categories and process to collect data c.Get some experience (practice) d.Start small (a Division or Business Unit) 2.Determine what and where the expertise gaps are! a.What are the Knowledge, Skills and Abilities necessary? b.Who will do it and what skills do they need? c.What will they do? 3.Develop an Organizational metric of COPQ a.% of Sales, Costs, Share Value?

17. All Rights Reserved, Juran Global Self-sufficiency: Developing internal expertise Communicate: Helping Leadership see the opportunity Educate: What is COPQ made up of? Why: The link between COPQ and profitability Assess:How big is our opportunity? Review

18. All Rights Reserved, Juran Global Thank You! If you would like a copy of this presentation or would like me to conduct this for your organization, contact me at jdefeo@juran.com