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The following is a description of Juran’s offering for conducting and completing a COPQ study for a client. The analysis is based on a combination of Juran and ASQ publications (Juran QCH and ASQ “Principles of Quality Costs”).

A. COPQ Assessment

We define the COPQ as the difference between those costs that would disappear if everything was done perfectly in a process, the first time and every time, versus the actual costs. Juran’s approach outlined in this proposal has the following significant benefits:

• A tested and validated COPQ Assessment and design tools and methods that have been used successfully with other clients.
  
• An adaptation of the methods used successfully by Juran with other clients to achieve significant savings and performance improvements through re-engineering.

B. Phases of Deployment

We have divided the start of this journey into three phases:

Phase 1: COPQ Assessment and Data Mapping

Phase 1 will consist of completing a COPQ study. To complete the study, the following activities will take place:

1. Juran staff will conduct one-on-one interviews, facilitate small focus groups, and collect data at CLIENT to define the components of the COPQ. This will focus on the key business processes from design, order entry, inventory, supply chain, quality and regulatory, customer satisfaction, delivery of products, and before and after sales support. We will exclude the production facilities and the inherent non-value-added activities that may exist there. We will attempt to estimate this value based on the information we gather.
2. From Item 1, Juran and CLIENT staff will determine the layout of the COPQ format.
3. We will accumulate the multiple categories of COPQ from existing financial, quality, and regulatory measures. From this, we will analyze and determine the non-value-added costs that contribute to the COPQ and extract information that will form the basis of accumulating the COPQ. These costs will fall into the following categories:
   1. Non-value-added activities in design, quality, regulatory, and other functions and tasks that create no customer value or a disproportionately small customer value compared to cost.
      
   2. Excess appraisal costs due to improper process control, inspection, or activities and the corresponding detection, correction and/or elimination process, and product defects.
      
   3. Internal failures due to in-house process deficiencies.
      
   4. External failures that require CLIENT to add excess costs to correct and reduce customer dissatisfaction due to these failures.
4. Juran will prioritize the opportunities and present a picture that will enable CLIENT to:

• Better understand the proportion of COPQ relative to the total cost of operations.
  
• Understand the costs as they relate to the five categories of COPQ and the balance or imbalance between them.
  
• Form the basis of the final COPQ Report.
  
• Juran will create a Cost of Poor Quality Assessment Report which will include:
  
  • Multiple Pareto Analyses of classes and sources of COPQ throughout CLIENT business processes and supply chain.
    
  • An estimate of the dollar value of the total COPQ and losses from each category and key source.
    
• Further ranking of opportunities based on criteria such as:
  
  • Dollar value.
    
  • Proportion of value likely to be recovered.
    
  • Ease and probability of recovery.
    
  • Estimate the time it may take to reduce the cost

5. Prepare and present an Executive Summary Report which will include:

• A summary of the combined and prioritized recommendations for action, based on the completed assessment.
  
• Proposals of approaches to implement the recommendations. Possible approaches may include:
  • Simple execution of obvious improvements.
    Replacement of an existing process or process steps with a known or easily discovered better practice.
    
  • Other replications of known improvements.
    
• Define project teams to diagnose the unknown cause of a major problem and design and implement a remedy.
  
• Launch Six Sigma project teams to design specific needed capabilities.
  
• Assignment of functional responsibility to address the identified problems.
  
• Education and training on new skills to support the improved functions.

Juran will prepare the first draft of the report for CLIENT. CLIENT will then be asked to challenge the data and provide comments, typically within one or two weeks. Juran will then prepare and publish the final report. Once Phase 1 is completed we will prepare a plan for Phase 2.

Phase 2: Additional On-site Reviews

If requested, Juran will continue to expand the COPQ to other sites. If CLIENT feels the assessment is inclusive enough, we will move to Phase 3.

Phase 3: Begin Implementation of Recommended Changes

The specific deliverables in this phase will depend upon results from Phase 1. Typically, they include the following:

• Methods to significantly reduce inventories (incoming materials, work in process, and finished goods) back orders, and cycle times.
  
• Process designs and controls that significantly improve capability and performance for resources applied.
  
• Completion of Six Sigma projects to achieve the goals and targets set for key processes.
  
• Provide training and design support for these teams and other groups implementing the recommendations from the assessments in Phases 1 and 2.
  
• Training key members of the workforce, administrative, and quality management staff in new roles and skills required to:
  • Execute the recommendations from Phases 1 and 2.
    
  • Continue the on-going process of improvement re-design or improve the business processes to achieve significant reductions in inventory cycle times and dramatically improve customer satisfaction.
    
  • Review progress and prepare a plan for future assessments.

Juran will provide the leadership for most tasks outlined in this proposal and commit substantial staff for support. We will work closely with CLIENT management to assure results are achieved.

Note: Juran will provide an additional proposal to support the implementation of changes that need to be made upon completion of the COPQ Study.

C. Detailed Work Plan

This section describes the principal steps for each of the major components of the proposed approach, along with the support that Juran will provide at each step.

Cost of Poor Quality Assessment Detailed Planning

1. Project Planning (Day 1)

The plan will be prepared; interviews and site visits will be scheduled; and resources and contacts will be identified and notified of the schedule. Existing internal CLIENT reports will be assembled and reviewed for the raw data and direction needed to conduct this study.

2. Process Identification and Definition (Days 2 - 3)

Juran will work with a small team from CLIENT to better understand the business processes. A series of high-level maps will be developed (if they do not exist) that define key work processes, from the placement of an order to the delivery of a product to the customer. Existing documentation, if available, will speed up this process.

3. Customer Needs (Days 4 - 5)

Juran will learn through interviews, focus groups, and observation, the degree of external and internal customer satisfaction. This will help determine the extent to which their needs and requirements have been properly identified and met. If this has been done recently, we will review those results to assure completeness and adequacy.

4. Source Identification (Week 2)

During this step, Juran will help identify the activities and costs associated with this absence of perfection. These are the costs that can be saved when processes are improved. Examples include:

• External Failures: Credits, allowances, recall, liability, complaint investigation, accounts receivables, etc.
  
• Internal Failures: Forecasting errors, invoice errors, new product development impacts, engineering changes, excess final inventory, excess inventory in process, discarded raw material of finished product, less than 100% yield, reprocessing, repeats of tests, cleaning up contamination, etc.
  
• Excess Appraisal: Testing and assessment are required to provide CLIENT with the needed assurance that processes continue to run at acceptable levels. Testing is also, in and of itself, required by the Regulatory Agencies and others. Most inspections are often conducted because of past evidence that processes were not capable of meeting their targets. Continuing inspection is then added to detect when the process is off-target. Such activities are sometimes viewed as prevention, but they are really only early warnings of deficiencies actually occurring. Excess inspections apply not only to the production process, but are also likely to occur in the Quality Assurance processes as well. In effect, they are inspections of the inspections.

These sources of COPQ will be identified through in-depth interviews with key executive, operations, administrative, financial, and quality management individuals; reviews of work flow diagrams (some are already in existence, others will be developed by the Product and Process Control System workshops); analysis of existing financial and operational data; analysis of data collected in the course of other CLIENT projects, studies and reviews; and other methods that are identified in the initial reviews.

5. Collection of Cost Data (Weeks 2 - 3)

Once the activities and occurrences that generate the costs are identified, we will estimate the costs associated with each. Sometimes the cost data can be collected at the same time as the source of the cost is identified, but in other cases the data needed to estimate the costs will need to be collected separately, often from several different sources. In still other cases, new primary data may need to be collected.

6. Estimation of Costs by Source (Weeks 2 - 3)

There are many techniques available to estimate the COPQ for an identified source. In each case, we will select the easiest and most straight forward approach that will give a credible, adequate estimate for that source.

7. Prepare Analysis and Report (Week 4)

A report will be prepared that details the costs by source and prioritizes the source both by dollar magnitude and by recommended order for action.

8. Present Final Report (Week 5)

An executive presentation will be presented by the Juran team.