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    COPQ: How to Calculate and Reduce Cost of Poor Quality

    A practical guide to defining, calculating, and reducing COPQ with clear formulas, data sources, and improvement levers.

    January 15, 2025
    12 min read
    By Qualiteh Performance Analytics Team

    Why This Matters

    COPQ hides across scrap, rework, expedites, and warranty claims. In many plants, it equals 3-7% of revenue. Making COPQ visible turns quality from cost center to profit driver.

    What You'll Learn

    • ✓Define internal and external failure costs
    • ✓Calculate COPQ from real manufacturing data
    • ✓Identify the top three COPQ drivers quickly
    • ✓Prioritize reduction levers with the biggest ROI
    • ✓Build a monthly COPQ dashboard

    What COPQ Includes (and What It Does Not)

    COPQ includes internal failures (scrap, rework, downtime) and external failures (returns, warranty, customer claims). It does not include standard production cost or planned quality investments.
    • •Internal: scrap, rework, re-inspection, downtime, sorting labor
    • •External: warranty, returns, chargebacks, premium freight
    • •Hidden: engineering hours, expedited sourcing, supplier recovery

    How to Calculate COPQ

    Start with a simple formula and expand as data maturity grows. The goal is consistency, not perfection.
    ScrapERP or scrap logs | Scrap cost = scrap qty x unit cost
    ReworkTime tracking | Rework cost = hours x labor rate + material
    Premium freightLogistics invoices | Sum of expedited shipments
    Warranty/claimsCustomer claims | Chargeback + handling + replacement

    COPQ Benchmarks and Targets

    Benchmarking provides context. Automotive suppliers often range from 2-5% of revenue, with best-in-class below 1.5%.
    Best-in-class<1.5% | Process stability and strong prevention
    Competitive1.5-3% | Controlled but improvement potential
    At-risk3-7% | Recurring defects and rework
    Critical>7% | Systemic quality problems

    Top COPQ Reduction Levers

    Focus on the few levers that drive most of the loss. The biggest gains usually come from containment speed, root cause quality, and supplier performance.
    • •Improve containment speed to prevent escapes
    • •Strengthen root cause verification (reduce repeat defects)
    • •Align suppliers with PPAP and control plan discipline
    • •Reduce changeover and setup errors with standard work
    • •Automate defect detection where feasible

    Build a Monthly COPQ Dashboard

    A simple dashboard helps sustain gains. Track COPQ drivers, trend lines, and closed-loop actions.
    • COPQ total and % of revenue
    • Top three drivers and trend lines
    • Repeat defect rate and escalation count
    • Savings from closed corrective actions
    • Customer chargebacks and premium freight

    Common Mistakes to Avoid

    Only tracking scrap

    Scrap is visible, but rework and external claims often exceed scrap losses.

    Solution:
    Add rework hours and customer claims to the baseline within the first month.

    No ownership for reductions

    COPQ is reported but no actions are tied to the numbers.

    Solution:
    Assign owners for the top three drivers each month.

    Mixing prevention costs into COPQ

    Training or new gauges are investments, not COPQ.

    Solution:
    Separate cost of quality (prevention + appraisal) from COPQ.

    Frequently Asked Questions

    Need Expert Guidance?

    Our team can help you apply these concepts to your specific situation. Schedule a consultation to discuss your quality challenges.

    Review your COPQ baseline

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