The Hidden P&L Killer: Cost of Poor Quality (COPQ)

Both Mfg & Service Industries

While the Executives lose sleep over the obvious costs—materials, labor, overhead, there could be the silent profit assassin might be out of chains, operating under their noses?

The Cost of Poor Quality (COPQ) represents a staggering 20-30% of total revenue for many organizations, yet remains largely invisible to leadership teams focused on traditional cost centres. (qaconsultants)

What is COPQ – Internal Rejections, Rework, External Rejections, Recall, Returns-ReOrder, Lost Sale, Opportunity cost, Wastes.

Impact: More Than Just Defects
Manufacturing companies typically lose 5-30% of total sales to COPQ-related expenses, while the average business gets a hit of $12.9-15 million annually due to poor quality.

COPQ manifests in four critical areas:
1.    Prevention Costs: Quality planning, training, supplier evaluation, and process capability studies that prevent defects before they occur

2.    Appraisal Costs: Inspections, testing, audits, and calibrations required to identify quality issues

3.    Internal Failure Costs: Scrap, rework, waste, and downtime from defects caught before delivery

4.    External Failure Costs: Warranty claims, returns, complaint handling, and reputation damage from customer-facing quality issues


The Bottom Line -
With Six Sigma, Toyota Production System, Lean methodologies, Manufacturing companies save on rejection, rework, scrap cost (upto 40%), while service organizations improve operational efficiency and customer satisfaction.

The choice is clear: Continue accepting 20-30% revenue leakage from poor quality, or invest in systematic COPQ reduction program that delivers results within the first year