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com
How to Double your Profit
without Capital Investment
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Cost of Poor Quality
Historically, Cost of Poor Quality has been:

Batch-moe manufacturin!: 25% of revenue

Continual process manufacturin!: 20% of revenue

"er#ice: 40% of revenue

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Example
"ummary of XY Co profit an loss account

%e#enue & '(% )** crore

+otal Cost & '(% ,2 crore

Profit & '(% - crore

If 25% of !evenue is Cost of Poor "uality

Cost of Poor Quality & '(% 2. crore

/
-*0 on 1ailure an 2ppraisal & '(% 2* crore
/
2*0 on Pre#ention & '(% . crore
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Strategic Goal
Double Profit in 2 years# without $apital
investment
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Option 1

Double sales revenue

's it possible in a competiti#e mar4et5

's it possible in a recession5

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Option 2

Cut %0% $osts on all a$tivities

. ays a wee4 plant

%emo#e trainee an probationary technicians

2ir tra#el only economy class

(o electricity after 6 pm

%euce wor4force

7ther
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Option 3

!e&u$e the Cost of 'ailure an& (ppraisal by

40%

9ore achie#able than oublin! turno#er

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Best Option

7ption ): :ifficult

7ption 2: 9yopic

)ption *+ ,est
/
'ntelli!ent an sustainable
/
+ar!et )*** 0 %7'
/
'mpro#es bottom-line without capital in#estment
/
%euces cycle time
/
%euces warranty costs
/
%euces chronic waste
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)ption *+ -.plaine&
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Categories of Quality Costs

1ailure Costs
/
'nternal
/
;xternal

2ppraisal Costs

Pre#ention Costs
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Internal Failure Costs
/hese are $osts of &efi$ien$ies &is$overe& before
&elivery# whi$h are asso$iate& with the failure
0non$onformities1 to meet e.pli$it re2uirements or
impli$it nee&s of the e.ternal or internal
$ustomers3
(lso in$lu&e& are avoi&able pro$ess losses an&
ineffi$ien$ies that o$$ur even when re2uirements
an& nee&s are met3 /hese are $osts that woul&
&isappear if no &efi$ien$ies e.iste&3
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External Failure Costs
/hese are $osts asso$iate& with &efi$ien$ies that
are foun& after pro&u$t is re$eive& by the
$ustomer3
(lso in$lu&e& are lost opportunities for sales
revenue3 /hese $osts also woul& &isappear if
there were no &efi$ien$ies3
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ppraisal Costs
/hese are the $osts in$urre& to &etermine the &e4ree of
$onforman$e to 2uality re2uirements3
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Pre!ention Costs
/hese are $osts in$urre& to 5eep failure an& appraisal
$osts to a minimum3
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Example" Post Cost #e$uction
"ummary of XY Co profit an loss account after
reucin! Cost of 1ailure an 2ppraisal by 3*0

%e#enue & '(% )** crore

+otal Cost & '(% -3 crore

Profit 0Double1 & '(% )6 crore

!e&u$e& Cost of Poor "uality

Cost of Poor Quality & '(% )8 crore

/
1ailure an 2ppraisal & '(% )2 crore
/
Pre#ention & '(% . crore
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Cost Benc%mar&ing 'ool
<se our 1%;; Cost Benchmar4in! +ool to estimate your
cost reuction opportunities. =ou can fin the tool at:
http:>>www.bestpraxclub.com>copq?cate!ory.aspx
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'%an& (ou
1or further information contact:
2mit @allianpur
,estPra. Club Pvt3 6t&3
A Qimpro Enterprise
3B "inhu House, (anabhai Aane, 1ort, 9umbai 3** **)
+el: ,)22-66$3 -8*) B 1ax: ,)22-22*3 332)
Ceb: http:>>www.bestpraxclub.com
Blo!: http:>>bestpraxclub.worpress.com