How to Calculate Cost of Poor Quality (COPQ) in Garment Manufacturing?

In an earlier post, I discussed the cost of poor quality in the apparel industry. If you missed that post read it here.

I have visited many readymade garment manufacturers and worked on quality improvement projects with numerous companies. I observed none of those garment factories measured the cost of poor quality for the internal failures, appraisal cost, and preventive cost of quality.

Now you learned that you can measure how much money you are wasting due to managing quality poorly in your factory. By measuring COPQ you can truly know how much money you are wasting. This is an opportunity for improvement.

In the previous article, we have discussed four types of cost of poor quality – internal failure, external failure, appraisal cost, and preventive cost. In this article, I will show you how you can calculate internal failure cost, appraisal cost, and preventive cost for making quality garments.

Internal failure costs are incurred due to rework, repair of defective garments, and rejection of garments and raw materials.

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Steps to calculate COPQ

Step-1: You first need to measure the amount of rework, and rejection level. The amount of rework can be measured through DHU and percentage defectives. From the DHU value, calculate the total number of defects that need to be repaired daily (A).

Step-2: Study how much time you need to remove stitches from a defective garment due to stitching defects (T1)

Step-3: Study how much time (average time) operators take to re-stitch the garment (T2). Defect wise repair time would vary.

Step-4: Measure the cost of manpower for mending, spotting, and repair work. It would equal the number of manpower involved in rework and multiply it by their daily wages.

To find rework labor requirements use this formula

 
Number of labour needed for repair work (L) = (A * (T1+T2))/480

Here one labor is equivalent to 480 minutes.
Then calculate it into extra wages for excess labor hours used in repair works from the daily average salary.
Labor cost in repair work = (L * Wages per day per labor)

Step-5: Excess fabric consumed – If you need to change garment parts, how much extra fabric is issued for re-cutting. Calculate the cost of excess fabric (FC).

Step-6: Calculate the cost of re-cutting (manpower cost) in case re-cutting/additional cutting is done (CC).

Step-7: Calculate Rejection cost: Calculate how many garments are rejected (percentage of total pieces of an order). Calculate the total loss of potential FOB earnings.

Step-8: Find internal failure cost from the salary of alteration tailors + Cost of rejected garments + cost of excess material usage (FC) + re-cutting cost (CC)

Step-9: Calculate total COPQ per month = (rework cost + rejection cost+ excess manpower cost+ cost of quality team)

Step-10: Value of total shipments per month

Step-11: Calculate COPQ percentage of total shipment value

An example of the Cost of Poor Quality calculation:

This example is shown with hypothetical data for calculating COPQ.

1. Internal failure cost: 

A factory stitching quality is measured as DHU 10 and in finishing DHU 15 and produced 1000 pieces per day.

Therefore the total number of defects in 1000 pieces is 250 (the sum of stitching defects and finishing defects).

To ease the calculation let’s consider each defect takes the same amount of time to repair. 

Assume that it takes 5 minutes per defect to repair. Therefore you will be needed 1250 man minutes to repair all defects. 

This is equal to 2.6 man-days. 

So monthly man-days required for repair work (2.6 * 25)

The average monthly wage of workers is INR 10,000.00 (Rupees Ten thousand)

So monthly internal failure cost due to repair work = (2.6 *10,000) = Rs. 26,000.00 Monthly

2. Rejection cost: 

After finishing you found 1% garment rejection of the order quantity. It would be equal to 10 garments per day. 

Calculate loss of money due to pieces rejected based on FOB per piece (you may debate on this why FOB?) 

Alternatively, you can only consider material cost and labor cost incurred to process those 10 pieces till they get damaged. I am considering FOB to calculate potential revenue loss. FOB is $5, therefore loss due to garment rejection = 10 units  x $5 = $50 = Rs. 4000/- Daily ($1=INR 80) 

In monthly the amount will be = (25 x 4000.00) = Rs 100,000 Monthly (25 days a month)

3. Appraisal cost: 

Cost of personnel involved in checking, auditing

Material and garment checking cost: Assume that the factory has the following team for the quality inspection, checking, and managing quality department.

• Fabric checker: 2 no,
• Cutting room checker: 1 no.
• Stitching section checker including inline, end-of-line: 4 no.
• Finishing checker: 4 no. and
• Quality head: 1 no.

Total number of quality checker=11 No. 

Assume the salary of the quality head is Rs 60,000 per month and the checker’s salary is Rs. 15,000 per month. Calculate the total appraisal cost from the salary of the quality team. 

Total Salary per month =Rs. (60,000 + (11×15,000)) 

= Rs. 60,000.00 + Rs. 165,000.00 Monthly

= Rs. 225,000.00

Considering only internal failure cost and appraisal cost, the cost of poor quality of the factory is equal to (Internal failure cost + Rejection cost +Appraisal cost)

= (Rs. 26,000 + Rs. 100,000 + Rs. 225,000) 

= Rs. 351,000 Monthly

Total FOB value of 25,000 pieces = (25,000 unit  x $5 x 80 )

= Rs. 10,000,000

Cost of poor quality in Percentage = (351,000/10,000,000)*100

= 3.51% 

P.S.: To be noted that this method is just for your reference to calculate the cost of poor quality. You may not get the accurate value of COPQ. You can extend data collection and calculate the accurate cost of poor quality by detailed analysis.

P.S.S: The cost of poor quality is not only the repair work but there is external failure cost too. You can include external failure to find the total cost of poor quality.

Read more articles on Quality Control

Publication date: 21st Oct 2015