1. Cost of Quality Current Perspectives © Omnex All rights reserved

3. History of Cost of Quality 12 3 6 9 1951 Cost of Quality Concept – Dr. J.M. Juran 1950’s COQ in GE – AV Feigenbaum 1964 – Q100 Report IBM 1979 – Quality is Free – Philip Crosby 1980’s – Cost of Quality is Popularized Late 80’s to 90’s – COQ loses favor 1998 – COPQ Reappears in QS-9000 2002 – COPQ present in ISO/TS 16949:2002 1990’s – COQ reappears with Six Sigma

7. COPQ is “The Hidden Factory” Quality audits • Warranty claims • Maintenance and service • Warranty claims • Maintenance and service As is Could be • Scrap/rejects • Rework • Longer cycle times and excess inventory • Scrap/rejects • Rework • Longer cycle times and excess inventory 5 % 2 0 - 2 5 % 6 5 - 7 0 % ? As is Could be Cost of failure in the field Cost of failure in the field Internal failure costs Internal failure costs Cost appraisal and inspection Cost appraisal and inspection Cost to improve and prevent poor quality Cost to improve and prevent poor quality Opportunity lost • Avoided capital cost • Opportunity cost of additional volume if Sales > capacity • Lost customer loyalty • Time spent expediting • Cost to the customer • • Opportunity cost of additional volume if Sales > capacity • Lost customer loyalty • Time spent expediting • Cost to the customer • Improvement program costs • Process control • Quality engineering and admin • Improvement program costs • Process control • Quality engineering and admin • Inspection/test (materials, equipment, labor) • Vendor control • Quality audits • Inspection/test (materials, equipment, labor) • Vendor control •

8. Cost of Poor Quality (COPQ) the Tip of the Iceberg Quality engineering and administration Inspection/test (materials, equipment, labor) Expediting Scrap Rework Rejects Warranty claims Maintenance and service Cost to customer Excess inventory Additional labor hours Longer cycle times Quality audits Vendor control Lost customer loyalty Improvement program costs Process control Opportunity cost if sales greater than plant capacity

9. Cost of Poor Design Quality 1 10 100 1000+ X Millions A change while still in design In manufacturing At customer location Recall Litigation Internal to Fab In shipping Customer incoming Customer mfg Field Cost of Poor Manufacturing Quality-Semiconductor Example 5 50 500 5-50K 10K - X Millions

10. COQ Methods Traditional Costing Approach Six Sigma Approach Measurables Approach

12. Traditional Cost Method % Method

14. Traditional Cost Method Unit Cost Method

18. Six Sigma Approach

19. Cost of Poor Quality & Industry Average PPM’s COPQ Sigma PPM 30-40% of Sales 2.0 308,537 Non Competitive 20-30% of Sales 3.0 66,807 15-20% of Sales 4.0 6,210 Industry Average 10-15% of Sales 5.0 233 <10% of Sales 6.0 3.4 World Class

20. COPQ & Sigma/Yield Relationship Industry Averages COPQ Sigma Yield 30-40% of Sales 2.0 5% Non Competitive 20-30% of Sales 3.0 93% 15-20% of Sales 4.0 99.4% Industry Average 10-15% of Sales 5.0 99.976% <10% of Sales 6.0 99.999655% World Class

22. Measurables Approach

25. Cost Of Quality New Directions

27. COPQ is “The Hidden Factory” “ Soft” Quality Lost

31. Opportunities for COQ Semiconductor Design and Manufacturing

37. Implementing COQ

39. Implementing COQ Integration into the Strategic Model Customer Expectations Competitive Benchmarks Mission, Vision & Values Results Measurement Key Processes Process Measurement Improvement Projects COQ provides direction on selecting Improvement Actions and track effectiveness Six Sigma/ Varification Lean/Value Stream Mapping COQ Measurements Value Engineering Project Prioritization Method Strategic Objectives