If you ask a Plant Manager what their quality costs are, they will usually point to the scrap bin.
They will calculate the cost of the wasted material and the labor used to make it. If that number is 2% of revenue, they feel safe.
They are wrong.
The "Scrap Bin" is just the tip of the iceberg. The Cost of Poor Quality (COPQ) includes every single cost incurred because your process is not perfect. It includes the re-inspection labor, the lost machine capacity, the engineering time spent fighting fires, and the damage to your brand reputation.
When you add up the hidden costs, the real number is often 10x higher than the visible scrap cost.
Here is the strategic guide to calculating, analyzing, and reducing COPQ in your facility in 2026.
1. The 4 Buckets of Quality Costs
To manage COPQ, you must categorize your spending. The "PAF Model" (Prevention, Appraisal, Failure) is the standard financial framework.
1. Internal Failure Costs (The Waste)
These are defects found before the product leaves the factory.
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Scrap: Material wasted.
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Rework: Labor spent fixing bad parts.
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Re-Inspection: Checking the fixed parts again.
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Downgrading: Selling "Grade A" product as "Grade B" at a discount.
2. External Failure Costs (The Crisis)
These are defects found after the product leaves the factory. These are the most expensive.
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Warranty Claims: Replacing the unit.
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Shipping Costs: Paying for the return logistics.
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Customer Penalties: Fines for missed OTIF or quality escapes.
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Lost Sales: The customer who never buys from you again.
3. Appraisal Costs (The Filter)
This is money spent checking the product to catch defects.
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Inspection Labor: Quality Control (QC) staff.
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Testing Equipment: Labs, gauges, and calibration.
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Audits: Internal and external process checks.
4. Prevention Costs (The Investment)
This is money spent to stop defects from happening.
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Training: Teaching operators standard work.
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Maintenance: Ensuring machines are precise and reliable.
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Process Engineering: Designing error-proof workflows (Poka-Yoke).
2. The Strategic Shift: Spend to Save
Most struggling factories spend 80% of their quality budget on Failures and Appraisal. They are paying to make bad parts and paying to find them.
World-class factories flip this ratio.
They spend more on Prevention to drive Failure costs down to near zero.
The Math of Prevention:
Investing $1 in Prevention (e.g., a better maintenance schedule) often saves $10 in Internal Failure (Scrap) and $100 in External Failure (Warranty).
3. The "Hidden Factory" of Lost Capacity
One of the biggest components of COPQ is often ignored: Opportunity Cost.
If your factory runs at full capacity but has a 10% scrap rate, you are running a "Hidden Factory."
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10% of your labor, energy, and machine time is dedicated to making garbage.
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If you fix the quality, you effectively gain 10% more capacity without buying a new machine.
The Strategic Action:
When calculating ROI for a new quality system or maintenance software, include the value of this "reclaimed capacity." It often doubles the return.
4. How Maintenance Drives COPQ
Quality problems are rarely just "operator error." They are often "machine error."
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A vibrating spindle creates surface chatter.
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A clogged filter causes painting defects.
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A drifting temperature sensor causes under-cooked food.
The Solution:
You must link your Quality Data to your Maintenance Data.
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Use your operations platform to overlay scrap rates with maintenance logs.
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If you see a spike in defects, check the asset history. Was a PM missed? Is the machine due for calibration?
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Fabrico Tip: Use the "Condition Monitoring" integration to auto-create work orders when machine parameters drift out of the "Quality Window," fixing the issue before it creates scrap.
5. Digitizing Quality to Reduce Appraisal Costs
"Appraisal" (Inspection) is necessary, but it is non-value-added.
If you have five inspectors at the end of the line, that is expensive.
The Fix:
Move inspection upstream using digital tools.
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Operator Self-Checks: Give the operator a digital checklist on a tablet. Force them to measure the first part and the last part.
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Automated Validation: Connect digital calipers or cameras to the software. If a measurement is out of spec, the system stops the line immediately.
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Result: You catch the defect at the source (Step 1) rather than at the end (Step 10), saving the cost of processing a bad part through the whole line.
Conclusion
The Cost of Poor Quality is the silent killer of profitability.
It is not a tax you have to pay. It is a choice.
By shifting your budget from "Cleaning up the mess" (Failure) to "Preventing the mess" (Prevention), you improve margins, capacity, and customer trust simultaneously.
Don't just count the scrap. Eliminate the root cause.
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