2 News Technology Inc manufactures computerized laser printi

2 News Technology, Inc., manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company\'s market share has been eroded by stiff competition from Asian and European competitors. Price and product quality are tne two key areas in which companies compete in this market Ben McDonough, News Technology\'s president, decided to devote more resources to the improvement of product quality after learning that his company\'s products had been ranked tourth in product quality in a recent survey of newspaper publishers. He believed that the company could no longer afford to ignore the importance of product quality. McDonough set up a task force which he headed to implement a formal quality-improvement program. Included on the task force were representatives from engineering. sales, customer service, production, and accounting. because McDonough believed this was a companywide program and all employees should share the responsibility for its success. After the first meeting or the task force, Sheila Hayes, manager of sales, asked Tony Reese, the production manager, what he thought of the proposed program, Reese replied, ? have reservations Quality is too abstract to be attaching costs to it and then to be holding you and me responsible for cost improvements. 1 like to work with goals that I can see and count! I don\'t like my annual income to be based on a decrease in quality costs; there are too many variables that we have no control overl News Technology\'s quality-improvement program has now been in operation for 18 months, and the following quality cost report has recenty been issued. As they were reviewing the report Hayes asked Reese what he thought of the quality program now. The work is really moving through the Production Department, replied Reese. \"We used to spend time helping the Customer Service Department solve their problems, but they are leaving us alone these days. I have no complaints so far, I\'l be anxious to see how much the program increases our bonuses Cost of Qrusality Repert Quarter Ended Prevention 19 ?101 110 99 103 S94 170 Tranng supplers S 240 362 338 3 310 294 270 s 45 S 53 334 $205 $213 S211 $176-140 $ 116 $120 $106 114?88 78 62 S 10 5 120S 16 S 130 118 102 $09 31 24 25 23 23 Irooming ricton Final testing 53 Eetnal talure coes 122 $331 S282 S 140-141 S 110 $103 S 964 $1.027 B62 3 7 3 61 S 501 $4120 $4.540 $4.300 $4,660 580 510 Total producton ct ? 1. identify at least three factors that should be present for an organization to successfully imptement a quality-improvement program 2. By analyzing the cost or quality report presented, detemine it News Technology\'s quality- nprovemet program has specific evidence to support your answer been successful. List the quatit t program is more 3. Discuss why Tony Reese\'s current reaction to ine favoratble than nis instiai reaction 4. News Technology\'s president besieved that the quality-improvement program was essential and that the firm could no longer afford to ignore the importance of product quality. Discuss how the company could measure the opportunity cost of not implementing the quality-improvement program

Solution

Answer 1:

The factors that should be present in an organization to successfully implement quality improvement programs are as below:

1. Complete commitment and support of leadership and leadership that walks the talk.

2. Shift to long term-term mindset

3. Culture which ensure quality permeate everything an organization does.

Answer 2:

If we analyze the report, we observe that the quality improvement program has been successful.

If we look at the trends of data in report, we observe:

i) Total quality cost has an overall decreasing trend and it has decreased from $964,000 in quarter ended Jun 20X3 to $591,000 in quarter ended Sep 30, 20X4, whereas the production cost in the same period has increased from $4,120, 000 to $4,510,000.

ii) The external failure cost has shown a significant improvement for the period and it has improved from $331,000 to $103,000

ii) The internal failure cost has reduced from $188,000 to $102,000 over the period.

iv) The appraisal cost has also reduced for the period from $205,000 to $115,000.

Anu quality improvement program invests in prevention costs and over time such investment on prevention activities results in significant savings (which compensates much more than the increase in prevention costs) in appraisal and failure costs leading to reduction in overall cost of quality.

Answer 3:

Tony Reese\'s current reaction to quality improvement program is more favorable now :

His initial reaction was not favorable as he was concerned about the measurement and quantification of cost and benefits of quality. But he is observing very tangible benefits when he finds that cutomer complaints have reduced significantly leading to reduction in cost and effort in attending to such complaints. Further internal cost has also reduced. He observes tangible benefits and positive impacts on bonuses. A quality improvement program leads to both tangible and intangible comprehensive / across the board improvements and reduces surprises, sudden and unpredictable losses, It builds better image/reputation of company and its product/services leading to long term improvements in its sales and margins. Hence Tony Reese\'s comments are more favorable.

Answer 4:

Measuring opportunity cost of not implementing quality improvement program:

Poor quality will lead to:

1. High cost of rework / attending to product failures. In some cases it may lead to litigations also.

2. Loss of existing customers leading to lost sales and lost contribution /margin

3. Leads to bad reputation/image leading to loss of potential customers and consequent loss of potential margin and its growth.

4. A multiproduct company may have cross sales and hence loss of sale of one product may have imapcts on sale of other products (for example: sale of torch and batteries, loss in sale of torch may lead to loss in sale of batteries also). While calculating opportunity cost such loss of sale ( impacts on margin) in other products should also be considered. Poor quality leads to loss of existing customers to competitors and loss of future/potential customers.

Calculation of opportunity cost should factor in costs as described above.