Reference no: EM133282579
The cost versus quality decision is one that only few companies get right. What is the cost of quality? It is very high for some companies such as Ford and Bridgestone/Firestone, whose reputations have suffered immeasurable damage. The cost to them is not only that of legal costs and replacing the defective product, but also the loss of future sales as customers become wary of purchasing their products.
There is no direct relationship between cost reduction and the level of quality. According to Industry Week's survey of 3000 companies in the year 2000, most companies that reduced cost by cutting waste and scrap actually improved their quality over those whose costs had increased. Companies have invested billions of dollars over the last 20 years in various quality improvement initiatives. In most cases these initiatives have resulted in cost savings in the form of lower production costs, less scrap, and less warrant claims. These savings have more than offset the direct costs of the quality programs, and increased the profits by delivering a higher level of customer satisfaction. Despite these gains, most experts acknowledge that the cost of quality, which is the cost associated with poorly designed and produced products, is still large.
Most product designers have a limited understanding of the impact a poor design could have on both cost and quality. The increased pressure to cut costs over the last twenty years has forced manufacturers to take a second look at the level of quality they are willing to design into their products. This has led to companies to be pennywise and pound foolish, as the old adage goes. While it is true that most of the costs of making a product are fixed during the design stage, it is equally true that the costs of poor quality are also fixed during the design stage. The only difference is that the costs of making the product are explicitly known, whereas the cost of poor quality is unknown or unaccounted for during the design stage.
The recent spate of product recalls, especially those in the auto industry, has put the spotlight back on the cost of quality. It is not surprising that the public perception of the quality of American vehicles has been the primary reason for the declining market share of Ford, GM, and Chrysler. Quality programs have become popular again, and among the most popular are the principles of lean manufacturing and Six Sigma initiatives, across the whole Supply Chain.
The field of quality management has gone through many stages, ranging from initiatives such as SPC, SQC, TQM, and Reengineering. In recent times, there has been a backlash and some bad press about the failure of these initiatives, especially TQM and Reengineering.
1. What do you think are the reasons for this backlash?
2. How do new initiatives such as Six Sigma avoid the pitfalls of the previous initiatives?
3.What do you suggest these American vehicle companies must do to gain back market share?
4. How would your suggested implementation affect each segment of the Supply Chain?