Posted: March 24th, 2023
Mr. Genichi Taguchi noted that although it is important to reduce the cost of production, producing quality products is the best way of reducing costs. In management, companies must find ways of removing unwarranted costs in their business budgets to increase profits and ease the establishment’s operations. A businesses largest expense is the cost of material, which directly affects its profitability (Castillo-Villar 5922). Therefore, whenever a company embarks on reducing the cost of production, they have to ensure that this step does not influence the final product, nor does it alter the expectations of customers and their value for money.
Business managers assume that increasing the quality of a product is accompanied by increased costs. However, on a more critical evaluation, the quality outweighs the cost, explaining that producing quality products supersedes the manufacturing function. By producing quality products, a company foregoes some setbacks connected to manufacturing substandard goods and services. Notably, if a corporation needs to understand the costs they may incur from producing inferior goods, they should evaluate their venture before proceeding on the quality costs scale. First, there is prevention cost, which explains that preventing defections is better than finding and removing them from the already manufactured product (Castillo-Villar 5925).
In addition, prevention costs are applied in evaluating workers’ training, statistical processes, manufacturing processes, and quality engineering, among others. Another quality cost consideration is appraisal costs, where every manufactured product needs to be inspected before being shipped to the customer. Therefore, a company that is producing substandard goods will incur more costs of maintaining an inspection team and redoing their products if they do not meet the required standards. In addition, internal failure costs are incurred by removing defective products before delivering them to clients. A good example of internal failure costs is recorded from the cost of reworking products, scrap, and rejected goods. In essence, if defective products are shipped to the customer, some external failure costs will be incurred, including replacements, warranties, and lost sales from a bad reputation, as well as compensating damages that may result from using defective products (Castillo-Villar 5927). Therefore, if customers are dissatisfied, their goodwill is affected, which might reduce company sales and profits.
Castillo-Villar, Krystel K., Neale R. Smith, and James L. Simonton. “A model for supply chain design considering the cost of quality.” Applied Mathematical Modelling 36.12 (2012): 5920-5935.
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