Introduction
The importance of quality in today’s organizations need not be overemphasized. Building quality in products manufactured or services provided is critical to making profits and to exist as a viable organization in the long run. TQM, Six Sigma, Lean, ISO 9000, Malcom Baldrige, Balance Score Card, JIT, Kaizen etc are some of the many concepts used in the industry to maintain and improve quality on a continuous basis. One of the most widely used tools for continuous improvement is PDCA(Plan-Do-Check-Act) cycle also known as Deming cycle or Shewhart cycle.
The emphasis in continuous improvement is incremental improvement within an existing process.
Many argue that building quality takes money and time. However, authors and practitioners like Crosby argue that Quality is Free 1 meaning that a business organization that establishes a quality program will see savings more than payoff the cost of the quality program. The cost of not including and maintaining quality may be more expensive than providing quality in the products and services offered.
Cost versus Quality
In the past, expenditures on quality have not been explicitly linked to profits because costs and savings were the only variables on which information was available 2. More recently, evidence about the profit consequences of quality stemming from other sources has been found. Some of the categories or sources that have profit consequences are: direct effects of quality on profits; the link between perceived quality and purchase intentions; customer and segment profitability; and key service drivers of service quality, customer retention, and profitability.
The critical business elements from which continuous improvement projects can be discovered, financially evaluated, and ranked before implementation (Jones 2008) are:
- Increase sales by increasing the percent of market coverage.
- Reduce expenses by reducing the percent of labor and non-labor expenses per sales dollar.
- Reduce lead times to reduce work-in-process inventory investment.
- Reduce setup costs to minimize product and component inventory investment.
- Maximize capital asset utilization percent.
- Minimize asset investment for invoice payment by controlling the collection period within the contracted time period.
- Maximize employee knowledge worker utilization by empowering them with financial and practical training related to these seven business elements.
- It is important to financially rank projects that have been identified as candidates for continuous improvement.
Conclusion
Quality, be it manufacturing quality or service quality, is essential for competing in today’s market place. Quality is equally important to improve acceptability and profitability. By carefully studying the areas where continuous improvement in quality can be implemented and thereby controlling the costs and improving quality, business organizations can justify the investments in quality that drive profits and profitability.
Works Cited
- Crosby, P. Quality is Free: The Art of making Quality Certain. New York. McGraw-Hill Company, 1980
- Jones, Russ. Proving Continuous Improvement with Profitability, 2008. Under Print.
- Zeithaml, Valarie A. “Service Quality, Profitability, and the Economic Worth of Customers: What We Know and What We Need to Learn”. Journal of the Academy of Marketing Science, Vol. 28, No. 1(2000), 67-85
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