In an attempt to cut costs in the Quality Control Department of XYZ Deli, it is important to first identify the costs to determine which aspects of the company’s quality control process can be eliminated, if any at all. Quality control costs can be divided into three different classifications. These classifications are prevention costs, appraisal costs and failure costs (Stevenson, 2008).
Prevention costs are costs generated in the process of impeding product mistakes or flaws in order to supply customers with XYZ Deli brand quality products or to improve current products. Prevention costs are the most indispensable of the quality control costs. It is less expensive and much less difficult to repair a flaw or defect before the product reaches the customer. Prevention costs include not only planning and administrative procedure costs, but also education/training and increased equipment maintenance costs. It is important that all employees are trained accurately throughout the quality control process in order to produce XYZ Deli quality products and to ensure a decline in the possibility of erroneous design and productivity (Stevenson, 2008).
Possible tradeoffs for this cost would be if employees are not trained properly, ensuring the job is being done correctly; may result in the production of unsatisfactory product. This could potentially create loss of sales or opportunity costs because the products are being poorly produced. However, increasing the time spent training employees could delay the production process. This would also create opportunity costs because the product would take longer to get to the customer.
While prevention costs are most vital, appraisal costs are necessary to ensure customers are being provided with the high quality products expected from the XYZ Deli brand. This would include costs of inspection of products to determine if product standards and parameters are being met, as well as to detect any product flaws. An example of appraisal costs is inspection costs. Inspection costs are incurred during the quality testing process. This includes the cost of the inspection facility and inspector auditor salaries, as well as any materials, appliances or tools used to test XYZ Deli brand products (Stevenson, 2008). A potential tradeoff to not inspecting product could also allow defective product to reach the customer, creating opportunity costs. Poorly produced products will not be well received. At any rate, the tradeoff for properly inspecting all the product being produced could set back the time it takes for the product to reach the market; also creating opportunity costs.
Finally, failure costs are generated when components of the product or the product itself is faulty. Failure costs can be either internal or external. Internal failures are those detected in one of the production phases; before the product reaches the customer. There are numerous issues that contribute to an internal failure; such issues include: faulty materials received, improper handling of material, defective equipment, and improper use of equipment. Examples of internal failure costs are loss of production time, worthless material and the cost of regenerating previous work and/or the rebuilding of the product, as well as the cost of inspecting the reworked product. Other examples of internal failures include possible damage to equipment; possible safety issues causing employee injuries.
External failures are failures that are identified after the customer has received the product. Such issues are not discovered during production or inspection process. These costs are much more expensive and much more difficult to correct because the product has already reached the consumer. Examples of a failure costs include managing customer complaints, accountability and possible litigation. Overseeing warranty issues, providing replacements and payments are also examples of failure costs. An important failure costs to avoid is the loss of customer loyalty (Stevenson, 2008). Not only does XYZ Deli want to recruit new customers, it is important to retain current valued customers. Not finding a way to take care of the consumer may give the company a poor reputation, creating more opportunity costs.
While each of these costs is expensive, they are necessary in maintaining the reputation of a growing company, such as XYZ Deli. Prevention appraisal costs are the preferable way to disperse funds because they prevent failure costs. Failure costs are much more expensive for the company, not only in terms of money, but also in terms of the company’s reputation, good will and the ability to retain current valued customers. If XYZ Deli spends the time and money on the appropriate such as ensuring proper training in production and inspection, the company will save money in the future.
Stevenson, W. (2008). Operations management (10th ed.). New York: McGraw-Hill ISBN-13: 978-0-07-337784-1.