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What is the Cost of Quality?

Updated on June 12, 2011

Cost of Quality

COST OF QUALITY

Quality cost

· Increase in profit

· Reduction in Non-conformance (waste, rejects, rework, etc.)

· Increase in prevention

CUSTOMERS AND THEIR REQUIREMENTS

What is a customer?

A customer is anyone who receives any output from you.

Customers are people with needs, and with expectations about how those needs will be met. In this sense, anybody who fits this description is our ‘customer’. When we provide output to them, we become their ‘supplier’. Because they are people with needs, and they come to our organizations to meet those needs, it is necessary to give them the output necessary to meet their requirements.

What Do Customers Want?

All customers generally want:

  1. To feel that their needs are understood (that we’re listening).
  2. A good quality product (in their eyes).
  3. Effective service (that we’re doing the right thing for them).
  4. Efficient service (that we’re doing the right thing the right way).
  5. To feel good about the transaction (that we care about our relationship with customers).

Why is it important to give Customers what they want?

The facts demonstrate the bottom line benefit of giving customers what they want. The Profit Impact of Marketing Strategy (PIMS), conducted by the Strategic Planning Institute of Cambridge Massachusetts, involved a survey of over three thousand providers of gods and services. Customers were asked whether they perceived the organization as a “good product and service provider” or “poor product and service provider”. The results were then matched with the actual financial performance of the organization in the market place.

The companies’ customers had perceived as being good product and service providers:

· Could charge an average of 9 to 10% more for the same basic goods and service.

· Grew twice as fast as their competition.

· Improved their market share an average of 6% per year. The perceived poor providers lost as much as 2% market share per annum.


Perceptions of Customer Value


Perceptions of Customer Value

Four elements of customer perception value:

· Basic

· Expected

· Desired

· Unanticipated

There are four major elements in what can be called a hierarchy of stomper value. Once these are understood, we are in a better position to evaluate the level at which our products and/or services satisfying customer needs. The four elements are:

Basic -The elements of the product/service are fundamental to providing value to the customer.

Expected -the elements of the product or service the customer does not necessarily expect but values highly and appreciates when they are present. For example, providing a free gift wrapping service, buying 750ml Of Coke for the price of 500 ml

Desired -elements of the product or service the customer has come to take for granted. For example, Customer expects food to be safe and to last till the use-by-date.

Unanticipated- elements of the customer contact situating that exceed the expectations and desires of the customer. These are surprise elements. For example, arranging for home delivery of an item when this is not a service usually offered, as the item is bulky and the customer is traveling by public transport.

The implication is that those businesses that operate at the higher and of the hierarchy have a significant competitive advantage over those that only meet the basic or expected levels of customer value.

However, keep in mind that over time, the unanticipated may become the expected. For this reason, you need to be forever looking for ways to provide higher levels of service to your customers.

At what level in this hierarchy of customer value does food safety sit?

On the export scene, the Japanese are fanatical about the packaging of beef. Our Middle East customers are concerned with reliability of supply and timelines of delivery. Our United States customers will pay a premium for beef with consistent and narrow fat ranges.

Domestic and export customers will not pay a premium for food that is safe to eat. It is their right to expect it.

THE VALUE CHAIN

We are all part of a customer-supplier chain

If we see ourselves as part of a value chain, it is easier to picture the part we play in delivering the product and/or service to the external customer. The following diagram is one you may have seen used in the contexts; however, it is useful for our purposes here as well.

Once we understand our roles in the process, it becomes easier for us to see others as internal customers and suppliers.

If we can work successfully with internal customers, our business and industry will more easily embrace a focus on our external customers?

Notice the following points from the above figure:

1. There are customers become suppliers to other customer, after

2. “Internal” customers become suppliers to other customer, after having been served by some other supplier, whether internal or external.

3. There is a series of points at which value is added to the process, and all of these points contribute to the overall value for the external customer.

You need to use a list of internal customers and suppliers to determine where you fit in your industry’s value chain. You then need to identify what tasks you do to “add value” to the processes in which you are involved.

Adding Value

When you perform a task that contributes to archiving what your business needs to achieve, you are adding value. Each step in the process that adds value is important. We need to assess each task we perform according to whether it adds value or not.


Quality in Diagram

Value Chain Perception
Value Chain Perception
Customer Perception
Customer Perception
Quality Value Chain
Quality Value Chain

Comments

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    • ZIa Ahmed khan profile imageAUTHOR

      Dr. Zia Ahmed 

      7 years ago from Kuwait

      Thanks a lot. People thinks quality has cost, I think quality has profits and savings.

    • Aris Budianto profile image

      Aris Budianto 

      7 years ago from Lying along the equator Country

      What a great economic lesson here. Useful hub.

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