cost management TI case

1724 WordsMar 22, 20147 Pages
1. What factors led to the adoption of the COQ system? Why do you think the company chose to adopt a financial measure of quality? 1) Reasons of adoption of COQ system Competition : In the late 70’s, international competition led to focus on quality improvement. Their customer HP publicized a study that product of HP’s best American suppliers to be inferior to HP’s worst Japanese suppliers. Quality control ii essential for TI’s long-term competitive success. Customer satisfaction : Improving quality is considered by many to be the best way to enhance customer satisfaction. Cost saving and improve productivity : Improving quality is the best way to reduce manufacturing costs and to increase productivity. → Bird-eye view : TI want to…show more content…
Prevention costs and Appraisal costs are called “Control costs” that is incurred to prevent defective products. And “Failure costs” are costs that is incurred to correcting errors by defective products. These two categories of COQ (Control costs and Failure costs) have some correlation as below diagram. [Exhibit 1] Correlation of Quality and COQ The more defective products the larger failure costs but in that time control costs (prevention and appraisal cost) are small. The less defective products the smaller failure costs but control costs increase very highly. We cannot and do not supposed to effort to make a product`s quality “100% Perfect” because we do more effort to do that our COQ will be increased to unaffordable level. We have to find the optimal level of quality in consideration of the quality needs of customers and the costs level. Actually according to our individual experiences, if we mention cost of quality we mean “Failure cost” in most of real business. Most of control costs (prevention and appraisal cost) are not easy to account by financial measure and the amounts of it is not so large. And if we try to account the amount of control costs, the measuring costs could be larger than that. This is the reason why most company do not take into account the

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