Better Essays

Chapter 16

Total Quality Management

Teaching Notes for Cases

16-1: Precision Systems, Inc.

This case illustrates that quality cost information can play an important role in alerting top management about the importance of quality improvement in a non-manufacturing department of a manufacturing firm. The case is based on the following article:

Kalagnanam, S. S. and E. M. Matsumura, "Cost of Quality in an Order Entry Department," Journal of Cost Management (Fall 1995), pp. 68-74.

The required questions are designed to acquaint students with some of the terminology of "cost of quality" and some aspects of conducting a cost of quality study. Quality costs, defined as those that arise because poor quality may exist or …show more content…

For each external failure item, identify which of order entry’s internal customers (i.e., other departments within PSI that use information from the order acknowledgment) will be affected.

Items 1, 2, 5, 8, 19 and 12 are internal failures; the remaining are external failure items. Internal customers affected by external failure items are listed below.

Item Number Internal Customer(s) Affected 3 Manufacturing, service, stockroom, invoicing 4 Invoicing, accounting (profitability analysis) 6 Manufacturing, service, stockroom, invoicing, accounting 7 Shipping, invoicing, collections, customer support 9 Manufacturing, service, stockroom 11 Invoicing, collections, accounting

Other examples (not included in Exhibit 1):

Error Type Internal Customer(s) Affected
Incorrect serial # of system on OA Service, customer support
Duplicate order Stockroom, shipping, manufacturing, sales admin.
Incorrect sales rep. Code Sales administration

4. For the order-entry process, how would you identify internal failures and external failures? Who would be involved in documenting these failures and their associated costs? Which individuals or departments should be involved in making improvements to the order entry process?

An initial step would be to interview employees in order entry, as well as its

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