University:
Duke University
Course:
ACCOUNTG 591 | Managerial Accounting
Academic year:

2023
Views:

487

Pages:

2
Author:

Bukan D

Defective Production Many people are skeptical about this total commitment to reduce defects. Implicitly, their view would be represented by Figure 10-1, which shows that too much of a good thing becomes excessively expensive; they argue that a trade-off exists between cost and conformance quality. With this view, quality efforts should be curtailed at the point where the marginal benefit from further defect reduction is below the marginal cost. Companies striving for Total Quality Control (TQC) consider themselves fortunate when their competitors believe the above conventional wisdom. These companies have learned that, based on all their experience, quality is indeed free," as represented by the diagram. Figure 1 : Total Qualuty Control View of Cost Trade-Off Total manufacturing cost (including warranty and service costs) declines as the incidence of defects decreases. It turns out, not surprisingly when one thinks about it, that it is cheaper to build all the items correctly the first time rather than waste resources building substandard items that have to be detected, reworked, scrapped, fixed in the field, or reclaimed from customers. The conventional wisdom that attempts to "optimize" the number of defects has probably grossly underestimated the costs imposed on the factory by having to inspect, move, store, reschedule, and rework defective items, as well as the loss in reputation caused by shipment delays and delivering defective items to customers. A leading Japanese industrialist estimates that the "true" losses due to defectives are six times the measured losses. Companies that have committed to achieving zero defect manufacturing are enjoying significant advantages over their competitors who are "optimizing" the number of defects (at a level different from zero). Figure 2 : Total Qualuty Control View of Cost Trade-Off