Chapter 24: Quality

Quality is those features of a product or service that allows it to satisfy (or delight) customers.

 

Benefits of having a quality system:

A Quality System is the approach used by an organisation to achieve quality. Most quality systems can be classified as either quality control or quality assurance.

1. Impact on sales volume

• If the product/service meets customer needs --> Demand would increase --> Enable the business to increase the level of its profits.
• People become richer --> Desire for high quality goods increase rapidly --> Because of less constrained by level of income.

2. Creating a USP

• Not achievable for all businesses, especially those trying to keep costs low
• Can use quality as a USP --> To increase demand.
• E.g. Often there is an 8-week waiting list for weekend bookings for afternoon tea at the Ritz Hotel in London. Potential customers see service as unique, a mix of:
• Tangible quality --> High quality of products and services provided.
• Intangible quality --> Image linked to the name of the hotel.
• The uniqueness of the service increases customers' desire to enjoy it, ensuring regular and high demand.

3. Impact on Selling Price

• Quality as a USP encourages consumers to pay a higher price for products/services.
• E.g. Food prices in M&S is higher than other supermarkets.
• Customers are willing to pay a higher price for better quality.
• Increases profit margins
• Note: Better quality materials and production needed to achieve high quality products.
• Quality as a USP is common in niche markets e.g. Harrods or Hotel Chocolat
• Greater perception of quality --> The higher the selling price the firm can charge
• E.g. Afternoon tea at the Ritz costs £36 pp.

4. Pricing Flexibility

• Reputation for quality gives business ability to be more flexible in its pricing.
• E.g. British airways charges higher prices to customers who value quality of service on flights. They also have flexibility to offer discounted prices in order to fill planes where necessary - the high price paid by customers would have already guaranteed the firm a profit.

5. Cost reductions

• It is costly to implement a quality system but can reduce business costs.
• No wastage of faulty goods or possible recall of many products already sold --> Expensive Process
• Costs of reworking products in a faulty manner or waste of materials.

6. The firm's reputation

• No quality system = Costly to business reputation.
• E.g. 2006 - Cadbury's reputation was damaged by negative publicity --> Salmonella scare and faulty labelling of products.
• Customers remember unfavourable publicity
• Good quality system --> Prevent problems --> Help business avoid any damage to reputation 

Issues involved in introducing and managing a quality system:

1. Costs

• Administrative expense to set up
• Continual monitoring of production, materials and processes
• For an overall assessment of the value of a quality system --> Costs compared with financial benefits arising from high quality achieved EXCEED costs incurred to achieve it.

2. Training

• Quality assurance relies on a well-trained workforce who can understand and implement the quality system.
• Training is quite expensive
• Create cultural changes e.g. more consultative style of management and greater willingness to give responsibility to workers.

3. Disruption to production

• Short-run -Training programme disruptive to existing production methods.
• Training --> Staff will be taken off the current production line to undergo training.
• This would short term damage quality and quantity of production.
• After training complete --> Further disruption --> Workforce, managers and suppliers must adapt to new systems of quality.
• During this period, mistakes are more likely to happen + danger of company's reputation for quality may suffer.
• Yet once new system established --> Problems should disappear.

Quality Control

Quality Control: A system that uses inspection as a way of finding any faults in the good or service being provided.

- This is where there is inspection at the end (with the end product)

- Firms have now moved on from quality control onto quality assurance.



Quality Assurance

Quality assurance is a system that aims to achieve or improve quality by organising every process to get the product 'right first time' and prevent mistakes ever happening.

 This involves self-checking, concentrating on the process of production.

Benefits of Quality Assurance:

• Ownership of the product rests with the workers, giving them greater responsibility.
• Herzberg argues that there are positive effects on motivation because of this sense of ownership and recognition of the worker's responsibility.
• Costs are reduced because there is less waste and less need for reworking of faulty products.
• With all staff responsible for quality, there should be a higher and more consistent level of quality, which can lead to marketing advantages for the firm.

The problems are the same: Cost, training and disruption to production.

Total Quality Management (TQM)

It is the most widely recognised quality assurance system.

Total Quality Management is a culture of quality that involves all employees of a firm.

It is based on the philosophy of 'right first time'.

Kaizen

Kaizen is a policy of implementing SMALL, incremental CHANGES in order to achieve better quality and/or greater efficiency.

Focussed on making 'continual improvement'.

Quality Standards

Quality Standard: A set of criteria for quality established by an organisation. The standard also requires an organisation to have systems for implementing and monitoring its standards.

BS 5750: A British standards award granted to organisations that possess quality assurance systems that meet the standards set.

ISO 9001: The international standard of quality assurance that is equivalent to BS 5750.

The benefits of these awards are:
- Marketing advantages from the acknowledgement of higher quality standards
- Assurance to customers that products meet certain standards
- Greater employee motivation from the sense of responsibility and recognition
- Financial benefits in the long term (due to elimination of waste and improved reputation of firm).

Quality Summary: