Poor Quality Activities: Identify all activities that exist only, or primarily, because of poor quality.

A Tale of Two Companies

Two companies, ABC Inc. and XYZ Inc., both need to compete in the global marketplace in order to survive. As might be expected, over the years competition has become increasingly intense. In order to be more competitive, ABC$$s executives undertook a major company$-$wide cost$-$cutting initiative. They eliminated quality audits; changed from trusted, proven suppliers to low$-$bid suppliers; purchased new computer systems; cut back on research and development; and reduced customer service staff.

These cost$-$cutting strategies did have the desired effect of decreasing the company$$s overhead, but they also had the unplanned consequences of disrupting the company$$s ability to satisfy customers and reducing the company$$s potential to develop new business in the future. The net outcome of all this was unhappy customers, disenchanted employees, and a decline in business. To make matters even worse, the company was still struggling with the poor performance record that caused its executives to want to cut costs in the first place.

The executives of XYZ Inc. also needed to make some changes in order to stay competitive, but they decided to take a different approach. XYZ$$s management team set out to identify all of the costs that would disappear if their company improved its performance in key areas. The costs identified included those associated with the following: late deliveries to customers, billing errors, scrap and rework, and accounts payable errors. In other words, XYZ$$s executives decided to identify the costs associated with poor quality. Having done so$,$ they were able to begin improvement projects in the areas identified without making cuts in functions essential to competitiveness $($e$.$g$.,$ product quality, research and development, customer service$).$