Quality no doubt saves money but not without its own costs. Costs of quality are broadly classified into conformance cost and non-conformance cost. These are then sub- classified into prevention cost, appraisal cost, internal cost and external cost.
From the perspective of managers, costs of quality should be brought down to the minimal level so as to increase the bottom line. This thinking is in line with meeting the objectives of shareholders which is maximization of their wealth.
On the other hand, customers are constantly seeking avenues of increasing the costs of quality. They do this by continuously demanding high quality of goods and services.
The question ‘who bears the cost of quality? ‘can best be answered by doing stakeholder analysis. For the purpose of this article, only two stakeholders will be considered; customers and shareholders.
Customers: the primary aim of customers is to get full customer satisfaction from every penny that comes out of their pocket. They aim to get the best quality yet paying very little. The irony here is that the customers will be the ones that will ultimately bear the cost in the form of increased prices. Although this is possible, there is a limit to the amount of costs that can be transferred to customers.
Shareholders: contrary to the stance of the customers, shareholders ‘aim is to maximize what goes into their pocket at the end of the day. They strive to spend minimally on quality cost. Shareholders if given the chance will prefer not spending anything on quality and yet expect to reap bountifully.
At the end of the day, shareholders will be the ones that bear the brunt if the qualitative cost of quality (foregone sales) gets so bad that the business can no longer breakeven and goes burst.
Again, the bottom line (profit) of a business will be reduced if every I’s are dotted and T’s crossed. For example, a company will save money in the short run if it can do without having to employ quality control and quality assurance staff.
From the above discussions, one will not go wrong in arguing that shareholders are the ones that ultimately pays the cost of quality.
Leave a Reply