Influences between Cost and Quality

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Influences between Cost and Quality

In a prior career, I used to be the director of Systems Engineering for a major telecommunications manufacturer. The role of systems engineering is to provide technical support for sales. The duties include such tasks as technical presentations, gathering customer requirements, designing networks and project managing the testing and implementation of our products. One of the major aspects of the job was coordinating feature sets and timeframes between the customer and our engineering. Large customers are always looking for additional features that can set them apart from their competition. They always leverage the vendor into producing new product enhancements and try to accelerate the delivery. This phenomenon creates a dichotomy and trade-off between quality and costs.

The relationships between cost management and quality management are an interesting one. Everyone in this world is a consumer of some sort. We all buy things and we all want only the best products for the best price. But, where is the line to be drawn for how much do we pay for quality? Most competitive companies have goals to put out the best product for the best price. They have many different slogans such as quality is #1 or customer service is #1. Nevertheless, how much should a company spend on quality before it starts to cut into profit? What are effects of rushing a product to market in respect to quality and costs? First, let me define a few terms

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Quality Management

Quality management is one of the hardest jobs of a manager to control. The goal behind good quality management is improving business processes, optimizing the performance of your business, and maximizing profitability. By definition, quality is a degree of excellence, superiority in kind. (Mish p. 6) Management is defined as the conducting or supervising of something. (Mish p. 7) This leads us to the definition of quality management being the supervising of a degree of excellence. Most companies aim to achieve a certain degree of excellence without exceeding budget.

Cost Management

Cost management is what drives companies to the top or sends them crashing and burning to the bottom of the business food chain. Cost management is defined as the conducting or supervising of (Mish p. 6) the amount or equivalent paid or charged for something. (Mish p. 5) When a business purchases a product or service, just like a consumer, there is a responsibility for the purchaser to find the best price available. This will keep the costs down for the purchasers company and will keep the company competitive with prices.

Large customers hope to influence their vendors to provide specific product differences that would make them unique in the marketplace, thus giving them a competitive advantage. The proliferation of microcomputer technology has made it possible to change functionality of a product by introducing new software programming. Most customers are unaware of the intricacies of software programming, testing and controls. Their perception is that software development is quick and easy, with little costs as compared to hardware development.

My company on the other hand has multiple large customers, each hoping to influence our product development and time to market. Each of these customers wants different product features that will make them unique in the marketplace. Our engineers are detailed oriented and prefer to layout a program of design and delivery based on the goals of senior management and marketing direction. Introducing new requirements in the middle of product development disrupts their orderly processes, increases cost, and causes tension internally between sales, marketing, and engineering.

The type of company culture influences the outcome of the customers' requests. If the company is primarily sales driven, the likelihood that engineering will have to adjust their plans is high. Engineering driven companies on the other hand, many be more staunch in their stance and maintain the existing development schedule. Management must decide whether the proposed changes to the product adds value long term, and is the customer willing to pay for the additional feature development short term. Managers from some cultures are less flexible because it is a sign of weakness.

A company never wants to discourage customer feedback on features because it helps to set practical implementations of the product that design engineers may never think of. In addition, if the product diverges to far from what the majority of customers need the product will no longer be viable in the market.

Let us assume that the customer requests for product changes have received approval. We now look at cost versus quality trade-offs that will ultimately influence the final product. Adding features to the product development requires additional resources. In software development, additional employees with specific programming language expertise may be required. It will also influence how the software is tested. Testing the software will require additional time and possibly additional automated test equipment. Additional lines of code may require more memory in the hardware to store the increased code. Each of these factors adds cost to the product and needs carefully evaluation prior to development.

The addition of new features adds additional work, which effects time to market. Management will need to evaluate the trade-offs of missing the original schedule versus added costs. Missing the original schedule will influence other customers who are counting on our company to help them meet their goals. These are difficult decisions because they affect more than the requesting customer and our company. This decision will affect several more companies that do business with us.

Meeting the original schedule means that we must compress the additional work. Management can address this issue by employing more people or demanding longer work hours from existing employees. This aspect is where most of the quality issues will show up. New employees are unknown commodities that require training and additional supervision. Until they are up to speed with our companies' specific products, techniques, policies, etc, they are bound to make mistakes. Longer work hours for current employees create additional emotional stress, lack of focus, and possibly company resentment. All these factors add up to poorer quality

The potential for added revenues versus the assured increase in development cost requires careful analysis by management. Typically, management will require sales to gather additional, specific information about the customer requirements so we are not developing the wrong feature. Sales must try to negotiate further commitments from the customer to purchase our products and possibly help fund some of the development. Sales will also need to assess whether other customers might have the same needs. Do the needs exactly line up or are there variances. Can engineering design the features to accommodate the variances?

Marketing is tasked to evaluate how these new features might set us apart from our competitors. Do the new features add enough value to allow us to increase price? Can we make greater advertising claims and get our companies name better known in the industry?

Politics and personal feelings always play into these decisions. Engineers who design products have an emotional attachment to their work. When asked to change the design, a natural resistance occurs. The owner of the company may be friends with a VP of our customer. A biased decision to add features based on friendships versus logical business decisions. Sales representatives are looking for attention on their clients and themselves. Sometimes there is a tendency to mislead our company about the potential for future business

Relating Cost Management to Quality Management

Changes in product design influences cost and quality. Many factors go into a decision to change design and implement new features. All these factors affect cost and quality requiring carefully management and planning. Quality management can become very expensive, so there comes a point in a business where a manager must recognize the issue of cost over sacrifices for quality. Your market will also dictate the extent of quality implementation. Auto manufacturer Ferrari knows if they produce a quality product, there are enough consumers out there who will spend the money to own the name and quality vehicles they produce. The other extreme has manufacturers such as the Yugo Car Company producing very cost effective vehicles that anyone could afford; however, quality levels are reported to be low. Other companies like Honda, Ford, and GM created a balance between cost and quality. This balance between cost and quality allowed them to become some of the most successful companies in the world today.

Conclusion

Quality management is essential for a business to survive and keep consumers happy. In addition, cost is always an issue no matter how much money one has. In order for a company to become as successful as they can be, there must be a balance of the two. Having the right management staff and experience in quality management and cost management can make a business very successful or can cause it to fail miserably. Change decisions cannot be made lightly and hundreds of factors influence the outcome. Good management is the ability to balance these factors using proven processes and sound logic. Systems engineering is the catalyst and moderator between the company and the customer. We influence through various forms of logic, economics and human relations factors.

References

Keogh, J. (14). Project Planning and Implementation. Upper Saddle River, NJ Prentice Hall.

Mish, F. C. (186). Websters Ninth New Collegiate Dictionary (th ed.). Springfield, MA Merriam-Webster.

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