Efficient internal operations are the foundation of long-term corporate success in this competitive environment. Quality is perceived as a key success factor and has become one of the strategic issues rather than just a managerial tool for mass-production. In the process of value creation, cost cont...
Efficient internal operations are the foundation of long-term corporate success in this competitive environment. Quality is perceived as a key success factor and has become one of the strategic issues rather than just a managerial tool for mass-production. In the process of value creation, cost control is required to get effective operational results as an investment concept. It is clear that a formal quality cost program is necessary to achieve high product quality at a competitive price. To attain these goals, a company management has to strive for improvement continually. Quality cost study reveals considerable information about the soundness of a quality system: it can tell whether the system produces good quality at the right price, and how to enhance the profit. The primary purpose of this study is to develop quality cost models for business units in the Korean consumer electronics industry and identify relationship between effectiveness of quality cost system and business performance with empirical data. The study procedure is summarized as follows: First, we have identified quality cost models in the case company, using quality-related model in the relevant literature. Second, organization variables are applied to these models to get more detailed extension models. Organizational quality level variables (overall organization level, self-management level, communication level, leadership level, customer satisfaction activity level, quality improvement activity level) are derived from a survey to product business units in the subject company. Third, independent variables are selected from cost data, and regression analysis was conducted, using a stepwise method. Finally, the relationship between quality cost and business performance (measured by customer satisfaction index) is examined. The results of this study are the following. We found some discrepancy between the literature model and the case analysis, indicating that external failure cost multiplies as prevention cost increases: it seems to be caused by new product development and tentative responses from external failure instead of fundamental elements in a quality system or method. Regarding customer satisfaction relationship, the failure cost has a significant influence on customer satisfaction with an inverse effect. To reduce the external failure cost or break the failure-prevention causal effect cycle, quality innovation, not a simple prevention activity by quality personnel but effective implementation of a systematic quality program, should be applied to the production system.
Efficient internal operations are the foundation of long-term corporate success in this competitive environment. Quality is perceived as a key success factor and has become one of the strategic issues rather than just a managerial tool for mass-production. In the process of value creation, cost control is required to get effective operational results as an investment concept. It is clear that a formal quality cost program is necessary to achieve high product quality at a competitive price. To attain these goals, a company management has to strive for improvement continually. Quality cost study reveals considerable information about the soundness of a quality system: it can tell whether the system produces good quality at the right price, and how to enhance the profit. The primary purpose of this study is to develop quality cost models for business units in the Korean consumer electronics industry and identify relationship between effectiveness of quality cost system and business performance with empirical data. The study procedure is summarized as follows: First, we have identified quality cost models in the case company, using quality-related model in the relevant literature. Second, organization variables are applied to these models to get more detailed extension models. Organizational quality level variables (overall organization level, self-management level, communication level, leadership level, customer satisfaction activity level, quality improvement activity level) are derived from a survey to product business units in the subject company. Third, independent variables are selected from cost data, and regression analysis was conducted, using a stepwise method. Finally, the relationship between quality cost and business performance (measured by customer satisfaction index) is examined. The results of this study are the following. We found some discrepancy between the literature model and the case analysis, indicating that external failure cost multiplies as prevention cost increases: it seems to be caused by new product development and tentative responses from external failure instead of fundamental elements in a quality system or method. Regarding customer satisfaction relationship, the failure cost has a significant influence on customer satisfaction with an inverse effect. To reduce the external failure cost or break the failure-prevention causal effect cycle, quality innovation, not a simple prevention activity by quality personnel but effective implementation of a systematic quality program, should be applied to the production system.
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