Laser News Technology, Inc. manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company’s market share has been eroded by stiff competition from Asian and European competitors. Price and product quality are the two key areas in which companies compete in this market.

Ben McDonough, Laser News Technology’s president, decided to devote more resources to the improvement of product quality after learning that his company’s products had been ranked fourth in product quality in a recent survey of newspaper publishers. He believed that the company could no longer afford to ignore the importance of product quality. McDonough set up a task force that he headed to implement a formal quality-improvement program. Included on the task force were representatives from engineering, sales, customer service, production, and accounting, as McDonough believed this was a companywide program and all employees should share the responsibility for its success.

After the first meeting of the task force, Sheila Hayes, manager of sales, asked Tony Reese, the production manager, what he thought of the proposed program. Reese replied, “I have reservations. Quality is too abstract to be attaching costs to it and then to be holding you and me responsible for cost improvements.

I like to work with goals that I can see and count! I don’t like my annual income to be based on a decrease in quality costs; there are too many variables that we have no control over!”

Laser News Technology’s quality-improvement program has now been in operation for 18 months, and the following quality cost report has recently been issued. As they were reviewing the report, Hayes asked Reese what he thought of the quality program now. “The work is really moving through the Production Department,” replied Reese. “We used to spend time helping the Customer Service Department solve their problems, but they are leaving us alone these days. I have no complaints so far. I’ll be anxious to see how much the program increases our bonuses.”

Required:
1. Identify at least three factors that should be present for an organization to successfully implement a quality improvement program.
2. By analyzing the cost of quality report presented, determine if Laser News Technology’s quality improvement program has been successful. List specific evidence to support your answer.
3. Discuss why Tony Reese’s current reaction to the quality improvement program is more favorable than his initial reaction.

4. Laser News Technology’s president believed that the quality improvement program was essential and that the firm could no longer afford to ignore the importance of product quality. Discuss how the company could measure the opportunity cost of not implementing the quality-improvement program.

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LASER NEWS TECHNOLOGY, INC. Cost of Quality Report (in thousands) Quarter Ended 6/30/x0 9/30/x0 12/31/x0 3/31/x1 6/30/x1 9/30/x1 Prevention costs: Design review $ 20 $ 102 $ 111 Machine maintenance 215 215 202 $ 100 190 $ 104 $ 95 170 160 Training suppliers.. 5 45 25 20 20 15 Total. $ 240 $ 362 $ 338 $ 310 $ 294 $ 270 Appraisal costs: Incoming inspection $ 45 $ 53 $ 57 $ 36 $ 34 $ 22 Final testing 160 160 154 140 115 94 Total $ 205 $ 213 $ 211 $176 $ 149 $ 116 Internal failure costs: Rework $ 120 $ 106 $ 114 $ 88 $ 78 $ 62 Scrap 68 64 53 42 40 40 Total $ 188 $ 170 $ 167 $ 130 $ 118 $ 102 External failure costs: Warranty repairs $ 69 $ 31 $ 24 $ 25 $ 23 $ 23 Customer returns 262 251 122 116 87 80 Total $ 331 $ 282 $ 146 $ 141 $ 110 $ 103 Total quality cost. $ 964 $1,027 $ 862 $ 757 $ 671 $ 591 Total production cost. $4,120 $4,540 $4,380 $4,650 $4,580 $4,510