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, Shameika Whitfield, manager of sales, asked Antonio Solis, the production manager, what he thought of the proposed program. Solis 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, Whitfield asked Solis what he thought of the quality program now. “The work is really moving through the Production Department,” replied Solis. “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 Antonio Solis’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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Prevention costs: Design review Machine maintenance Training suppliers Total Appraisal costs: Incoming inspection Final testing. Total Internal failure costs: Rework Scrap. Total External failure costs: Warranty repairs Customer returns Total Total quality cost Total production cost LASER NEWS TECHNOLOGY, INC. Cost of Quality Report (in thousands) Quarter Ended 6/30/x0 9/30/x0 12/31/x03/31/x1 $ 20 $ 102 215 215 5 45 $ 240 $362 $ 45 160 $ 205 $ 120 68 $ 188 $ 69 262 $ 331 $ 964 $4,120 $53 160 $ 213 $ 106 64 $ 170 $ 31 251 $ 282 $1,027 $4,540 $ 111 202 25 $ 338 $ 57 154 $ 211 $ 114 53 $ 167 $ 100 $ 104 190 170 20 20 $310 $294 $36 140 $ 176 $88 42 $ 130 $ 25 116 $ 141 6/30/x1 $ 24 122 $ 146 $ 862 $757 $4,380 $4,650 $34 115 $149 $78 40 $118 $23 87 $110 $ 671 $4,580 9/30/x1 $95 160 15 $ 270 $22 94 $116 $62 40 $ 102 $ 23 80 $ 103 $ 591 $4,510