AVM1 Task 1- Memo (Taylor Mays) _ References Page Added

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6/12/2024 AVM1 Task 1- Memo To: Supervisor From: Taylor Mays Subject: Cost-Quality Relationship To guarantee the quality of our products it is essential to integrate specific types of costs such as: appraisal, prevention, and failure . These quality costs will be expanded upon in this memo, but it is important that it is brought to your attention that there are two branches within failure costs: internal and external . First, the quality cost we will be discussing for clarification is appraisal costs. Appraisal costs are costs related to evaluating and inspecting our products and services. As we discussed, per our previous correspondence, we have been encountering issues with equipment being severely outdated and this is impacting our production. Our equipment being so outdated and in need of repairs is resulting in less tangible products being produced. An example of these appraisal costs is the cost of having our equipment and machinery inspected and thus, the interruption of production.

2 The second quality cost to be discussed is prevention costs. Prevention costs are costs related to doing everything we can to prevent or reduce potential quality issues. This may seem familiar to you because we are currently in collaboration with several companies to help our company to implement various training programs that will assist our production team in reducing quality issues. As stated above, examples of prevention costs include quality improvement programs, training, and more. Third, let’s discuss failure costs. Failure costs can either be internal or external. Internal failure costs are costs related to defective products before they are delivered to customers. Examples could be anything from rework costs that can be quite expensive to material losses and problem solving. External failure costs are costs related to anything after a delivery has been made or is in the process of being delivered. Examples include returned goods, warranty costs, penalties, and loss of customers due to the failure. Now, onto trade-offs. A trade-off is when you exchange one thing for another. For example, a potential trade-off for improving marketing efforts at your company would be the cost of hiring more qualified staff for the marketing team. With the above example in mind, a possible trade-off for appraisal costs is having a slower production time. This is due to having to spend time inspecting equipment

3 and machinery to ensure quality production is taking place. Even though this seems like a negative for the company, it can be a positive due to this possibly resulting in higher customer retention and improved revenue because of the higher quality of products being produced. A possible trade-off for prevention costs is training time. It will take longer to train employees on the production team on reducing quality issues and thus, moving production along efficiently. Although, this could be easily turned into a benefit for the company long term. Employees being trained will help to prevent problems with product quality in the future and therefore, bring in more income due to less external failure costs. Lastly, potential trade-offs for failure costs can be compiled into one. A trade-off for internal and external failure costs is the time spent on reworking products and processes. Like all the other trade-offs we discussed, this can be flipped into a positive for the company. Because we are spending so much time, resources, and money on fixing these failures such as defective products being sent to customers and resulting in an influx of returned products, we will hopefully see growth in the future of our company and customer base due to regaining trust through non-defective products.

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4 References Stevenson, W. (2020). Operations management (14th ed.). McGraw-Hill ISBN-13: 9781260718447 Stevenson, W. (2020). Operations Management. https://www.mheducation.com/highered/product/operations- management-stevenson/M9781260238891.html

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