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3 optimal_product_quality

3 optimal_product_quality - Illustration 3.1 Optimal...

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Illustration 3.1 Optimal Product Quality An important managerial decision is how much should be spent on improvements in product quality. Certainly the firm’s customers value quality, so quality improvements would probably increase sales and revenue. But quality improvements and quality control also cost money. So what should a firm do about quality? The Wall Street Journal reported what one large electronics firm, Hewlett-Packard, did to improve product quality.* John A. Young, the chief executive officer of Hewlett-Packard, related his firm’s experience when it undertook an analysis of product quality in the early 1980s. To their surprise, they found that 25 percent of all manufacturing assets were being tied up in reacting to quality problems. They also found that production costs and prices were being driven up because of these quality problems, which caused Hewlett- Packard to be less competitive than they could have been. A series of improvements and controls were undertaken, which included an extensive
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