Answer Happy

Mercury, Incorporated, produces cell phones at its plant in
Texas. In recent years, the company’s market share has been eroded
by stiff competition from overseas. Price and product quality are
the two key areas in which companies compete in this market.
A year ago, the company’s cell phones had been ranked low in
product quality in a consumer survey. Shocked by this result, Jorge
Gomez, Mercury’s president, initiated an intense effort to improve
product quality. Gomez set up a task force to implement a formal
quality improvement program. Included on this task force were
representatives from the Engineering, Marketing, Customer Service,
Production, and Accounting departments. The broad representation
was needed because Gomez believed that this was a companywide
program and that all employees should share the responsibility for
its success.
After the first meeting of the task force, Holly Elsoe, manager
of the Marketing Department, asked John Tran, production manager,
what he thought of the proposed program. Tran 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’m nervous about having my annual bonus based on a decrease in
quality costs; there are too many variables that we have no control
over.”
Mercury’s quality improvement program has now been in operation
for one year. The company’s most recent quality cost report is
shown below.
As they were reviewing the report, Elsoe asked Tran what he now
thought of the quality improvement program. Tran replied. “I’m
relieved that the new quality improvement program hasn’t hurt our
bonuses, but the program has increased the workload in the
Production Department. It is true that customer returns are way
down, but the cell phones that were returned by customers to retail
outlets were rarely sent back to us for rework.”