GCSE / Level 2 Revision Notes

Production & operations - Costs of poor quality

You can probably come up with several examples from your own experience of when you have come across poor quality: e.g.

• A product fails – e.g. a breakdown or unexpected wear and tear
• The product does not perform as promised (or what the customer thought was promised!)
• An order is delivered late
• Poor instructions/directions for use make using the product difficult or frustrating
• Unresponsive customer service

Poor customer service as listed above results in additional business costs:

• Lost customers (expensive to replace – and they may tell others about their bad experience)
• Cost of reworking or remaking product
• Costs of replacements or refunds
• Wasted materials

You can see from the list above that poor quality is a source of competitive disadvantage. If competitors are achieving higher quality, then a business will suffer. The good news is that a business can benefit by improving its quality.  The key benefits of improved quality are:

• Improved image & reputation, which should result in
• Higher demand, which may in turn mean
• Greater production volumes (possibly providing better economies of scale)
• Lower unit costs because of less waste and rejected output
• Fewer customer complaints (& more satisfied customers)
• Potentially higher selling prices (less need to discount)