Bryon Gaskin
MBA631 Dr. Rowe
Assignment 3
3.2 “WHAT ARE THE COSTS OF VARIABILITY?”
Summary
-This article covers the importance of how firms measure the costs of variability
and what the impact of those different measures have on the firm. Primarily it
looks at two different methods (or philosophies) of measuring the cost of
variability, the zero defects philosophy and the robust quality method.
The zero defects philosophy only assigns cost to variability when the quality of
some product falls outside of some specification range. The robust quality
method on the other hands assigns costs to any variability regardless of whether
or not it falls within in the specification limit or not. As we will see this as a major
impact on how much cost is assigned to variability.
Main Purpose
-The two authors Harold Roth and Thomas Albright attempt to compare and
contrast the zero defects method for measuring the costs of variability with the
robust method of measuring variability costs. The authors appear to have written
the article in attempt to persuade the reader that the robust method produces
more accurate recognition of variability costs.
The authors attempt to support the main purpose by discussing the importance of
how costs are calculated; being certain to include factors like reworks, scrap,
disposal costs, and opportunity costs.
Objective Fulfillment
-.Overall this article had very good unity and did not deviate from its main
purpose of comparing the two philosophies for measuring cost variability. It
made a very good argument for measuring the cost of variability using the robust
quality method over the zero defects philosophy; primarily because it provide real
world examples that aligned the two philosophies side by side and evaluated the
results.
Effective Components
-As stated in the summary, there is a difference in the how costs are assigned to
variability between the two methods. Based on the definition supplied in the
summary it is easy to see that the robust method is a much more stringent hurdle
for a company to achieve; therefore under the robust quality method costs
attributed to variability become higher. The zero defect method has a range of
acceptable values, whereas the robust quality method has a single acceptable
value.
-Scrap or waste reduction is a goal for both methods, however the robust method
identifies more waste than the zero defect method, and we already know that
what is not measured cannot be managed.
-The best example the article gives that has managerial implications is the
comparison study done for Sony between it’s San Diego and Tokyo TV set
manufacturing operations. The Tokyo facility used a robust quality approach to
costing and manufacturing its TV screens; whereby it concentrated on producing
units that centered around a single target value. TV screens leaving the Tokyo
facility were not inspected on a individual basis prior to being shipped to
customers. The Sand Diego facility inspected each unit prior to the TV screens
Bryon Gaskin
MBA631 Dr. Rowe
Assignment 3
being shipped to its customers. San Diego used a specification range whereby
TV screening not meeting specifications are not shipped to customers. At first
glance it would seem that the San Diego office would perform better than the
Tokyo office because they inspect 100% of the units being shipped out to the
customer; however the study showed that customers who TV sets were
manufactured in Tokyo reported greater satisfaction than those customers who
TV sets were produced in San Diego. What this means for managers is that any
variation from the target specification has real costs associated with it.
-The very last paragraph of the article sums up the reason why managers should
be very concerned with identifying cost associated with variability wherever
possible. “companies need to measure it (variability) and strive to reduce it they
want to remain competitive.” It doesn’t take a genius to figure out that if you don’t
account for the cost associated with variability, your competition will.
-A side not that makes a very good point in the article is the discussion over the
costs of scraping out rejected product, including disposal costs and opportunity
costs. I believe that scrapped materials is often just thought of as junk and the
only cost that most managers assign to it is the cost the materials and the cost of
the labor; a few more may include the disposal cost. However; the opportunity
cost of scrap is often the biggest cost associated with scrap because of the lost
revenue that would have been generated had that unit been sold in the market.
-The robust quality method has disciples other than Sony, including Motorola
(Future)
Ineffective Components
-The only real weakness of the article is that it does not present any opposing
detail for the robust quality method. It would seem at the very least the article
should mention a cost benefit analysis of doing such granular tracking of costs. In
other word, it may not be worth the hassle of assigning costs at such minute
detail. There is nothing wrong with trying to reduce costs wherever possible but
it should be done only if the benefit derived from doing so outweigh the costs
involved in managing it.
Motorola a practitioner of the robust quality method is something accused to
chasing perfection so much that is often late to market with products (Future)
-The Sony example was a good example to illustrate a point, but one needs be
careful when comparing two seeming similar apples. The two plants mentioned
manufactured TV screens and more specifically the article only says that the they
were measuring color density. There is more to screens than just the color that
might cause the screen to a customer to be dissatisfied with the TV set, and
there is more components than just the screen to fail or be faulty that would
cause a customer to be dissatisfied with the TV set as a whole.
Improvement Recommendations
-. The only real improvement I would make to this article would be to mention a
cost benefit analysis section to the discussion and provide some opposing view
points to the robust quality method.
I would also clean up the statistical information from the Sony example
Bryon Gaskin
MBA631 Dr. Rowe
Assignment 3
WORKS CITED:
“Future Perfect.” Economist 1/4/92, Vol. 322 Issue 7740, p61