Greg Robinson cc: Jason Garrison
Price Reduction Request
Robinson Enterprises is dedicated to providing high quality products that exceed the expectations of our customers. We strongly believe that our dedication to quality creates loyal customers willing to pay a little more for our products. In fact, our studies show that customers recommend our products to their friends and family at a rate three times greater than they recommend our competitors’ products. We have a request from our top customer that we reduce our price so that they can pass these savings on to their customers, however we will need to examine all costs associated with quality to see if we can accommodate their request without compromising our quality standards.
As we discussed in our most recent phone conversation, there are three types of costs associated with quality. They are appraisal costs, prevention costs, and failure costs. Each of these costs is interrelated so that a decrease in one type of cost often leads to an increase in another type of cost. For example, a decrease in prevention costs could ultimately lead to an increase in failure costs. As you requested, I will explain each cost type and evaluate each type while considering the potential trade-offs that will arise if we make changes to our current processes.
Appraisals costs are incurred during auditing of raw materials, produced component parts, and finished products. These audits are designed to uncover defects and to ensure quality products. Appraisal costs include the costs of labs, inspectors, testing equipment, and field-testing. For example, random samples of completed products are taken from the production line and put through extensive tests in the lab to verify that they comply with our quality standards.
Prevention costs are the costs associated with preventing defects before they occur. Quality control