5.2.2 Contribution to profitability
Success of the business is measured in the profit it generates. Mathematically, profit may be expressed as: where,
P = (R-V) - E
P = profit
R = revenue
V = variable costs, such as waste, rework, warranty, etc.
E = expenses incurred in operations (fixed costs).
Figure 5.1: Process control and variable costs
Source: Grewal, D. 1997
Quality systems can make an important contribution to profit through process control and reduction of variable costs. If they do not, they are a drain on the economic health of the organisation and must be suitably addressed. Figure 5.1 shows, in a simplified way, that the cost of providing the optimum service is balanced by the benefits gained from it. Increase in the marketability of services offered can be brought about by the total package of policies implemented, as discussed above. In a survey conducted by Grewal (1997) to assess the role of quality assurance in organisations providing transport services in the UK , most of the respondents felt that communications between departments and with customers had improved as a result of the quality initiative. They also felt that job satisfaction was greater. The effect of satisfaction among internal customers of the company can be expected to contribute to satisfaction of the external customers. This is because a clearly stated policy statement has addressed the fragmentation of interests that might be brought about by different departments within an organisation operating to achieve their individual departmental goals. The formal writing of procedures, it is expected, has led to a re-focusing on company goals and customer requirements.
The principles of good business sense and Quality are, to a large extent, compatible. There has been a growing unacceptance of poor quality in all spheres of life - from the quality of work, to the quality of leisure, even the quality of life. As this thinking develops, the ability to compete for business in service industries (as well as others) will sharpen. Increasing costs, accountability and customer satisfaction all play increasing roles in the competitiveness of organisations. The customer looks for the best buy, not merely the cheapest. The success of an organisation depends on its customers. High levels of competition mean dissatisfied customers leave. This makes management of organisations look for better ways to manage and improve customer satisfaction. Managements that understand the market, the risks and cost of providing a successful service, are willing to reshape their practices to keep their clients and attract more.
Activity 5.2
How has the emphasis on quality changed the working culture in your organisation?
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