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OM in the News: Toyota and “The Cost of Quality”

October 11, 2012

In our Chapter 6 discussion of the cost of quality (COQ), we note the external costs that occur after delivery of defective products (such as rework, liabilities, lost goodwill, etc.). Philip Crosby, author of Quality is Free, wrote that the cost of poor quality is understated and “there is absolutely no reason for having errors or defects in any product or service.” The New York Times (Oct. 10, 2012) article that Toyota just announced the recall of 7.4 million vehicles worldwide, including 2.5 million in the U.S., to repair power-window switches that can break down and start a fire , certainly brings Crosby’s ideas to the forefront for your class.

It was only 2-3 years ago that the company recalled more than 11 million cars to replace floor mats and sticky accelerator pedals. It has been seeking to reassure consumers about the quality of its vehicles since then. The recall could surely set back its efforts.

The vehicles affected in the U.S. include more than a million Camrys. Eight months ago, the National Highway Traffic Safety Administration opened an investigation into reports of smoke and fire coming from doors. During its investigation, the safety agency collected reports of 161 fires and of 9 injuries. In its news release, Toyota said there were “no crashes related to the recall,” but did not mention fires or injuries.  Toyota said it originally wanted to conduct a “customer satisfaction campaign” but decided to pursue the recall after discussions with the agency. Toyota described the recall as voluntary, but under federal regulations once a manufacturer learns of a safety problem it must, within 5 business days, tell the safety agency of its plan for a recall or face a civil fine.

Discussion questions:

1. Will such recalls impact your students’ images of Toyota’s quality?

2. How does this compare to GE’s dishwasher recall several years ago in which the cost of repairs exceeded the value of all the machines?

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