OL 324: Managing Quality
2-3 Case Study One: A Tale of Two Companies
La Shaun Hilliard
Southern New Hampshire University
The costs of poor quality include the following: waste, rejects, testing, rework, customer
returns, inspection, recalls, excessive overtime, pricing errors, billing errors, excessive turnover,
premium freight costs, development cost of the failed product, field service costs, overdue
receivables, handling complaints, expediting, system costs, planning delays, late paperwork, lack
of follow-up, excess inventory, customer allowances, and unused capacity (Goetsch, D. L., &
Davis, S. (2020)).
The 2009-2010 Toyota recall fiasco; the following are prime examples of the cost of poor
quality:
Wasted materials-floor mat recall, recall of millions of vehicles
Development cost of the failed product-defective floor mats, brake and
acceleration pedals; sales and suspension of products due to the recall.
Handling complaints-they failed at handling the concerns of hundreds of
customer complaints received during this period
Lack of follow-ups-Toyota continued to deny that there was a problem and
delayed notification to its customers; minimum notification to its customers was
insufficient and lacked urgency which did not alarm consumers that fatalities
could occur when driving their vehicle.
Field service cost- Dealerships was hit with the task of repairing/replacing the
defective parts; recall vehicles cost dealerships and the cost millions of dollars.
The global cost associated with the 2010 recalls was estimated to cost Toyota $2 billion of
loss revenues and sales CNN, 2022).
$8.1 million alone in fixing the estimated 8.1 million vehicles that were
recalled
20,000 in sales in the U.S.
$16.4 million in fines alone.
Undisclosed amount in payout to the families of the victims killed in the
fatal accidents
The corrective actions that Toyota took was to recall the defective vehicles, repaired and
replaced defective parts at no cost to the consumer, issued a public apology to the victim's family
and to their customers, paid fines, penalties and satisfied lawsuits associated with this recall
The four corrective actions to decrease the cost of poor quality for Toyota are:
Better quality control and innovation- revise the inspection and quality
control process to catch problems before their reach the customer. Toyota
failed to implement the override computer program that would disable the
throttle pedal when the brakes are pressed (Evans, S. (2010, January 27)
Total employee communication trust- reward employees for speaking up
and not penalize them for bringing forth concerns and or problem found
before they result in fatalities.
Customer communication- alert customer timely if there are issues with
vehicles to avoid loss of life.
Transparency- Own up to the mistakes, not deny and delay the corrective
measures nee