mbrace quality have an edge of up to 10? on every sales dollar over rivals," according to General Systems Co. management (Hammonds and DeGeorge, 1991, p. 35)). The general estimate is that profitability rises after each customer retention rate increase of five percent (Armstrong and Symonds, 1991, p. 102). Improved customer satisfaction is the route to greater customer retention, and, in the 1990s, greater product quality is the best way to build consumer satisfaction levels (p. 102). Improved quality costs money in the short-run (p. 101). In the long-run, however, improving quality generates greater profitability. Poor quality means poor sales in the long-run. Therefore, expenditures on quality control may not be looked at as some sort of add-on cost. Rather, they must be considered as integral production costs--whether the product being produced is a good or a service.
Return on investment has been found to be more a function of product quality than of price, regardless of the type of activity --manufacturing, service, construction, and so forth (Miller and Camp, 1985, p. 88). Data pertaining to these relationships are presented in Chart 1, which may be found on the following page.
Quality control refers "to a system . . . by which assurance is sought that the output produced conforms to specific parameters that define product or service quality" (Lester, Enrick and Mottley, 1991, p. 1). An effective quality control program enhances the ability of an organization to both reduce costs and improve productivity (p. 2). As a consequence, effective quality control has a positive impact on an organization's profitability.
Chart 1
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Relative Price Low Medium High
[Source: Miller and Camp, 1985, 87-105]
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