Cost of Non-Quality

Cost of Non-Quality
Read the following case study and then in small groups address the questions below. Use your
lecture notes for definitions. Be prepared to discuss your findings within the tutorial session.

Questions
1. The implications on a company's reputation for non-quality.
2. Consider and discuss the possible financial implications
3. How would you manage your supply chain to prevent supply chain issues, consider in particular
the industry you want to enter or are currently working. Find or discuss real examples.

Product recalls hit all-time high fuelled by car and food scandals
SOURCE: The Guardian By Rebecca Smithers Date: 14th March 2016 (Extract)
The number of product recalls in the UK rose by a quarter to an all-time high last year, fuelled by a
series of high-profile alerts in the motor vehicle and food industries. Recalls – which are issued after
a health-and-safety risk that could affect public health, or a major design or production flaw, has
been discovered – increased by 26% to 310 in 2014/15 from 245 the previous year, according to
figures from London law firm RPC. The number of car recalls rose dramatically in the period to a total
of 39, a 30% increase from the 30 recalled in 2013/14, and with many on a major international scale.

The scandal over General Motors’s failure to promptly recall cars with a potentially faulty ignition
switch may have prompted other manufacturers to recall more swiftly and more frequently if they
identified a potential problem, RPC’s legal experts said. US federal agencies claimed the fault caused
up to 124 deaths. GM Motors recently agreed to pay $900m in criminal damages to settle the case
and eventually recalled 800,000 cars.

Pressure on the motor industry has been further increased by the investigation into Volkswagen
over emissions testing, which began in 2014. VW admitted last year that millions of its vehicles had
been fitted with defeat device software to cheat diesel emissions tests. The group issued a
worldwide recall to fix all affected VW, Seat, Skoda and Audi vehicles. French carmaker Renault
recently recalled 15,000 cars after questions were raised over emissions testing of its cars.

“Sometimes it can take a huge scandal to break for an industry to sit up, take notice and ensure their
products are watertight.” said Gavin Reese, a partner with RPC. “Certainly the automotive industry is
now very sensitive to accusations of being slow to recall faulty or non-compliant products. Car
manufacturers are looking for irregularities more closely, as well as facing increased pressure from
regulators ….”

The number of recalls relating to food and drink also significantly increased last year – by 50% – to
84 from 56. Reese said: “The horsemeat scandal set off reverberations across the food industry, and
now a couple of years of tighter measures and an increased scrutiny have clearly made a big
difference.” Recently a major international recall of a range of chocolate bars was announced by
Mars because of fears that customers could choke on pieces of plastic. The recall, which affects 55
countries including the UK, could end up costing the company tens of millions of dollars.

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Three years on from the horsemeat scandal: 3 lessons we have learned

SOURCE: The Guardian By Tom Levitt Date: 7th January 2016 (Extract)

The horsemeat scandal of early 2013 sent shockwaves across the food industry. After weeks of bad
headlines, the UK government finally responded by agreeing to an independent inquiry to look into
how horsemeat got into ready meals and frozen beefburgers. Heading up that investigation was
Prof Chris Elliott, a long-time food safety specialist. His conclusions were scathing: with little
investigation or prosecution of food crime there was a “huge incentive for the criminal to pursue
food crime”. Three years on, I caught up with Elliott to find out if the supply chain is any safer today
and what, if any, lessons have been learned. Here are his three key points:

Food crime is now a known risk to companies

Before horsemeat, criminal networks were involved across the food chain but were relatively under
the radar. Today, food crime is high up the list of risks being monitored by companies. “There’s now
much more effort from people to understand their supply chains, where they’re trying to get their
materials from and what the risks from fraudulent activity might be,” says Elliott.
According to Elliot two drivers of food fraud are opportunity and market conditions, especially crop
failure as it makes the replacement of expensive foods with cheaper ingredients more appealing to
criminals. By way of example, he has highlighted how six common food products, including infant
formula, guacamole and chorizo, could be at risk of food adulteration.

Authorities across the EU are working closely on food fraud

The big problem when the horsemeat scandal broke was that no one was quite sure who was
responsible for dealing with it, says Elliott. “It was a battle between different police forces and
government departments and it took two to three months for the responsibility to get assigned, and
if you give criminals two to three months to get away you’re not going to catch too many of them.”

Today, it is very clearly the responsibility of the Food Standards Agency and its newly formed Food
Crime Unit. It works with police forces across of the country, with Europol, and with the Food Fraud
Network, which links food safety authorities across Europe.

But consumers are not necessarily any safer

If you buy food from major supermarkets then they are probably mapping out their supply chains to
work out where their risks of food fraud are, and monitoring them accordingly, says Elliott. The last
thing Tesco, for example, wants is to have to issue another horsemeat-style apology.
However, this is an enormous project, especially when you think that supermarkets might stock
35,000-40,000 different food products. Smaller food and retail businesses simply do not have the
resources to map their supply chains to the same extent, so for them, warns Elliott, the risk has not
necessarily been diminished.
This might matter less in, say, the alcohol industry where sales are controlled by a small number of
very large companies, but with food there is a much greater number of outlets.

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The ideal solution, says Elliott, would be for larger companies to support smaller ones to safeguard
consumers. Trade groups, for example, should be used to collect and distribute information on fraud
to others within the food industry.

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