Quality Assurance at Acme

ACME QA Review

The author of this report has been asked to submit a nine-page report on the quality assurance situation at Acme Corporation. While the business is doing some things right, there are some obviously flaws that will be identified and brought out. Along with the identification of the issues, there will also be a pointing to scholarly literature that buttresses the points and assertions being made by the author of this report. While some people over-analyze and obsesses about quality assurance, it is something that matters a great deal and should be taken seriously.

The way in which the analysis will go below is that each point that Acme should pay attention to will be mentioned as its own bullet point. After the flaw or concern is mentioned, there will be a scholarly source that will be used to explain and justify why that particular item was brought to light. There will be nine points brought forth in total. All of the articles and documents use are from academic journals and all of them pertain directly to quality assurance in one form or another:

The first item that will be assessed is the effect of quality assurance on the home market for Acme Corporation. Quality assurance, of course, is important irrespective of where a product is being shipped but there are implications for when people ship outside of their home market as well as when they ship within their home market. Regardless of what Acme ships and where, they need to understand that their product has a reputation behind it and Acme needs to manage it. This topic is explained in a 2012 treatise by Goh and Michalski. In the abstract, the authors explain that "the home market effect is considered a distinguishing feature of models of trade with increasing returns to scale in production and imperfect competition." They further explain in the body that there have been several attempts made to assess, on an empirical level, the importance for increase returns as a determinant for trade. Indeed, earlier works had focused on the predictions relating to trade flows but there were always mixed results with those studies. One term that has come out of the ether is known as the home market effect, or HME for short. This term was first raised by Krugman way back in 1980 but has still lingered in the vernacular of quality assurance and trade since then. When it comes to quality assurance in particular, the observation for differentiated products is that their quality is often not easily observed as opposed to what would be seeable and observable in homogenous goods like corn and oil. Many goods are what are known as "experience" good whereby the quality of the good is only learn by the buy after the product has been used. Examples of this would be footwear, car parts, furniture, light bulbs and so forth (Goh & Michalski, 2012).

When it comes to Acme's supply chain, they should consider the coordination of a supply chain with a quality assurance policy that has a revenue-sharing contract somewhere in the mix. Typically, such a contract would exist between the supplier (which would be Acme in this case) and one or more retailers that are commonly in receipt of Acme's goods. Typically, there can be more than one contract but the contracts are typically between one supplier and one retailer at a time. Acme is very much a "Make To Order" (MTO) system so this would fit in nicely with what Acme is able and willing to do. Xiao et al. (2011) note that retailers in various industries are striving to complete by offering sound product quality but also products at reasonable prices. However, sevice quality also tends to attract customers so this cannot be dismissed as a factor. Obviously, Acme would have little to no control over the service quality that a buying firm has on its products. However, revenue sharing would be a means to incentivize retailers as they would then thus have a higher incentive to sell the Acme products as compared to products that do not have revenue sharing attached to them. In short, Acme would be able to control the quality of their manufacturing process based on what happens in their own factory but the revenue-sharing would have an effect on the companies that buy the products and also agree to the revenue-sharing contracts. Indeed, it is a contractual extension of quality assurance and includes areas where Acme's locus of control is less than optimal. Xiao notes that some companies that make a mint off of this sort of system (or anything else like it) are Amazon.com, Best Buy and Wal-Mart. Indeed, they offer a low price and a guaranteed delivery time and they are surely getting an incentive from someone to be able to deliver goods in such a timely fashion because those shipping commitments are not free to them (Xiao, Yang & Shen, 2011).

Next, Acme needs to seek to be a high-reliability organization when it comes to quality assurance. They are doing fairly well with their quality assurance and overall quality of operations but they could do a lot better than they are doing. Indeed, there are awards and recognitions for companies and people that meet certain standards. One such award and standard is known as the Baldridge model. A common example of a type of firm that may seek to be a high-reliability organization (HRO) would be any healthcare organization. While Acme is not in that game, the overall concept of seeking to have zero defects is not a bad goal to seek out. Of course, there will always be some mistakes and defects. However, there should be every attempt to bring those down to a bare minimum and the overall number should be zero whenever possible. The aforementioned Baldridge approach is shown to be an effective method of generating performance that is above-average in nature. The people that received the associated rewards relating to the Baldridge approach receive them because they made significant strides in their business. For Acme, this could include things like less waste, very low (if any) defects, efficient supply chain operation and so forth. Again, the Baldridge model applies more to a medical setting but the overall standards and practices that could be used are obviously in their application to Acme…it is just a different industry (Griffith, 2015).

One major thing that Acme needs to correct and control when it comes to quality assurance is who is doing the audits and the reputation of the people doing the same. As Enron proved, even companies that have third-party auditors can be susceptible to being caught red-handed doing dirty deeds as Arthur Andersen (the third-party auditor of Enron when they fell) was actually in on the fraud and their firm collapsed when Enron fell. Given all that, quality control inspection reports should be conducted by a person (or a team) that is experienced, reputable and preferably third-party. The gold-standard for such third party firms would be the "Big 4" accounting firms like KPMG and Deloitte. While those firms are a bit out of Acme's price range, there are plenty of mid-level firms that could do the job. They need not be the primary auditor but they should certainly be verifying and signing off on the important details that Acme is vouching for in their reports and their assertions to shareholders. Further, the aftermath of Enron led to what has come to be known as the Sarbanes-Oxley Act (SOX) and part of that act replaced the self-regulation peer review auditor program with required inspects that are independent in nature and are regulated by the Public Company Accounting Oversight Board, or PCAOB. Since Acme is a public company, they are subject to Sarbanes-Oxley and they need to follow the law to the proverbial letter. Acme has a duty under those standards to fix and address any quality control and quality assurance issues within twelve months of them being discovered and identified and Acme has not always been good at doing that (Nagy, 2014).

Acme has also been a little lackadaisical when it comes to their global supply chain. One way in which they have been a bit foolish and sloppy is with the localization and apportionment of their suppliers. The work of Bayo-Moriones et al. (2011) notes that practices relating to supplier localization are important. Their study notes that "the supply chain has experienced substantial international expansion as a consequence of market globalization and the increase in competition." Further, they say that several authors point to the need for a good supply chain management as the overall basic tool to help themselves remain competitive in the global marketplace. Acme would be wise to learn that lesson and learn it well. For example, the authors note that the purchasing function is a key business function within supply chain management (SCM) and that function is typically responsible for selectin suppliers, the management of long-term contracts and the monitoring of supplier performance. If that monitoring is not up to snuff and/or there are not proper reactions to deficiencies that come to light as the result of any audits, this can lead to degradation and poorer performance in the supply chain management structure for a firm. Indeed, Acme has been learning this lesson the hard way over the recent months and years and they would be wise to tighten up their supply chain management infrastructure and overall regulation. One avenue that Acme might explore is the idea that more local suppliers may yield a larger benefit to Acme in terms of overall cost savings, performance metrics or both. Indeed, keeping things local might cost more up front but it could be a boon and a savings item down the road if performance is consistent enough over time. Suppliers should always be continually assessed for the performance they give, the quality of materials they provide and so forth because this all has a domino effect on the quality assurance performance that Acme would experience in their own situation (Bayo-Moriones, Bello-Pintado & Merino-Diaz-de Cerio, 2011).

The next quality assurance item that will be reviewed is the strategic relevance and assurance of sustainability indicators on investors' decisions. Indeed, sustainability may seem like a silly buzzword that is just borne of a small movement of people. However, sustainability has become a larger and larger factor in business due to factors and concerns such as global warming, water shortages around the world, fuel prices and so forth. While one might think that this is just alarmism and is thus not a valid concern for businesses, that would be a mistake for Acme or anyone else to believe. Indeed, Cheng et al. (2015) talks about how they are "examining whether and how the strategic relevance of environmental, social and governance (ESG) indicators interact with sustainability assurance to influence non-professional investors' investment decisions." In other words, the quality assurance performance of Acme relating to their general production practice, their movement of goods, where their suppliers are and what everyone's practices are has a demonstrable effect on the decisions of some shareholders (or potential shareholders) when it comes to whether they invest, how much they invest, why they invest, why they do not invest, why they pull their money out of Acme's stock and so forth. The reason this is such a pressing and realistic question is that the stakeholders and people involved in the equation are wide-ranging and include people such as the investors themselves, the media and even the rest of society. After all, if a firm is engaging in activities that pollute the environment when there are alternatives that are cheaper or the same cost, that will garner negative attention for the firm in question. That being said, not all people that talk about sustainability are informed or reasonable so any assertions made by people or advocacy groups should be taken with a grain of salt (Cheng, Green & Chi Wa Ko, 2015). Acme should be more sustainable and energy-efficient where they can be but not in a way that causes them great expense and hassle. It should be a means to improve the cost structures and performance of their quality assurance rather than just something to please people who do not own Acme stock.

Another thing that Acme can do when it comes to quality assurance is automate quality assurance whenever possible. Indeed, this is something that is done extensively at firms like Electronic Arts. To be sure, the quality, depth and breadth of quality assurance testing are a concern when there is not a live human monitoring every step along the way. However, if it is configured correctly, it can save a lot of time, money and effort and would be a worthy endeavor for Acme to undertake if they can afford to implement and administer such a program. As noted by a recent journal article, automated quality assurance testing "has the potential to be faster, more cost-effective, more efficient and more scalable than manual testing. Electronic Arts was able to get huge dividends from this automation. For example, they had a soccer game that would feature a total of twenty-two players on the field. This would mean that up to twenty-two different people would have to monitor the actions or inactions of each player in the game as gameplay went on. As such, the automation of the quality assurance for those twenty-two players saved a lot of time, effort and money ("Automated QA Testing," 2014).