QUESTION 1
Quality issues identified:
1. Internal failure:
• Process delay: During operations, some stores experienced issues with coffee machines,
leading to delays in beverage preparation. This not only reduced the speed of service but
also significantly decreased serving capacity during peak hours.
• Rework: Some beverages had to be remade due to incorrect preparation, such as incorrect
sugar levels or the wrong type of milk or coffee, leading to wasted materials and additional
time spent on rework.
• Scrap: Due to improper storage, some ingredients, such as milk, fruits, and syrups, spoiled
and became unusable, necessitating their disposal and replacement with fresh ingredients.
• Retest/Validation: A batch of imported coffee did not meet quality standards, requiring
retesting and, in some cases, the replacement of the entire batch, which increased
inspection and procurement costs.
• 8D/RCA/CAPA: The company had to conduct root cause analysis (RCA) on these issues
and implement corrective and preventive actions (CAPA) to ensure that these errors do not
recur.
• Downtime: Some stores had to temporarily cease operations to repair coffee machines and
other equipment, leading to lost revenue due to the inability to serve customers during this
period.
• Loss of capacity: Due to the partial or complete suspension of operations at some stores
because of equipment failures, serving capacity was reduced, resulting in lost sales
opportunities.
2. External failure:
• Customers return: Some customers returned their beverages because they did not meet
expectations or quality standards, such as being too sweet, too bitter, or at the wrong
temperature.
• Warranty: The company had to provide replacement beverages free of charge or offer
discount vouchers to dissatisfied customers, increasing compensation costs.
• Loss of customer sales: These quality issues caused some customers to lose trust and switch
to competitors’ services, leading to a decrease in revenue.
• Sort and repair at customer place: Some stores had to dispatch technical staff to inspect and
repair equipment on-site after receiving complaints about beverage quality, incurring
additional labor and time costs.
• Lower customer score: Customer ratings on online platforms declined, affecting the
company’s reputation and its ability to attract new customers.
This detailed explanation provides a clear understanding of the internal and external failures
contributing to quality costs, highlighting the financial and reputational impacts on the business.
QUESTION 2
Detailed breakdown of estimated quality costs
Quality costs encompass expenses associated with preventing defects, evaluating, and inspecting
products or services to ensure they meet the desired quality standards. These quality costs are
typically divided into three main categories: Prevention costs; Appraisal costs; and Inspection
costs.
Below is a detailed analysis of the estimated total quality costs of 50 million VND per month:
1. Prevention costs:
These costs are aimed at minimizing or eliminating defects from the outset by implementing
preventive measures.
• Employee training: 15 million VND/month
o Expenses allocated for employee training programs on beverage preparation,
ingredient preservation, and customer service to ensure consistent quality across all
stores.
• Equipment maintenance: 10 million VND/month
o Costs for the regular maintenance of coffee machines and related equipment to
ensure they function properly and do not cause defects during service.
• Ingredient preservation procedures: 5 million VND/month
o Costs for establishing and maintaining procedures for preserving ingredients (such
as coffee, milk, and fruits) to ensure they remain fresh and safe for customers.
• Process development: 3 million VND/month
o Costs for developing and updating beverage preparation and service procedures to
ensure consistency in product quality.
Total prevention costs: 33 million VND/month
2. Appraisal costs:
These costs are related to inspecting and evaluating the quality of products or services before they
are delivered to customers.
• Incoming material inspection: 5 million VND/month
o Costs associated with inspecting the quality of incoming materials to ensure they
meet standards before being used.
• Final product quality inspection: 6 million VND/month
o Costs for inspecting and evaluating the quality of each beverage before it is served
to customers, ensuring there are no errors or defects.
• Supplier evaluation: 2 million VND/month
o Costs related to evaluating and selecting suppliers to ensure they meet high-quality
standards.
Total appraisal costs: 13 million VND/month
3. Inspection costs:
These costs involve regular inspections to detect and prevent defects before they occur.
• Routine equipment inspection: 2 million VND/month
o Costs for weekly equipment inspections to ensure they are functioning correctly
and do not cause production errors.
• Quality supervision: 2 million VND/month
o Costs for personnel responsible for supervising and inspecting the beverage
preparation process, ensuring adherence to procedures and quality standards.
Total inspection costs: 4 million VND/month
Total estimated quality costs:
• Prevention costs: 33 million VND/month
• Appraisal costs: 13 million VND/month
• Inspection costs: 4 million VND/month
Total: 50 million VND/month
Explanation:
These costs are allocated based on the critical activities required to maintain and ensure quality at
Highlands Coffee. Investing in these quality costs helps to minimize Costs of Poor Quality (CoPQ),
ensuring product and service quality, thereby improving the customer experience and retaining
loyal customers.
QUESTION 3
Analysis and comparison of costs
• Store A has higher Process delay and Downtime costs compared to other stores, indicating
that this store faces issues with its processes and equipment, leading to reduced
productivity and lost revenue.
• Store B has high Rework and Scrap costs, suggesting that the ingredients and preparation
processes at this store need improvement to minimize rework and material wastage.
• Store C has the highest overall costs of poor quality, particularly in Loss of capacity,
Downtime, and Loss of customer sales, indicating that this store faces serious issues with
efficiency and customer retention.
Identifying hotspots and prioritizing remediation
• Based on the above analysis, Store C should be prioritized for remediation, particularly in
improving operational efficiency to reduce downtime and enhancing customer service to
retain existing customers.
• Store A should focus on upgrading its preparation processes and equipment to reduce
process delay and downtime.
• Store B should improve its ingredient inspection processes and provide additional training
for staff to reduce rework and scrap.
Evaluating the effectiveness of remedial measures
Identifying remedial measures
• Upgrading coffee machines: To reduce downtime and process delay.
• Retraining staff: To reduce rework and scrap by enhancing preparation skills and quality
inspection capabilities.
• Improving ingredient preservation processes: To reduce scrap and retest/validation by
implementing more effective preservation methods.
Calculating ROI for remedial measures
• Upgrading coffee machines:
o Upgrade cost: 200 million VND per store.
o Estimated reduction in downtime: From 10 million VND to 2 million VND per
month, with an increase in serving capacity, generating an additional 20 million
VND per month in revenue.
o ROI = (Annual benefit from increased revenue - Upgrade cost) / Upgrade cost.
o ROI = [(20 million VND x 12 months) - 200 million VND] / 200 million VND =
20% profit after 1 year.
• Retraining staff:
o Training cost: 50 million VND per store.
o Estimated reduction in rework costs: From 5 million VND to 1 million VND per
month, and reduction in scrap costs from 2 million VND to 0.5 million VND per
month.
o ROI = [(Benefit from reduced rework + reduced scrap) x 12 months - Training cost]
/ Training cost.
o ROI = [(4 million VND + 1.5 million VND) x 12 months - 50 million VND] / 50
million VND = 86% profit after 1 year.
• Improving ingredient preservation processes:
o Process improvement cost: 30 million VND per store.
o Estimated reduction in scrap and retest/validation costs: From 3 million VND to
0.5 million VND per month.
o ROI = [(Benefit from reduced scrap + retest/validation) x 12 months - Improvement
cost] / Improvement cost.
o ROI = [(2.5 million VND + 2.5 million VND) x 12 months - 30 million VND] / 30
million VND = 100% profit after 1 year.
Effectiveness Evaluation
• All the proposed measures yield positive ROI, indicating that investing in quality
improvement will provide benefits that outweigh the associated costs.
• Store C should prioritize upgrading machinery and improving preservation processes to
address critical issues related to downtime and scrap.
• Store B should focus on retraining staff to reduce rework and scrap, thereby improving the
quality of service and products.
