476 Chapter 17
Understanding and subscribing to this year-over-year productivity philosophy is
ments through our Manufacturing Variance Program (MVP), which utilizes the
tools and concepts of lean Six Sigma. In addition, we have expanded this initiative
suring bilateral, ongoing productivity improvements.
6. Price Adjustments
We expect our suppliers to adhere to their contractual commitments. The need
request for price increases requires substantiating documentation, Cooper man-
agement approval, and must be requested 60 days in advance of the effective
sion of Cooper Industries does address supplier diversity as follows
(http://www.cooperindustries.com/content/public/en/power_systems/about_us
/supplier_diversity.html) (accessed 1/24/12):
consistent with established corporate goals.
Through the Supplier Diversity program at Cooper Power Systems, we enlarge
Systems to encourage the development of mutually beneficial relationships with
qualified MWDVBEs.
28. a. Honda wants to convey the message that it is totally dedicated to providing
quality products and actively seeks quality innovations as well as the fact that
ments. In other words, the ads serve to remind the suppliers of their quality
obligations and to increase their level of commitment.
Chapter 17 477
b. Yes, there would be positive benefits for Honda. A further intent and benefit of
29. a. Prevention costs would rise because that category would reflect the depreciation
and operating costs of the equipment. However, both the internal and external
failure costs would decline because of less defective output. Appraisal costs
b. There are several reasons why the company might rationally elect to spend
$120,000 on prevention rather than $75,000 on appraisal. One reason is that the
impact on external failure costs (60 percent reduction) may be a multi-period
benefit, but only if the cost is for prevention rather than appraisal. There could
30. a. Compliance costs are generally more susceptible to control than the costs of
noncompliance. Particularly difficult to control are the costs of external failure.
b. There is a directional effect: Increasing prevention costs and appraisal costs
should drive spending down in the other two categories or decreasing spending
c. Prevention cost is the most likely target category because, by spending more on
prevention, the other three categories should be favorably affected. Such bene-
fits cannot be achieved by increasing spending in any other single category. Al-
d. TQM would focus efforts on prevention and appraisal cost components that are
within the purview of management with an objective of continuous improve-
478 Chapter 17
accessible website, in whole or in part.
31.
a. and b.
Compliance costs
2012
2013
% Change
Fitting machines
$ 11,800
+26%
Supply chain management
10,000
+11%
Quality training
30,000
+15%
Subtotal
$ 51,800
+17%
Noncompliance costs
Waste disposal
$ 36,000
(18)%
Customer refunds
29,000
(22)%
Litigation claims
64,000
(21)%
Subtotal
$129,000
(20)%
Total
$180,800
(12)%
problems and spending less to treat quality problems.
32. a.
2012
2013
% Change
Defect prevention costs
Quality training
$ 4,500
$ 6,250
+39%
Quality technology
4,750
5,200
+9%
Quality production design
2,000
4,700
+135%
Subtotal
$11,250
$16,150
+44%
External failure costs
Warranty handling
$ 7,500
$ 4,600
(39)%
Customer reimbursements
5,500
3,900
(29)%
Customer returns handling
3,500
1,900
(46)%
Subtotal
$16,500
$10,400
(37)%
Total
$27,750
$26,550
(4)%
and require fewer repair and replacement services.
33. a. Reducing spending on quality assurance and inspection programs would auto-
matically lower the average quality of goods leaving the plants. Also, a reduc-
ment, and repairs and maintenance.
b. The directional effect is that improvements in quality drive costs down; the re-
Chapter 17 479
accessible website, in whole or in part.
fers because the costs are cut.
c. Yes. If costs are reduced because a process is simplified, quality can be en-
to predict because cost is not a direct determinant of quality.
34. Many advances in production technology have resulted in the displacement of
workers. The public’s perception of the significance of the displacements is influ-
In a company facing bankruptcy, quality improvements that allowed some work-
ers to stay—rather than all being terminated—would be viewed by most constitu-
Furthermore, if management has a policy of firing displaced workers, internal mo-
rale is likely to be low which would tend to counter any quality initiatives offered
by managers.
Consumers will appreciate the improvements because they should increase quality
and decrease overall costs. (More than likely, unless living in the local area of the
35. a.
Problem
Count
% of Total
Cumulative %
Placed on hold for too long
391
51.0
51.0
Hard to understand representative
124
16.2
67.2
Representative didn’t understand
problem
91
11.9
79.1
No one available on weekends
63
8.2
87.3
Rude
49
6.4
93.7
Too many transfers
30
3.9
97.6
Other
18
2.4
100.0
Totals
766
100.0
480 Chapter 17
accessible website, in whole or in part.
b.
c. Given that the primary problem is that customers are being placed on hold for
too long, Goliath may want to hire additional representatives in the call center.
Chapter 17 481
accessible website, in whole or in part.
36. a.
Problem
Count
% of Total
Cumulative %
Found item cheaper elsewhere
125
32.1
32.1
Instruction wording unclear
85
21.8
53.9
Instructions too complicated
59
15.1
69.0
Used too many batteries too quickly
31
7.9
76.9
Did not perform as expected
28
7.2
84.1
Wasn’t fun
19
4.9
89.0
Changed mind
17
4.3
93.3
Missing parts/manual
14
3.6
96.9
Other
12
3.1
100.0
Totals
390
100.0
b.
customers to shop at The Electronic Toy Shack; in other words, what value can
the company provide to customers that would compensate for a higher price?
The second problem may be caused by manuals being translated into English by
non-primary English speakers. This item and the instructions being too compli-
482 Chapter 17
cated could provide ways that Toy Shack could give added value to its custom-
37. a. Profits lost by selling defective units: (6,000 – 1,200) × ($85 – $43) = 4,800 ×
$42 = $201,600
b. Profits lost by selling defective units
$201,600
Rework costs (1,200 × $18)
21,600
Cost of warranty work
9,000
Cost of customer returns (400 × $14)
5,600
Total failure costs
$237,800
c. Total failure costs
$237,800
Prevention costs
85,000
Appraisal costs
17,500
Total quality costs
$340,300
38. a. Cost to rework: 595 × $18 = $10,710
c. Cost of customer returns: 85 × $14 = $1,190
d. Total failure costs: $10,710 + $4,375 + $1,190 = $16,275
e. Total failure costs
$16,275
Prevention costs
27,600
Appraisal costs
8,500
Total quality cost
$52,375
its internal quality-related costs.
The firm should also develop an information system that tracks competitors’ qual-
However, the biggest challenge will be to design the external-oriented systems.
New methods will have to be devised to capture competitor and customer infor-
Chapter 17 483
40. The URL is http://www.benchnet.com/
provement management, and employee development training.
b. Each student will have a different answer but the general point to be conveyed
is that employees (as human resources) are the key to implementing total quali-
ty management. They need to be trained to engage in TQM methodologies for
Information systems technology might be ranked higher than HR because tech-
nology is essential to conducting global business operations. Technology
c. As of January 2012:
Organization
Ranking
Corning
1
Abu Dhabi Food Control Authority
2
Internal Revenue Service
3
United Technologies
4
DynMcDermott
5
solution is provided.
d. Each student will have a different answer, but there should be discussion of the
relationship between benchmarking and setting target goals for the balanced
484 Chapter 17
accessible website, in whole or in part.
PROBLEMS
unexpected directions.
China now provides the majority of the world’s heparin supply. In March 6, 2008,
the FDA announced the raw components of heparin that had been manufactured in
China contained a possibly counterfeit ingredient that mimicked the real drug. The
sulfate, which is a naturally occurring substance made from animal cartilage found
in supplements that treat joint pain. But oversulfated chrondroitin sulfate is a modi-
fied form of the mineral that mimics heparin’s active ingredient, which is why the
counterfeit ingredient was not caught by routine tests.
b. Each student will have a different answer. However, students should address
the issues of environmental pollution in China, lack of strict quality standards
c. Each student will have a different answer. However, to ban all products of a
similar type simply because the goods originated in China would be tantamount
to banning all automobiles produced in the United States if one manufacturer
had quality problems. There are, though, additional issues that need to be ad-
Wall Street Journal (7/5/07), p. B5, and (2) Jerry Gosen, Sumi Babbar, and
Sameer Prasad, “Quality and Developing Countries: The Role of International
and Organizational Factors,” The International Journal of Quality and Reliabil-
ity (Vol. 22, Issue 4/5, 2005), pp. 452ff.