Reliability and maintenance

Problem 1
A product design engineer must decide if a redundant component is cost-justified in a
certain system. The system in question has a critical component with a probability of .98 of
operating. System failure would involve a cost of $20,000. For a cost of $100, a switch could
be added that would automatically transfer the system to the backup component in the
event of a failure. Should the backup be added if the backup probability is also .98?

We'll presume the switch's probability of activating when needed is 100% because no probability
is specified for it.

The expected cost of failure (i.e., without the backup) is:

$20,000  (1–0.98) = $400.

With the backup, the probability of not failing would be:

0.98 + 0.02(0.98) = 0.9996

Hence, the probability of failure would be:

1– 0.9996 = 0.0004.

With the backup, the predicted cost of failure would be the extra cost of the backup component
plus the cost of failure:
$100 + $20,000(0.0004) = $108
Because this is less than the cost without the backup, it appears that adding the backup is
definitely cost justifiable.

Quality management
Problem 2
The accounts receivable department has documented the following defects over a 30-day period:
What techniques would you use and what conclusions can you draw about defects in the accounts
receivable department?

Category Frequency Percent

Invoice amount does not agree with the check amount 108 54
Invoice not on record (not found) 24 12
No formal invoice issued 18 9
Check (payment) not received on time 30 15
Check not signed 8 4
Invoice number and invoice referenced do not agree 12 6
Total 200 100
Use a Pareto chart to categorize the defects and come to the conclusion that the most evident
issue (about half of the faults) is the check failing to agree with the company's records as to the
proper amount. Late payments and an apparent invoice-filing glitch at the office are other issues.
It's worth noting that 27% of the typical errors appear to be caused by procedural issues in
accounts receivable (invoice not on record, no invoice issude, and invoice numbering problems).
This figure might be significantly higher, depending on how much of the discrepancy between
invoice and check amounts is due to difficulties with the accounts receivable process.

Rework and Morale

Larry Coburn, vice president of operations at high-tech audio equipment manufacturer Crown Audio, has
seen the need for strong management and employee commitment in his company’s recent quality
improvements. The market in his industry was driving the development of more complex products that need
to be produced more cheaply, and these twin trends put so much pressure on his manufacturing operations
that things were breaking down. Their first-pass yields had gotten so bad that their rework inventory had
piled up, and even became a major line item on the balance sheet.
“We had areas that were designated for rework that were so large that they were getting on our inventory
control list because they were major entities in terms of dollars in inventory,” he recounts. In fact, the
problem was large enough to conceal what Coburn and his team call ‘hidden factories’—millions of dollars
of untapped production and sales potential existing within their production line. “We started analyzing these
hidden factories and we actually identified $4 million of cost related to poor quality,” Coburn says.
To stem the tide of red ink, Crown Audio embarked on a drastic plant-floor triage process that involved
stopping production entirely, so as not to generate any more rework. They then analyzed and tested the
defective inventory, broke the components up into groups based on the common problems they exhibited,
and used those groupings to analyze potential process improvements and defect reduction strategies before
plugging them back through the process. Once they finished, they not only had saleable inventory to get
out the door, but also had a pretty good handle on the parts of their process that needed changing, says
Coburn. “When we started, we had months and sometimes close to a year of backlog that needed to be fixed
and repaired,” he relates. “Now we are talking in terms of hours of rework in front of us.”
However positive and dramatic this change, Coburn and his management team also realized that it wouldn’t
help much if the scrap and rework inventory piles kept growing, he says, which is where he says the less-
tangible “employee engagement” part of the equation comes in.
The first aspect is enabling them to do their jobs. “We’re continuing to empower our workers to get real-
time data at their fingertips so they’re making good decisions without two-week-old data, or without
estimating or just evading what they think the problem is,” he says. Rather than having his workers hanging
their heads, Crown Audio’s management team is now in the enviable situation of having different lines and
shifts brag about their first-pass yields to each other.
Sustaining this motivated, engaged workforce is itself a team effort, says Coburn, who says that he has
learned over the course of Crown Audio’s continuing quality initiative that solidly designed manufacturing
processes backed up by an engaged and empowered workforce is the essential combination to move any
company forward. Quality truly is everyone’s responsibility, and everyone appreciates a job well done.
“There is nothing more frustrating than working hard and then knowing that what you did, did not work
out or did not come through.” Coburn stresses this point in no uncertain terms. “Morale is everything in
quality,” he says. “People want to do a good job, and we have to enable that.”
Source: Excerpted from Brad Kenney, Industry Week, April 1, 2008.
Based on the article, how would you define and manage quality?

Operations Strategy Short Case 6.2 Rework and Morale Larry Coburn, vice president of operations
at high-tech audio equipment manufacturer Crown Audio, has seen the need for strong management
and employee commitment in his company s recent quality improvements. The market in his industry
was driving the development of more complex products that need to be produced more cheaply, and
these twin trends put so much pressure on his manufacturing operations that things were breaking
down. Their first-pass yields had gotten so bad that their rework inventory had piled up, and even
became a major line item on the balance sheet. We had areas that were designated for rework that
were so large that they were getting on our inventory control list because they were major entities in
terms of dollars in inventory, he recounts. In fact, the problem was large enough to conceal what
Coburn and his team call hidden factories millions of dollars of untapped production and sales
potential existing within their production line.
We started analyzing these hidden factories and we actually identified $4 million of cost related to
poor quality, Coburn says. To stem the tide of red ink, Crown Audio embarked on a drastic plant-
floor triage process that involved stopping production entirely, so as not to generate any more
rework.
They then analyzed and tested the defective inventory, broke the components up into groups based
on the common problems they exhibited, and used those groupings to analyze potential process
improvements and defect reduction strategies before plugging them back through the process.
Once they finished, they not only had saleable inventory to get out the door, but also had a pretty
good handle on the parts of their process that needed changing, says Coburn. When we started, we
had months and sometimes close to a year of backlog that needed to be fixed and repaired, he relates.
Now we are talking in terms of hours of rework in front of us. However positive and dramatic this
change, Coburn and his management team also realized that it wouldn t help much if the scrap and
rework inventory piles kept growing, he says, which is where he says the less-tangible employee
engagement part of the equation comes in.
The first aspect is enabling them to do their jobs. We re continuing to empower our workers to get
real-time data at their fingertips so they re making good decisions without two-week-old data, or
without estimating or just evading what they think the problem is, he says. Rather than having his
workers hanging their heads,
Crown Audio s management team is now in the enviable situation of having different lines and shifts
brag about their first-pass yields to each other.
Sustaining this motivated, engaged workforce is itself a team effort, says Coburn, who says that he
has learned over the course of Crown Audio s continuing quality initiative that solidly designed
manufacturing processes backed up by an engaged and empowered workforce is the essential
combination to move any company forward. Quality truly is everyone s responsibility, and everyone
appreciates a job well done.
There is nothing more frustrating than working hard and then knowing that what you did, did not
work out or did not come through. Coburn stresses this point in no uncertain terms. Morale is
everything in quality, he says. People want to do a good job, and we have to enable that.

Answer:
Source: Excerpted from Brad Kenney, Industry Week, April 1, Ethics and Quality Management
Learning Outcome 6.6

A. All members of an organization have an obligation to perform their duties in an ethical

manner.
B. Ethical behavior comes into play in many situations that involve quality. One major category
is substandard work including:

B1: defective products and substandard service

B2: poor designs, shoddy workmanship
 B3: substandard parts and raw materials.

Having knowledge of this and failing to correct and report it in a timely manner is unethical and

can have a number of negative consequences:

These can include

1. increased costs for organizations in terms of decreased productivity

2. an increase in the accident rate among employees

3. inconveniences and injuries to customers, and increased liability costs.

A related issue is how an organization chooses to deal with information about quality problems in
products that are already in service. For example, automakers and tire makers in recent years have
been accused of withholding information about actual or potential quality problems; they failed to
issue product recalls, or failed to divulge information, choosing instead to handle any complaints that
arose on an individual basis.