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Consumer and Producers Risk

Jill Sefcik OISM 470W Section #1

OUTLINE

Definition Brainstorming Exercise Nuts and Bolts How it Works Exercise Summary

Consumers Risk

Definition
Accepting a batch of materials that are of poor quality but assuming the materials are of high quality

Producers Risk

Definition
Rejecting a batch of materials that are of good quality

Brainstorming Exercise

How can you minimize consumer and producers risk in your organization?

Nuts and Bolts

Types of errors
Type I error Producers risk Type II error Consumers risk

Nuts and Bolts

Results of Type I and Type II errors


Lost future sales High costs

Nuts and Bolts

Statistical Quality Control procedures


Minimization of Type I errors Large inspection sample size Higher risk of Type II errors

How it Works

Acceptance sampling
used to determine whether to accept or reject product Can inspect 100% of products or few products

How it Works

Acceptance sampling
Batch assumed acceptable unless statistics strongly prove otherwise
- Ex: The most useful analogy is the U.S. Justice System, where suspects are assumed to be innocent unless they are proven guilty (Maleyeff 24).

How it Works

The following slide provides a visual representation of consumer and producers risk

How it Works
Table taken from Managing Quality An Integrative Approach

State of Nature Product is Good


Consumer Accepts Product Consumer Rejects Product OK

Product is Defective
Consumers risk

Outcome

Producers OK risk

Real World Example

Consumers risk
Firestone tires on Ford Explorers
Consumers thought were receiving high quality product but they did not

Real World Example

Producers risk
Automotive supplier rejects a batch of harnesses though the harnesses are of a high quality

Exercise

Is this a consumer or producers risk?


A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range

Exercise - Answer

A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range

ANSWER-PRODUCERS RISK

Exercise

Is this a consumer or producers risk?


A house is purchased that is believed to be of high quality, but within a month the plumbing has failed?

Exercise - Answer

A house is purchased that is believed to be of high quality, but within a month the plumbing has failed?

ANSWER CONSUMERS RISK

Summary

Consumers risk Producers risk

Bibliography

Foster, S. Thomas, Managing Quality An Integrative Approach, Prentice Hall, 2001, pgs. 265, 351-352. Graves, Samuel B,; Ringuest, Jeffrey L.; Producers and Consumers Risk When Proportion Defective is, Decision Sciences, Sept/Oct 1991, pgs. 753-771. Maleyeff, John, The fundamental concepts of statistical quality control, Industrial Engineering, Norcross, Dec 1994, pgs. 24-25.