Making operations better, and planning for what can go wrong
An appliance maker in Ohio: more inspectors, or fewer defects?
| Kind of cost | What it is here | Cost a year |
|---|---|---|
| Prevention | Nothing spent today | 0 |
| Appraisal | 6 inspectors | 300 |
| Internal failure | 6,000 units reworked at USD 30 | 180 |
| External failure | 2,000 units at USD 250 | 500 |
| Total cost of quality | 980 |
The prompt
A maker of kitchen appliances in Ohio, United States, builds 200,000 units a year. 4 percent are defective. Its 6 inspectors (USD 50,000 a year each) catch 75 percent of defects, which cost USD 30 each to rework. The rest reach customers and cost USD 250 each in warranty repairs, shipping and replacements. The cost breakdown is in the table with this case. Option A: hire 3 more inspectors to catch 90 percent. Option B: spend USD 400,000 once on better moulds and fixtures that cannot be assembled wrongly. Add USD 100,000 a year on training. This cuts defects to 1 percent. Which is better? (Fictional company, illustrative figures.)
Before you reveal anything, plan your own structure and first move on paper. Then reveal one part at a time and compare.
Clarifying questions, with the interviewer's answers
The exhibit
| Kind of cost | What it is here | Cost a year |
|---|---|---|
| Prevention | Nothing spent today | 0 |
| Appraisal | 6 inspectors | 300 |
| Internal failure | 6,000 units reworked at USD 30 | 180 |
| External failure | 2,000 units at USD 250 | 500 |
| Total cost of quality | 980 |