1. The rate of baggage mishandling reported by the Department of Transportation in the United States was 3.75 per 1,000 passengers. If the average number of checked bags per passenger is now 1.3, how many defects per million opportunities (DPMO) does this represent? How does this compare with the rate given in the chapter – better or worse?
2. Analyze the cost data in the Excel workbook C8Data.xls for the Costcutin Co. What percent of sales are represented by each category of cost? What are the implications of these data for management?
3. Imagimatrix, which designs prototype components for the computer gaming industry has begun a quality program. About a year ago, for the first time, they began to measure quality costs. They were so shocked by their initial figure of 60 percent internal and external failure costs that they immediately launched a Six Sigma quality improvement effort. The percentage of total quality costs recently, after six months of improvements for the firm, are distributed as follows:
Prevention 20%
Appraisal 33%
Internal failure 32%
External failure 15%
What conclusions can you reach from these data?
4. Analyze the quality cost information by computing a sales dollar base index for Farwest Sales, Inc., in the Excel workbook C8Data.xls. Prepare a memo to management explaining your findings and conclusions.
5. Analyze the cost data in the Excel workbook C8Data.xls for Product B. What are the implications of these data for management? Chart these data. Calculate the quality indices as a relationship to the cost of sales. How do these data differ from those given in Problem 2?
6. Analyze the cost data from ABEC Corp in the Excel workbook C8Data.xls. What are the implications of these data for management? How do these data differ from those in problem 5?
7. D.B. Smith Company recycles computers. It buys them and salvages parts and materials from the obsolete systems. It considers that it has done a “quality” job if it can salvage 60 percent of the “book value” of equipment that it buys. The book value of a particular lot that it bought was $1,700,000. What conclusions can be drawn from the cost data incurred in processing the lot, as found in the Excel workbook C8Data.xls? Customer returns are simply scrapped and replaced. Be sure and specify your assumptions about categories of quality costs.
8. Prepare a chart showing the different quality cost categories and percentages for the Great Press Printing Company. See the data in the Excel workbook C8Data.xls.
9. Compute a labor cost base index for Miami Valley Aircraft Service Co. to analyze the quality cost information and prepare a memo to management explaining your conclusions. See the data in the Excel workbook C8Data.xls.
10. The cost of quality data collected at the installment loan department of the McCutcheon Bank can be found in the Excel workbook C8Data.xls. Classify these data into the appropriate cost of quality categories and analyze the results. What suggestions would you make to management?
11. Repack Solutions, Inc. has a distribution center in Cincinnati where it receives and breaks down bulk orders from suppliers’ factories, and ships out products to retail customers. Prepare a chart showing the different quality cost categories and percentages for the company’s quality costs that were incurred over the past year. See the Excel workbook C8Data.xls for the data.
12. Use Pareto analysis to investigate the quality losses at Nosoco Paper Mill. What conclusions do you reach? See the Excel workbook C8Data.xls for the data.
13. Given the cost elements in the Excel workbook C8Data.xls, determine the total percentage in each of the four major quality cost categories for the HiTeck Tool Company.
14. Worldwide Metrology Repairs, Inc. has a thriving business repairing and upgrading high-technology measuring instruments. The costs of quality that they have collected over the past year can be found in the Excel workbook C8Data.xls. Use Pareto analysis to investigate their quality losses and to suggest which areas they should address first in an effort to improve their quality.
15. Use Pareto analysis to investigate the quality losses at Beechcom Software Corp. using the data in the Excel workbook C8Data.xls. What conclusions do you reach?
16. The Hausburg Company has collected information about customer behavior and lost sales as a result of service problems. They estimate that, given the current level of service and historical data on complaints, the company will lose a total of 900,000 sales from customers who experience problems over a five-year period.
a. At an average of $20 profit per sale, what is the average lost profit per year?
b. Suppose the company can reduce its annual number of lost sales by 10 percent by investing $300,000 to enhance its service through training and better technology. How much profit can be earned as a result? What is the return on this quality investment?
17. Excelsior Inn, a medium-sized hotel (approximately 450 rooms) has gathered a considerable amount of data and is trying to estimate its return on quality. The site manager is interested in determining what the return would be if she invested in additional service. She has evidence that additional effort in making sure that rooms (in particular, the bathroom) are clean will result in increases in market share, which can easily be translated into dollars of profit. In the table, found in the Excel workbook C8Data.xls, are data taken from a pilot study where various amounts of additional labor, above the present standard, were applied to room cleaning. These have been expressed in annual dollar amounts, based on wages and fringe benefits of current employees servicing the rooms. Customers who stayed in those rooms were then surveyed to determine their levels of satisfaction/dissatisfaction. Percentages of dissatisfied customers have been matched with the annual dollars of improvement efforts from the study.
a. Using linear regression (for example, the Data Analysis tool or Add Trendline option in Excel), determine the equation that can be used to estimate the reduction in customer dissatisfaction, based on additional cleaning effort. What would be the appropriate level of effort to apply, based on your calculations?
b. If each point of market share increase brings in approximately $600,000 of profit per year, and the cost per year is your suggested investment in improvement (from part a above), what would be the return on quality (improvement), based on a three year discounted cash flow at 10 percent of the investment costs, if the site manager estimated that she could realize a 2.5 percent increase in market share?