Flight line avionics maintenance systems

Assignment Help Operation Management

Reference no: EM132200101

SPC’s effect on Competitiveness The government invites two companies to bid for a contract to produce 100 flight line avionics maintenance systems. The design is owned by the air force, and the air force will provide all necessary documentation to the successful bidder. Both companies under- stand the requirements of the contract, and both are equipped and have the know-how to manufacture the devices. Company ABC, with no SPC experience, develops a conser- vative proposal, accounting for 25% rework in its manufacturinglabor costs, padding materials costs by 10% in anticipation of scrap- page, and allowing for inspection sufficient to smoke out most of the defects—calculated at 20% of the basic manufacturing labor. Company XYZ, which uses SPC in all its manufacturing pro- cesses, bids rework and scrap at much lower rates and includes only enough inspection to audit processes and meet the customer’s own minimum inspection criteria. The following chart compares the bids from the two companies:

Company XYZ

Assembly labor $200,000

Rework labor 8,000 (4%)

Inspection labor 4,000 (2%)

Materials 505,000

Totals$717,000

company abc

Assembly labor $200,000

Rework labor 50,000 (25%)

Inspection labor 40,000 (20%)

Materials 550,000

Totals $840,000

With a difference of $123,000, there can be no doubt that Company XYZ will win the contract. Not only is Company ABC’s bid 17% higher, but also one would be safe in predicting that its higher-priced product would be inferior to XYZ’s product. SPC is the only difference here.

Discussion Questions

Discuss the following questions in class or outside of class with your fellow students:

1. How would you rate the comparative competitiveness of the two companies?

2. If you work for a company that does not employ SPC, how could SPC help the firm.

Reference no: EM132200101

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