Reference no: EM13232410

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 understand 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 conservative proposal, accounting for 25% rework in its manufacturing labor costs, padding materials costs by 10% in anticipation of scrappage and allowing for inspection sufficient to expose out most of the defects - calculated at 20% of the basic manufacturing labor.

Company XYZ, which uses SPC in all its manufacturing processes, bids re-work 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 ABC	Company XYZ
Assembly labor	$200, 000	$200, 000
Rework labor	50, 000 (25%)	8,000(4%)
Inspection labor	40, 000(20%)	4, 000(2%)
Materials	550, 000	505, 000
Totals	$840, 000	$717,000

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 more than 17% higher, but also one would be safe in predicting that its higher priced product would be inferior to XYZ's. SPC is the only difference here. The following table gives the defect samples :

Sample	Number of Defective Machines	Number of Machines in each Sample
1	3	20
2	2	20
3	1	20
4	2	20
5	1	20

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

ii. If you are employed by company ABC that does not employ SPC, how could spec help the firm and how would you recommend?

iii. Depict the defect factors with various control charts by stating the process out of control and under control.