- Case study 1: Computer Shop (10 marks)
You must decide among two different forecasting techniques for weekly demand of personal computer: an exponential smoothing with a=0.25, and the naïve approach.
Weekly demand of personal computer
Period Actual
1 33
2 45
3 49
4 55
5 54
6 53
7 46
8 59
9 62
10 65
a. Forecast the demands for all possible periods using two methods (2.5 marks)
b. Using MSE error calculations comment on which of the two methods has the greater overall accuracy. (2.5 marks)
c. Is it possible to determine whether these forecasting methods are overestimating or underestimating the demand? Explain (2.5 marks)
d. What are the implications of overestimation or underestimation of the demand? Discuss. (2.5 marks)
- Case Study 2: Kitchenware Inc. (10 marks)
‘We must get to the bottom of this quality problem,' said Managing Director of Kitchenware Ltd, at one of his regular monthly meetings with senior managers in June 2002.
'I've just seen some figures from Steve Mardy's accountants and it appears that it may be costing us more than £12 000 each month- and that's only reworking costs and customer returns, heaven only knows what the total cost might be. I've asked John Smith from Quality Assurance to look at this problem and report back to me by the end of July. I hope you'll all give him every assistance in sorting this one out'.
Quality had always been of importance at Kitchenware since many of its products were aimed at the top end of the market and commanded high prices. Its most important product line was its hand made, silver-plated Georgian tea sets retailing at anything from £400 upwards. Other products included handmade, silver-plated candelabra, small items of giftware (silver-plated) and tea sets made from pewter and stainless steel. Kitchenware had been founded in 1949 in UK and began by manufacturing a wide range of cutlery and tableware items. The company had gradually narrowed its range and by 2002 had become one of the leading UK suppliers of top-quality Kitchenware as well as continuing to produce items for the less expensive end of the Kitchenware market. Turnover in 2001 exceeded £18 millions, although pre-tax profits of only £160000 had been very disappointing compared with the company's profit performance over the previous 10 years. The Chairman's report for the year had sought to explain this poor profit situation:
'The results are, of course, a disappointment but are largely a result of production inefficiencies during this period of transferring our traditional craft methods to a batch production, light engineering type system. We are confident that the new methods will give us the necessary competitive edge and help us return to, and exceed, our previous levels of profitability.'
John Smith, the Quality Assurance Manager, decided to approach his brief in two ways. Firstly, his department would undertake a quality survey on a sampling basis to assess the scale of the problem and, secondly, he would talk to people in the company who were either directly or indirectly concerned with quality. He decided to concentrate his efforts, in the first instance, on silver-plated teapots since they were by far the most important item made at Kitchenware.
Quality control at Kitchenware
The Quality Assurance Department's task was to ensure that goods leaving the factory were of the required quality. In addition, the department dealt with customer complaints. Internal quality assurance was performed on a batch sampling basis (10 per cent for most items) of goods leaving the final polishing process (see Figure 1). In the case of teapots, they were inspected for both dimensional accuracy and surface finish (scratches and bruises). Batches rejected on a sampling basis were subjected to 100 per cent inspection and rejects either renovated or scrapped (depending on the nature of the defect). Certain items, for example candelabra and top quality tea sets, were subjected to 100 per cent inspection as a matter of course. The Quality Assurance Department was, from time to time, involved in investigating quality problems arising during production or with bought-in components, teapot handles for example. The majority of these investigations arose as a result of complaints from the Buffing and Polishing Department about the number of scratched or bruised items they were having to deal with.
John Smith's quality survey
John first checked through sales records for the last 12 months and found that out of every 100 teapots sold, around five were returned by the retailers with com- plaints about bruising, scratching or slightly misshapen pots. John then checked through the final inspection records for the last 100 teapots which showed that five had been rejected at that stage. All five had scratches and one also had a bruise above the spout. John decided to take a random sample of 100 teapots at various stages in the production system and assess their 'quality' in terms of dimensional accuracy and surface condition. The results of his survey are shown in Table 1.
Having completed the survey, John decided to discuss his findings with Fred Lee, the new Production Director at Kitchenware. Fred Lee's reaction to the figures was as follows:
'Well, John, on the face of it, it looks as though I should have asked you to do a survey like this when I first arrived- there certainly does seem to be a serious problem, particularly on scratching. I know that nickel silver's not the easiest material to deal with but I'm surprised at the scale of the problem. What I find difficult to swallow is the fact that most of these scratches and bruises are being removed by reworking so why did they get through the system in the first place? I think we'd both better have a word with Joe Martin, the Senior Shop Foreman.’
Figure 1 Production route and responsibilities
Table 1 Quality survey- silver-plated teapots
a Sample size 100
b Some teapots were rejected on more than one count.
Knowing Joe's reluctance to speak too frankly when Fred Lee was around, John decided that he had better have a chat with Joe by himself if he was going to get any useful information on the quality angle. He met Joe later that day in his office. John explained the results of his survey and asked for Joe's opinion. Joe said:
'I don't doubt that your people have done a good job John, but you know the problems as well as I do. First of all, how do you decide what is a scratch and what is not a scratch? Even after 20 years I'm not sure how consistent I am on that one. Then of course there's Lee breathing down my neck all the time about output- I mean he can't have it both ways, can he? What's more, the workers in the shop can't spend all day worrying about every little scratch- what would their pay packets look like at the end of the week if they did? I think it'd be quite a good idea if you had a chat with Alan Jones in the Buffing Shop. He had a go at me only last week about this one!'
John decided to take up Joe Martin's suggestion and managed to speak to Alan Jones a couple of days later. He told Alan he was particularly interested in his views on the scratching and bruising problems. Alan was only too willing to tell him!
'You probably know that I had a bit of a chat with Joe Martin over this last week. It was about one batch of teapots we got from assembly which were in a dreadful state. Apart from some deep scratches, half of them were bruised and should never have been let out of the shop. Joe seemed to feel I was being too fussy but, quite honestly, if we've got to sort out rubbish like that, we'll never earn a living wage- I don't think the Assembly workers care anymore. When I worked up there we used to do our own buffing and polishing and problems like this never arose, but with the new set-up, the sooner they get them out and on the worksheet the better seems to be the attitude. They don't seem to care if we send half of them back- it gives them more work to do.’
John decided that before he could put his report together he needed to see John Wells, the Sales
Director, and Steve Mardy in Finance. He managed to see John Wells the following week and asked him about the customer complaints situation. John told him:
'Frankly, you probably know as much about this as I do since it's your people who investigate the complaints. As you know, most complaints come from the shops- very few from the public, although this may not be a fair picture as the shops may not be passing on customer complaints. In the case of Georgian tea sets, I'm sure that we're very often accepting responsibility for scratching that isn't our fault- but it's difficult to prove that of course. The trouble is that the tea sets usually need to go back to Buffing and then Replating, which must cost a great deal. One thing I find funny is that we've had very few complaints about the new range- probably because they're fighting each other to get hold of them as they're selling like hot cakes, apparently. The thing that worries me most at the moment is that the backlog of work in the factory is lengthening my delivery times.'
John met with Steve Mardy, the Finance Director, that afternoon and asked for her opinion on the whole quality problem. Jean told him:
'I raised this with the Managing Director because it's something that worried me for a long time. The trouble, as I see it, is that we really don't know what's going on. For example, it's almost impossible to sort out reworking from normal work and even if you manage to do that, it's only guesswork as to the costs of reworking. I know that Fred Lee seems to think that a lot of the overtime in the Buffing Shop must be due to reworking and he'd like to cut it down.'
Following this chat, John decided it was about time he sat down and started work on his report if he was to meet the Managing Director's deadline. The situation certainly didn't seem so straightforward as he had assumed it might be!
Questions
1 How would you specify 'quality' for Kitchenware?
2 What are the causes of the problems at Kitchenware?
3 How can Kitchenware measure quality at each stage of the process?
4 What steps do you suggest John Smith to improve quality?
Sample Solution