Lumen Learning: Inspect More, or Fix the Line?
Lumen Learning manufactures edtech products in India, running 712,697 units a year.
Internal quality checks reject 4.9% of output, at a scrap and rework cost of about ₹738 a unit. A further 0.9% of shipped units come back under warranty, each costing roughly ₹6038 once field service, replacement and admin are counted.
Two proposals are on the table. Engineering wants ₹72 Cr of one-off capital to re-tool the station where most defects originate. Quality wants ₹36 Cr a year of additional inspection headcount to catch more before shipment.
The plant manager is measured on unit cost.
volume
- units per year
- 712697
proposals
- process retool one off cr
- 72
- additional inspection per year cr
- 36
external failure
- cost per claim
- 6038
- warranty claim rate pct
- 0.9
- warranty units per year
- 6414
internal failure
- defect rate pct
- 4.9
- defective units per year
- 34922
- scrap rework cost per unit
- 738
Advise the plant manager. Your answer should provide:
- Analysis — the total cost of poor quality today, split by where it is detected, and the return on each proposal.
- Risks — what each option does not solve.
- Recommendation — which to fund, with a payback period.
State any assumptions you make.
80 points, 60% to pass.
- recommendation20
- market analysis15
- risk assessment20
- financial analysis25
Reveal suggested structure
Cost of poor quality = internal failure + external failure. Compare prevention against detection on payback, and note that inspection does not reduce the defect rate.