Solstice Travel: Inspect More, or Fix the Line?
Solstice Travel manufactures online travel products in Southeast Asia, running 450,314 units a year.
Internal quality checks reject 5.6% of output, at a scrap and rework cost of about $754 a unit. A further 2.5% of shipped units come back under warranty, each costing roughly $7098 once field service, replacement and admin are counted.
Two proposals are on the table. Engineering wants $86 M of one-off capital to re-tool the station where most defects originate. Quality wants $15 M a year of additional inspection headcount to catch more before shipment.
The plant manager is measured on unit cost.
volume
- units per year
- 450314
proposals
- process retool one off m
- 86
- additional inspection per year m
- 15
external failure
- cost per claim
- 7098
- warranty claim rate pct
- 2.5
- warranty units per year
- 11258
internal failure
- defect rate pct
- 5.6
- defective units per year
- 25218
- scrap rework cost per unit
- 754
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.