Step 2 search for and identify the bottleneck

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Step 2: Search for, and identify the bottleneck operation. Step 3: Keep the bottleneck operation busy, and subordinate all nonbottleneck operations to the bottleneck operation. Step 4: Increase bottleneck efficiency and capacity. 19-15 The chapter describes several ways to improve the performance of a bottleneck operation. 1. Eliminate idle time at the bottleneck operation. 2. Process only those parts or products at the bottleneck operation that increase throughput contribution, not parts or products that will remain in finished goods or spare parts inventories. 3. Shift products that do not have to be made on the bottleneck machine to nonbottleneck machines or to outside processing facilities. 4. Reduce setup time and processing time at bottleneck operations. 5. Improve the quality of parts or products manufactured at the bottleneck operation. 19-3
19.16 (30 min.) Costs of quality. 1. The ratios of each COQ category to revenues and to total quality costs for each period are as follows: Costen, Inc.: Semi-annual Costs of Quality Report (in thousands) 6/30/2006 12/31/2006 6/30/2007 12/31/2007 Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs (1) (2) = (3) = (4) (5) = (6) = (7) (8) = (9) = (10) (11) = (12) = (1) ÷ $8,240 (1) ÷ $2,040 (4) ÷ $9,080 (4) ÷ $2,159 (7) ÷ $9,300 (7) ÷ $1,605 (10) ÷ $9,020(10) ÷ $1,271 Prevention costs Machine maintenance $ 440 $ 440 $ 390 $ 330 Supplier training 20 100 50 40 Design reviews 50 214 210 200 Total prevention costs 510 6.2% 25.0% 754 8.3% 34.9% 650 7.0% 40.5% 570 6.3% 44.9% Appraisal costs Incoming inspection 108 123 90 63 Final testing 332 332 293 203 Total appraisal costs 440 5.3% 21.6% 455 5.0% 21.1% 383 4.1% 23.9% 266 3.0% 20.9% Internal failure costs Rework 231 202 165 112 Scrap 124 116 71 67 Total internal failure costs 355 4.3% 17.4% 318 3.5% 14.7% 236 2.5% 14.7% 179 2.0% 14.1% External failure costs Warranty repairs 165 85 72 68 Customer returns 570 547 264 188 Total external failure costs 735 8.9% 36.0% 632 7.0% 29.3% 336 3.6% 20.9% 256 2.8% 20.1% Total quality costs $2,040 24.7% 100.0% $2,159 23.8% 100.0% $1,605 17.2% 100.0% $1,271 14.1% 100.0% Total production and revenues $8,240 $9,080 $9,300 $9,020 19-4
2. From an analysis of the Cost of Quality Report, it would appear that Costen, Inc.’s program has been successful because: Total quality costs as a percentage of total revenues have declined from 24.7% to 14.1%. External failure costs, those costs signaling customer dissatisfaction, have declined from 8.9% of total revenues to 2.8% of total revenues and from 36% of all quality costs to 20.1% of all quality costs. These declines in warranty repairs and customer returns should translate into increased revenues in the future. Internal failure costs as a percentage of revenues have been halved from 4.3% to 2%. Appraisal costs have decreased from 5.3% to 3% of revenues. Preventing defects from occurring in the first place is reducing the demand for final testing. Quality costs have shifted to the area of prevention where problems are solved before production starts: total prevention costs (maintenance, supplier training, and design reviews) have risen from 25% to 44.9% of total quality costs. The $60,000 increase in these costs is more than offset by decreases in other quality costs.

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