Improving Quality to Improve Profits

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Improving Quality to Improve Profits

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BUS 642: Business Research Methods & Tools
Prof. Donna Wall
September 10, 2012


Improving Quality to Improve Profit

Public companies continuously experience pressure to increase profits for shareholders. One method of increasing profits is to reduce expenses. One expense Schlumberger management believes is totally within the company’s control is the first pass yield of their products. Specifically, Schlumberger management believed that raising the first pass yield of their product to at least 99% would result in at least a 1% increase in profit. As Fawcett & Calantone (2000) point out “quality’s relevance extends to its ability to reduce costs of defective work. Crosby estimated that the cost of quality are equivalent to 15 to 20 percent of sales revenue and argued that if quality were improved, total cost would inevitably fall, increasing firms profitability” (par. 22). As a result, Schlumberger management authorized a study to validate their hypothesis and determine specific focus areas to place resources that will maximize the effort for achieving results. To start the validation, the research team decided to utilize the specific research process charted in Business Research Methods written by Cooper and Schindler. As Cooper and Schindler (2011) point out “good research generates dependable data that are derived by professionally conducted practices and that can be used reliably for decision making” (p. 12). Cooper and Schindler (2011) go on to state “good research follows the standard scientific method: systematic, empirically based procedures for generating replicable research” (p. 12). As a result, this particular study will follow the process of clearly define the purpose, provide process details, thoroughly plan the research design, provide high ethical standards, reveal any limitations honestly, provide adequate analysis for the decision makers, present findings unambiguously, justify the conclusions, and reflect the researcher’s experience. The first step in the overall process is to clearly defined purpose. To complete this step we need to answer the following questions. Question one is what is the management dilemma? Question two is what are the management questions? Question three is what are the research questions? And the forth question is what are the investigative questions? In this case, the management dilemma is how to increase profit margin. The management question is if we increase first pass yield to 99%, will profit margin increase by at least 1% given everything else stays equal? The research questions are what areas of the business should management allocate resources to improve first pass yield? The investigation questions are 1) what is the current first pass yield of our manufacturing facilities? 2) What is the first pass yield of each manufacturing facility? 3) What is the first pass yield of each product group? 4) What is the first pass yield of our incoming material from all suppliers? 5) What is the first pass yield of each active supplier? 6) What is the current profit margin? Next in the overall process is to create an operational definition for the study. In this particular study specific definitions are needed. For consistency, we will utilize the Association for Operations Management (or APICS) definitions for operating profit and first pass yield. APICS defines profit margin as “the difference between the sales and cost of goods sold for an organization.” According to APICS first pass yield is defined as “the ration of products that conform to specifications without rework or modification to total input.” This definition will be used in our manufacturing facilities as well as incoming material from our suppliers. Other terms that need to be defined for clarity include Schlumberger manufacturing assembly site facility, supplier, approved supplier list, and current active suppliers. Schlumberger...
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