In this memo, the issue regarding Hilcrest Auto with regards to its quality issues in creating parts that meet the specifications in their contract will be discussed. Their options and their outcomes as far as current and new processes will be reviewed, as well as the costs and benefits of their options. Lastly, whether or not they should disclose information about their “error” to their customer will be discussed. THEORETICAL AND PRACTICAL CAPACITIES
Under the current production process, Hilcrest operates with two eight-hour shifts each day, five days a week, for fifty work weeks, producing 1,300 units per shift on “a good day,” but more typically 1,000 units. This means that practically speaking, Hilcrest would produce 10,000 units per week and 500,000 units per year. Theoretically speaking, Hilcrest could produce 2,000 units per shift and therefore 20,000 units per week and 1,000,000 units per week. Under the proposed short-term process, there would be seven seconds added to the production process per tube. This would mean production would be, practically, reduced to about 804 units per shift. Theoretically, they could produce roughly 1345 units per shift. This process would also result in the rejection and total scrapping of five percent of the finished tubes, which means that after rejection, they would practically have 763 units finished and therefore 381,500 units per year, and theoretically, 1277 units per shift and 638,500 per year. Purchase of a new machine would easily increase the practical and theoretical capacities. With two machines running, it seems practical that they could produce 1,000 units each per shift, and, therefore, 1,000,000 per year. If both machines were running at their theoretical capacity of 2,000 units per shift each, they could reach 2,000,000 units per year. COSTS AND BENEFITS
With the new short-term process, quantity would be reduced by over 100,000 practically, and over 300,000 theoretically. The benefit of...
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