Question

Performance Motors has just launched a new model that is being produced at a rate of 10,000 vehicles per month (and is flying off the dealers’ lots as fast as they arrive). You are one month into customer sales (10,000 units sold and delivered) and already there are some reports of a specific failure that impacts safety. NHTSA has opened a preliminary investigation, and your engineers are participating in the analysis. It is expected that the results will be known in one month. At that time, the findings will be: a) that there is no defect (just some bad luck and statistical outliers), or b) that there is a quality defect, meaning that a batch of some component was not manufactured correctly, or c) that there is a design defect requiring a redesign and replacement of the part. If there is no defect, then there will be no further action and no additional costs incurred. If a quality lapse is pinpointed, several scenarios are possible, but the most likely case is that it would be confined to one of the four weekly batches of the component that went into the first month’s production (2,500 vehicles, all of which are now in customer hands). NHTSA would require that those vehicles be recalled immediately but at least it is known which vehicles received which parts. On the other hand, if a design defect is found, then all cars will be recalled, and no more cars would be sold until they are fixed with an approved solution. As a precautionary measure, a crash redesign of the component could be started immediately and would take one month and cost $3M. Because the key design features are embedded in firmware, replacement parts could be available immediately upon completion of the redesign. Your engineers estimate that the likelihoods of the possible findings are: 20% that there is no defect, 40% that one batch will be affected, and 40% that all parts must be recalled and replaced with a new design.

You have two key decisions to make right now; one is whether to keep selling vehicles or not, and the other is whether to start a redesign right away. Stopping sales is not expected to affect demand in the long run, but it does delay cash flow, complicates logistics and is not good for customer satisfaction; a stoppage is estimated to cost $1M/month. Production would not stop – it is much cheaper to repair already-built units than to stop and re-start the line. The product redesign might ultimately prove to be unnecessary, but it would ensure that replacement parts would be available if NHTSA ordered a full recall. If a full recall were ordered, and the redesign had not been done, it would have to be started at that time, at the same cost. Sales would have to stop for a month because of the recall, at the same cost/month as above.

Recalling a vehicle from the field to have it repaired at a dealer costs $5,000, if repair parts are available   If parts are not available, there would be a 1-month wait and the owners would be provided a loaner for the month so the cost would be $7,000 per vehicle. Repairing a vehicle that is still at the factory costs $500. Currently there are 10,000 vehicles in customers’ hands, and in the coming month there will be 10,000 more vehicles coming off the production line at the factory. If you do not stop sales, in one month there will be 20,000 vehicles in customers’ hands, whereas if you do stop sales, there will be the same 10,000 with customers, and 10,000 parked at the factory. If there is an additional month delay at that point (a recall is ordered, but no parts are available) then there would be an additional 10,000 vehicles parked at the factory that would also need to be repaired.

What are you going to do?

Answer 1

This case study is related with production management. Here company is has just launched a new model that is being produced at a rate of 10,000 vehicles per month (and is flying off the dealers’ lots as fast as they arrive).

Here in one month company sold 10000 units and delivered to the customer and as per investigation found that there are some reports of a specific failure that impacts safety.

NHTSA has opened a preliminary investigation, and company’s engineers are participating in the analysis. It is expected that the results will be known in one month.

At that time, the findings will be:

a)        That there is no defect (just some bad luck and statistical outliers), or

b)        That there is a quality defect, meaning that a batch of some component was not manufactured correctly, or

c)         That there is a design defect requiring a redesign and replacement of the part. If there is no defect, then there will be no further action and no additional costs incurred.

Here there is a serious issue related with defect in some component of vehicles and due to that customer satisfaction level goes down. It may be possible that competitor may take the benefit of customer dissatisfaction. It is also found that 2500 vehicles already delivered to the customers and now it is in customer hands.

As per my opinion those vehicles which are delivered should be recalled immediately and for repairing or replacement of necessary parts. But if design of the vehicle is defective then as per my point of view no all cars shold be recalled and no further cars would be sold until redesign and approval of solution.

As per survey it was found that:

% of Defects	No defects 20 %	One batch will be affected 40%	All parts recalled and redesign40%
No. Of Vehicles Affected	500 [2500 Vehicles*20%]	1000 [2500 Vehicles*40%]	1000 [2500 Vehicles*40%]
Proportionate Cost for Repair	.06 M [3M*20%]	1.2 M [3M*40%]	1.2 M [3M*40%]

As company’s point of view there are two key decisions to make right now related with the company which hare as under-

1	One is whether to keep selling vehicles or not
2	The other is whether to start a redesign right away

Stopping sales is not expected to affect demand in the long run, but it does delay cash flow, complicates logistics and is not good for customer satisfaction.

1

Stoppage of sales

Estimated Cost $ 1M per month

Now statement showing recall of vehicles from the existing customers

Recalling a vehicle from the field
If Repair parts are available	Repaired at a dealer costs $5,000 Plus factory Cost $ 500 So total cost= $5500
If repair parts are not available	Repaired at a dealer costs $7,000 Plus factory cost $ 500 so total cost = $ 7500

On the another hand it is found that company is manufacturing 10000 vehicles every month and in upcoming month company manufacturing additional 10000 vehicles so total company has to manage for 20000 vehicles. In this situation there are certain issues that company has to face which are as under.

1. If company stop production and give full focus only on replacement then there may be customer dissatisfaction due to shortage of vehicles in market.

2. If company continue production then storage of vehicle issue arises. Company has to manage space for 10000 + 10000 = 20000 vehicles arrangement.

In above issue as per my opinion company has to go for replacement of part as well as continuing production also. But company can make arrangement that replacement will take place at dealer’s premises and only major replacement take place at company premises. It is just delegation of work. Also company contact to the units which are ready to work on job work method that will reduce the burden of the company. If company follow this method it will not affect the regular production and take care in new production about defects and try to use new modified parts only. This will maintain company’s goodwill in market and within a period of two to three months all vehicles became defect free.