OUTLINE

1. OUTLINE • Definition • Brainstorming Exercise • Nuts and Bolts • How it Works • Exercise • Summary

2. Consumer’s Risk • Definition • Accepting a batch of materials that are of poor quality but assuming the materials are of high quality

3. Producer’s Risk • Definition • Rejecting a batch of materials that are of good quality

4. Brainstorming Exercise • How can you minimize consumer and producer’s risk in your organization?

5. Nuts and Bolts • Types of errors • Type I error – Producer’s risk • Type II error – Consumer’s risk

6. Nuts and Bolts • Results of Type I and Type II errors • Lost future sales • High costs

7. Nuts and Bolts • Statistical Quality Control procedures • Minimization of Type I errors • Large inspection sample size • Higher risk of Type II errors

8. How it Works • Acceptance sampling • used to determine whether to accept or reject product • Can inspect 100% of products or few products

9. How it Works • Acceptance sampling • Batch assumed acceptable unless statistics strongly prove otherwise • Ex: “The most useful analogy is the U.S. Justice System, where suspects are assumed to be innocent unless they are proven guilty” (Maleyeff 24).

10. How it Works • The following slide provides a visual representation of consumer and producer’s risk

11. How it WorksTable taken from Managing Quality An Integrative Approach

12. Real World Example • Consumer’s risk • Firestone tires on Ford Explorer’s • Consumer’s thought were receiving high quality product but they did not

13. Real World Example • Producer’s risk • Automotive supplier rejects a batch of harnesses though the harnesses are of a high quality

14. Exercise • Is this a consumer or producer’s risk? • A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range

15. Exercise - Answer • A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range ANSWER-PRODUCER’S RISK

16. Exercise • Is this a consumer or producer’s risk? • A house is purchased that is believed to be of high quality, but within a month the plumbing has failed?

17. Exercise - Answer • A house is purchased that is believed to be of high quality, but within a month the plumbing has failed? ANSWER – CONSUMER’S RISK

18. Summary • Consumer’s risk • Producer’s risk

19. Bibliography • Foster, S. Thomas, Managing Quality An Integrative Approach, Prentice Hall, 2001, pgs. 265, 351-352. • Graves, Samuel B,; Ringuest, Jeffrey L.; “Producer’s and Consumer’s Risk When Proportion Defective is,” Decision Sciences, Sept/Oct 1991, pgs. 753-771. • Maleyeff, John, “The fundamental concepts of statistical quality control,” Industrial Engineering, Norcross, Dec 1994, pgs. 24-25.