SPC Case Study

Mr. Raghav was dreading going to the headquarters for the quarterly review meeting today. Normally he was a cautious driver; however, today he had already jumped 2 signals. He was thinking that it would be better if a traffic-cop catches him and he somehow misses the meeting. There was a sound reason for his thoughts. He was expecting major reprimanding from the MD, and he was sure that nobody in the meeting would dare to show sympathy for him.

He recalled the events that had happened in last 6 weeks. Raghav, in charge of the manufacturing plant had had really tough problems on hand in last 6 weeks. His company was in the business of cosmetics. About 5 months back, they test- marketed a new fairness cream in packs of 100 and 200 gm. The response of the market was good and the 200 gm pack was showing signs of bumper sales. After the test launch, they had launched the product nationally just 3 months back. Marketing campaigns were going in full swing. Sales were enthusiastic and were frantically booking orders and production was also using a significant portion of their capacity to service the sales orders. There were all signs that production facility would be working round the clock, which allowed Raghav to show great performance both on volume and cost fronts. While annual sales expected this year was 200 MT, sales were expected to grow at 150-200% for this particular pack. Marketing also wished to promote 200 gm pack and withdraw 100 gm pack thus ensuring higher consumption.

The first sign of trouble came when one of the important stores complained about leaking containers of 200 gm pack. On inspection of random samples, it was found that indeed the containers used had a design problem. It was found that the engineering design was not correct. It took Raghav about 8-9 days to get the container redesigned. The supplier would have taken at least 21 more days to get a new die for the revised design, which with trials meant at least a month. An alternative suggested by the design department was to use a different material for making containers. This new raw material was stronger, but also costlier. Raghav guessed that he could still manage the cost of production within the budgets, in spite of the change in material for about 2 months. He had plans to have the manufacturing costs revised upwards in next 2 months and he was confident of pushing the proposal through, considering that the new product was appearing to be a major success.

It took the plant some money and considerable efforts to get the stock recalled from the major stores and have them replaced with the new product. Sales force had been very co-operative this time (Raghav had to use all his persuasion skills to make the sales manager issue an informal directive to co-operate). They however said that this was the last time the customers would tolerate any production problems.

They seemed to have got over the problem. The MD wanted 2 samples to be sent to him everyday. He had asked his secretary to test the containers for possible leakage problems. When for over a week, none of the samples had shown a problem, the MD had called personally to say so and Raghav felt relaxed.

That was when the disaster struck. Last week a team of inspectors from Weights and measures Department raided one of the stores and had taken samples of 200 gm pack from the stores. They had examined the contents of the pack and they had found that the net weight of the cream was 197 gm. They raided 2 more stores and picked up 10 more packs and had the examination done. The average content of the packs was 197-199 gm.

Then they raided the factory. Their timing surprisingly matched with the visit of the MD to the factory. Unfortunately he was at the packing line when they came at the packing line. He introduced himself as the MD and a deadly grin appeared on the face of the inspector. The inspector very quickly explained the purpose of his visit to the MD. He also talked about the results of the raid. The MD went to the QC department with the inspectors and to the surprise of Raghav, the samples selected had more than 20% packs with net weight below 200 gm. The inspector could not hide his glee. He wished to have an immediate meeting with the MD and the manufacturing head to which the MD reluctantly agreed.

In the meeting the inspector explained the powers given to him by the law. He mentioned that if the case were registered, the least fine that the company could expect to wriggle out of the case would be into lacks of rupees. He also expressed his unwillingness to make the matter public showing his concern about its effect on the reputation of the brand and the company.

The MD left in a state of rage 5 minutes after the inspector left. He gave only 2 days time to Raghav to correct the problem. Raghav had a talk with the inspector and he agreed to wait for 2 days before Raghav could provide satisfactory explanation or remedial action.

For next 2 days Raghav stayed back at the plant. He went over the packing process in detail. Every 2 days a fresh batch of cream was packed from the mixer. The viscosity of the cream used to slowly increase with passage of time. As a result, the machine, (which worked on timed discharge) started discharging less cream with passage of time. If a sample showed average weight below 223 gm including weight of the container, the machine was stopped and timing slightly changed to increase the discharge weight.

As per the original work instruction issued at the time of national launch, the lower action limit was set to detect variation more than 2 times SD. The weight of container was supposed to be 24-24.5 gm. The packing machine was set to discharge 201 gm with a standard deviation of 1 gm (expected process standard deviation). Packing speed was 18 containers a minute. Every 30 minutes, a sample of 5 containers was taken and weighed. If the sample mean was found above lower limits, the batch (30-min production) was allowed to pass and no change was made to the machine.

On checking the details of the batch found by the inspector at the stores, no deviation from the work instruction was observed. 2 days were almost over and Raghav had not been able to pinpoint the cause. He was sure that he was missing something, but did not know what it was.

The QC manager wanted more time to investigate. Raghav politely reminded him that they both could have as much time as they need, only if they were to tell the MD that the problem was not solved in 2 days. Reluctantly the QC manager agreed to change the discharge settings of the machine. They set the scales to detect the gross weight going below 225 gm.

Raghav tested a batch personally, taking samples during, between and at the end of the batch. None of the samples showed weight below 225 gm. Happily he instructed that a fresh batch be started. The new batch was tested in the presence of the MD and the weights and measures inspector and the batch was found OK. The inspector agreed to report that the sample he found was a random incident. He did not forget to mention that both the MD and Raghav had been very co-operative and he hoped to meet such nice personalities many times again.

After the inspector went, MD told Raghav in no uncertain terms that he did not wish to meet the inspector and Raghav should take all precaution to keep the inspector away from the company.

Next week Raghav noticed drop in the shift output. On checking with the shift supervisor, he found that there were more instances of production stoppage that week compared to the previous weeks. This trend repeated for next 3 weeks also and on investigation it was found that the packing line came to a halt due to spilling of cream on the packing conveyor. It was found that the containers were overfilled. Raghav did not dare to change the setting again.

Almost a month after those dreadful 2 days the plant accountant came to Raghav mentioning that last month production showed adverse Material Consumption Variance of about 6% over standard. Also the plant productivity had shown a drop of 8 % with respect to the last month. Raghav was sure that this was all due to changes in the packing line, but he could not say that in the meeting. The accountant said that the chief accountant also had noted this and he told Raghav that this would be the focal point of quarterly review meeting.

He informed Raghav that the packing machine was more than 5 years old and there was a capital budget sanction for new packing line in the next quarter. He also advised Raghav to meet the MD before the meeting and brief about the erratic behaviour of the old packing line so that the MD will be slightly less severe during the meeting.

The other point on agenda in the meeting was purchase of new packing machine. Raghav went through the proposals that he had on hand. One machine was promising a standard deviation of 0.6 gm. It was quoted at Rs. 35 Lakhs. Second machine was promising a standard deviation of 0.2 gm but was costing Rs. 50 Lakhs. Each machine could pack about 600 MT per year compared to current machine that could pack only 300 MT per year. The accountant told him that the manufacturing cost of cream was taken as Rs. 200/Kg and profit per pack of 200 gm was Rs. 6/- . Raghav could not think of how to link all these numbers to arrive at a meaningful conclusion. All he knew was he could not risk to have more than 0.1% of packs having net weight below 199 gm.

Can you think of what Raghav could have missed? (Hint: the container design was revised)

Comment on the current QC methods used by Raghav. If you think that Raghav is wrong set up the control chart at the current settings. Explain the method you will use to link gross and net weight of the revised container. Make suitable assumptions about empty container weight. (Hint: Inspectors finding is also a measurement.)

Can you compare the two proposals? The minimum I expect is to compare the difference in savings/ additional profit generated by each machine. Best would be to work out incremental cash flow for next year considering all accounting aspects. Make suitable assumptions for sales volume, depreciation rates, tax shield, etc.