The company wants to lower material costs roughly 5% - 10% by switching to a new material in its production process. However, sensors made with this material overheat and malfunction, passing the Three Sigma performance test, but failing the company's renowned Four Sigma testing standard. Key customers in the health care industry depend on sensors with a high level of performance. They demand products that meet the Four Sigma seal of 99.38% reliability whereas the Three Sigma standard only signifies an error-free rate of 93.3%. So, while sensors made from the less expensive material can be sold at a more competitive price point, the risk of defects is much higher, 6.7% vs. 0.62%. Additionally, the legal department recommends changing the company's standard warranty for all its products to reduce overall liability and lesson the number of overall warranty claims.

Teams are presented with four options:

1. 1. Do nothing
2. 2. Seek Board approval for the warranty change, put the new alloy into full production across all product lines and ask marketing to update the warranty materials without publicly announcing the revisions.
3. 3. Seek Board approval for the warranty change, put the new alloy into full production across all product lines and ask marketing to update the warranty materials as well as have the sales reps quietly communicate the warranty changes to existing customers.
4. 4. Continue to produce Four-Sigma-Rated products with the traditional alloy. You do not seek Board approval for the warranty change, electing to keep the current warranty language. Ask production to continue to seek ways to improve the reliability of the newer alloy with the goal of achieving lower material costs.

 

Prepare a Brief Report that addresses the following questions regarding the Vignette:

1. Summarize the key issues in this case study.
2. After reading this issue, you are asked to make a decision. Who will benefit from your actions, and who won't?
3. As managers of your company, what is your stake here?
4. Assume there is a right decision and a wrong decision, what would you consider to be a wrong decision? Why?
5. Are these decisions fair? Are they legal?
6. Which decision did the Team choose? Why?
7. Provide any final thoughts on this case study.

Answer rating: 100% (QA)

Key Issues The company is looking to lower material costs by switching to a new material but this material has a higher risk of defects and does not m... View the full answer