OUTLINEOUTLINE

• DefinitionDefinition• Brainstorming ExerciseBrainstorming Exercise• Nuts and BoltsNuts and Bolts• How it WorksHow it Works• Exercise Exercise • SummarySummary

Consumer’s RiskConsumer’s Risk

• DefinitionDefinition• Accepting a batch of materials that are of poor Accepting a batch of materials that are of poor

quality but assuming the materials are of high quality but assuming the materials are of high quality quality

Producer’s RiskProducer’s Risk

• DefinitionDefinition• Rejecting a batch of materials that are of good Rejecting a batch of materials that are of good

qualityquality

Brainstorming ExerciseBrainstorming Exercise

• How can you minimize consumer and How can you minimize consumer and producer’s risk in your organization?producer’s risk in your organization?

Nuts and BoltsNuts and Bolts

• Types of errorsTypes of errors• Type I error – Producer’s riskType I error – Producer’s risk• Type II error – Consumer’s riskType II error – Consumer’s risk

Nuts and BoltsNuts and Bolts

• Results of Type I and Type II errorsResults of Type I and Type II errors• Lost future salesLost future sales• High costsHigh costs

Nuts and BoltsNuts and Bolts

• Statistical Quality Control proceduresStatistical Quality Control procedures• Minimization of Type I errorsMinimization of Type I errors• Large inspection sample sizeLarge inspection sample size• Higher risk of Type II errorsHigher risk of Type II errors

How it WorksHow it Works

• Acceptance samplingAcceptance sampling• used to determine whether to accept or reject productused to determine whether to accept or reject product• Can inspect 100% of products or few productsCan inspect 100% of products or few products

How it WorksHow it Works

• Acceptance samplingAcceptance sampling• Batch assumed acceptable unless statistics Batch assumed acceptable unless statistics

strongly prove otherwisestrongly prove otherwise- Ex: “The most useful analogy is the U.S. Justice Ex: “The most useful analogy is the U.S. Justice

System, where suspects are assumed to be System, where suspects are assumed to be innocent unless they are proven guilty” (Maleyeff innocent unless they are proven guilty” (Maleyeff 24).24).

How it WorksHow it Works

• The following slide provides a visual The following slide provides a visual representation of consumer and producer’s representation of consumer and producer’s riskrisk

How it WorksHow it WorksTable taken from Table taken from Managing Quality An Integrative ApproachManaging Quality An Integrative Approach

  

  State of NatureState of Nature

Product is Product is GoodGood

Product is Product is DefectiveDefective

OutcomeOutcome

Consumer Consumer Accepts Accepts ProductProduct

OKOK Consumer’s Consumer’s riskrisk

Consumer Consumer Rejects Rejects ProductProduct

Producer’s Producer’s riskrisk

OKOK

Real World ExampleReal World Example

• Consumer’s riskConsumer’s risk• Firestone tires on Ford Explorer’sFirestone tires on Ford Explorer’s

• Consumer’s thought were receiving high quality Consumer’s thought were receiving high quality product but they did notproduct but they did not

Real World ExampleReal World Example

• Producer’s riskProducer’s risk• Automotive supplier rejects a batch of harnesses Automotive supplier rejects a batch of harnesses

though the harnesses are of a high qualitythough the harnesses are of a high quality

ExerciseExercise

• Is this a consumer or producer’s risk?Is this a consumer or producer’s risk?• A manufacturer of pens rejects a lot of high quality A manufacturer of pens rejects a lot of high quality

pens due to standards that fall outside of their pens due to standards that fall outside of their allowable rangeallowable range

Exercise - AnswerExercise - Answer

• A manufacturer of pens rejects a lot of high quality A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable pens due to standards that fall outside of their allowable rangerange

ANSWER-PRODUCER’S RISKANSWER-PRODUCER’S RISK

ExerciseExercise

• Is this a consumer or producer’s risk?Is this a consumer or producer’s risk?• A house is purchased that is believed to be of high A house is purchased that is believed to be of high

quality, but within a month the plumbing has failed?quality, but within a month the plumbing has failed?

Exercise - AnswerExercise - Answer

• A house is purchased that is believed to be of high A house is purchased that is believed to be of high quality, but within a month the plumbing has failed?quality, but within a month the plumbing has failed?

ANSWER – CONSUMER’S RISKANSWER – CONSUMER’S RISK

SummarySummary

• Consumer’s riskConsumer’s risk• Producer’s riskProducer’s risk

BibliographyBibliography

• Foster, S. Thomas, Foster, S. Thomas, Managing Quality An Integrative ApproachManaging Quality An Integrative Approach, , Prentice Hall, 2001, pgs. 265, 351-352.Prentice Hall, 2001, pgs. 265, 351-352.

• Graves, Samuel B,; Ringuest, Jeffrey L.; “Producer’s and Graves, Samuel B,; Ringuest, Jeffrey L.; “Producer’s and Consumer’s Risk When Proportion Defective is,” Consumer’s Risk When Proportion Defective is,” Decision Decision SciencesSciences, Sept/Oct 1991, pgs. 753-771., Sept/Oct 1991, pgs. 753-771.

• Maleyeff, John, “The fundamental concepts of statistical Maleyeff, John, “The fundamental concepts of statistical quality control,” quality control,” Industrial EngineeringIndustrial Engineering, Norcross, Dec 1994, , Norcross, Dec 1994, pgs. 24-25.pgs. 24-25.