1. Consumer and Producer’s Risk Jill Sefcik OISM 470W Section #1

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

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

4. Producer’s Risk Definition Definition Rejecting a batch of materials that are of good qualityRejecting a batch of materials that are of good quality

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

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

7. Nuts and Bolts Results of Type I and Type II errors Results of Type I and Type II errors Lost future salesLost future sales High costsHigh costs

8. Nuts and Bolts Statistical Quality Control procedures Statistical 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

9. How it Works Acceptance sampling Acceptance 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

10. How it Works Acceptance sampling Acceptance sampling Batch assumed acceptable unless statistics strongly prove otherwiseBatch 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).

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

12. How it Works Table taken from Managing Quality An Integrative Approach State of Nature Product is Good Product is Defective Outcome Consumer Accepts Product OK Consumer’s risk Consumer Rejects Product Producer’s risk OK

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

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

15. Exercise 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 pens due to standards that fall outside of their allowable rangeA manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range

16. Exercise - Answer A manufacturer of pens rejects a lot of high quality pens due to standards that fall outside of their allowable range 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

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

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

19. Summary Consumer’s risk Consumer’s risk Producer’s risk Producer’s risk

20. Bibliography Foster, S. Thomas, Managing Quality An Integrative Approach, Prentice Hall, 2001, pgs. 265, 351-352. 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. 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. Maleyeff, John, “The fundamental concepts of statistical quality control,” Industrial Engineering, Norcross, Dec 1994, pgs. 24-25.