Nonfinancial measures of quality and time. (CMA, adapted) Eastern Switching Co. (ESC)

produces telecommunications equipment. Charles Laurant, ESC’s president, believes that product quality is the key to gaining competitive advantage. Laurant implemented a total quality management (TQM) program wi* an emphasis on customer satisfaction. The ^management:

following information is available for the first year (2008) or the 1QM program quality, time, and the compared to the previous year.

2007 2008 Total number of units produced and sold 12,000 13,200 Units delivered before scheduled delivery date 8,500 9,900 Number of defective units shipped 480 396 Number of customer complaints other than for defective units 500 517 Average time from when customer places order for a unit to when unit is delivered to the customer 30 days 25 days Number of units reworked during production 600 627 Manufacturing lead time 20 days 16 days Direct and indirect manufacturing labour hours 108,000 132,000 2.
Required I. For each of the years 2007 and 2008, calculate

a. Percentage of defective units shipped

b. Customer complaints as a percentage of units shipped

c. On-time delivery rate

d. Percentage of units reworked during production On the basis of your calculations in requirement 1, has ESC’s performance on quality and timeliness improved?
Philip Larkin, a member of ESC’s Board of Directors, comments that regardless of the effect that the program has had on quality, the output per labour-hour has declined between 2007 and 2008. Larkin believes that lower output per labour-hour will lead to an increase in costs and lower operating income.

a. Flow did Larkin conclude that output per labour-hour declined in 2007 relative to 2008?

b. Why might output per labour-hour decline in 2008?

c. Do you think that a lower output per labour-hour will decrease operating income in 2008?
Explain briefly.