SPC's effect on Competitiveness:

The government invites two companies to bid for a contract to produce 100 flightline avionics maintenance systems. The design isowned by the air force, and the air force will provide all necessarydocumentation to the successful bidder. Both companies understand the requirements of the contract, and both are equipped andhave the know-how to manufacture the devices.Company ABC, with no SPC experience, develops a conservative proposal, accounting for 25% rework in its manufacturinglabor costs, padding materials costs by 10% in anticipation of scrappage, and allowing for inspection sufficient to smoke out most ofthe defectscalculated at 20% of the basic manufacturing labor.Company XYZ, which uses SPC in all its manufacturing processes, bids rework and scrap at much lower rates and includes onlyenough inspection to audit processes and meet the customer's ownminimum inspection criteria.The following chart compares the bids from the two companies:

Company ABC Company XYZ

Assembly labor $200,000 $200,000

Rework labor 50,000 (25%) 8,000 (4%)

Inspection labor 40,000 (20%) 4,000 (2%)

Materials 550,000 505,000

Totals $840,000 $717,000

With a difference of $123,000, there can be no doubt thatCompany XYZ will win the contract. Not only is Company ABC'sbid 17% higher, but also one would be safe in predicting that itshigher-priced product would be inferior to XYZ's product. SPC isthe only difference here.

Discussion Questions:

1. How would you rate the comparative competitiveness of thetwo companies?

2. If you work for a company that does not employ SPC, howcould SPC help the firm?