¶ … mallets are not meeting the customer specifications. This could cost Stooges significantly, for a couple of reasons. The first is that returns and products not to spec represents a waste of materials -- a cost of goods sold that will not be offset by revenues. Further, the company expanded on the basis of its contract with Slapstick. Its quality reputation helped land it this deal. The major problem here is that if the Slapstick cancels the contract because of these quality issues, then Stooges is going to face major solvency problems, without their biggest customer and with a debt overhang from their expansion. There are several underlying issues that all contribute to the quality problems. The first is that there is a lack of quality culture at Stooges. The company was successful at quality control when it was smaller, and management seems to have assumed that this quality culture was inherent, did not need to be taught, and would carry over after the expansion. That assumption shows a lack of leadership with respect to quality, and it is therefore no surprise that the company lacks formal systems and that its quality outcomes were less than desirable.

The lack of a coherent quality management system is clearly an issue, as management has never put one in place. Even now, the company is not entirely sure why the problems are occurring, which should raise a red flag about its preparedness to overcome this issue. Without facts and analysis, Stooges right now is a long way from solving its quality problems. A system with objectives, tactics, training and measures needs to be put into place as soon as possible.

There are more minor issues as well. With the expansion, the company added another shift and this has clearly lowered...

Running with three shifts creates a number of problems. There are more workers, and there are periods (overnight) when there is no senior management presence on site. Further, running three shifts reduces the opportunity for maintenance on the equipment. Workers overnight are also more likely to be tired and make mistakes. Another issue is the pressure that the workers are under with the new contract. Pressure creates a motivation in the workers to relieve that pressure. Thus, if management does not specifically orient workers towards quality objectives, the workers will assume that output is the most important objective, and work towards output, sacrificing quality if need be. This misguide motivation is compounded by the lack of a strong quality control culture and the lack of coherent quality control systems at Stooges. Just in time delivery has been cited as a source of the pressure, but JIT has been implemented by companies all over the world without having these problems -- management's response to JIT is the problem.
Facts

The spreadsheet with the test data on the diameters of the cut reveals how the company is performing with respect to quality. According to the calculations, 39 samples out of 150 were found to be out of spec, a total of 6%. Of these, all 9 were cut to a smaller size than the allowable deviation. Only 9 in total (6%) were cut exactly to 16.5 inches.

The error rate of 6% is entirely unacceptable. This means that if 10,000 mallets are inspected at random, 600 would not be to the customer's specifications. These types of numbers confirm that the problem is as bad as was thought. Not only is the contract at risk, but the 6% reject rate must eradicate the profit margin that…