Transcript Consumer and Producer's Risk

Consumer and Producer’s Risk
Jill Sefcik
OISM 470W
Section #1
OUTLINE
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Definition
Brainstorming Exercise
Nuts and Bolts
How it Works
Exercise
Summary
Consumer’s Risk
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Definition
• Accepting a batch of materials that are of
poor quality but assuming the materials are
of high quality
Producer’s Risk
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Definition
• Rejecting a batch of materials that are of
good quality
Brainstorming Exercise
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How can you minimize consumer and
producer’s risk in your organization?
Nuts and Bolts
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Types of errors
• Type I error – Producer’s risk
• Type II error – Consumer’s risk
Nuts and Bolts
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Results of Type I and Type II errors
• Lost future sales
• High costs
Nuts and Bolts
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Statistical Quality Control procedures
• Minimization of Type I errors
• Large inspection sample size
• Higher risk of Type II errors
How it Works
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Acceptance sampling
• used to determine whether to accept or reject
product
• Can inspect 100% of products or few products
How it Works
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Acceptance sampling
• Batch 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).
How it Works
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The following slide provides a visual
representation of consumer and
producer’s risk
How it Works
Table taken from Managing Quality An Integrative Approach
State of Nature
Outcome
Product is
Good
Product is
Defective
Consumer
Accepts
Product
OK
Consumer’s
risk
Consumer
Rejects
Product
Producer’s OK
risk
Real World Example
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Consumer’s risk
• Firestone tires on Ford Explorer’s
• Consumer’s thought were receiving high
quality product but they did not
Real World Example
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Producer’s risk
• Automotive supplier rejects a batch of harnesses
though the harnesses are of a high quality
Exercise
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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 range
Exercise - Answer
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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
Exercise
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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?
Exercise - Answer
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A house is purchased that is believed to be of
high quality, but within a month the plumbing has
failed?
ANSWER – CONSUMER’S RISK
Summary
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Consumer’s risk
Producer’s risk
Bibliography
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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.
Maleyeff, John, “The fundamental concepts of statistical
quality control,” Industrial Engineering, Norcross, Dec
1994, pgs. 24-25.