Operations and Technology Management Case Study: Product Recall

Facts:

An automobile manufacturer is conducting a product recall after it was discovered that a possible defect in the steering mechanism could cause loss of control in certain cars.  The company’s policy is to pay the dealer a fixed amount for each repair.  It was then decided that a rate of $88 per repair would be appropriate, based on a flat hourly rate $22 per hour and a 90 percent learning rate.

Shortly after dealers began making repairs, the company received word that several dealers were encountering resistance from workers who felt the flat rate was much too low and who were threatening to refuse to work on those jobs.  One of the dealers has collected data on job times and has sent that information to the company: Three mechanics each completed two repairs.  Average time for the first unit was 9.6 hours, and average time for the second unit was 7.2 hours.  The dealer has suggested a rate of $110 per repair.

You have been asked to investigate the situation and to prepare a report.          

Problems:

1. Prepare a list of questions that you will need to have answered in order to analyze this situation.
2. Prepare a list of observations regarding the information provided in the case.
3. What preliminary thoughts do you have on solutions/partial solutions to points you have raised?

Solutions:

1. List of questions:
   1. Whether or not the company engineers decision of charging $88 rate per repair is reasonable.
   2. Whether or not the 4 hours repair time set by the company engineers is realistic.

1. List of observations:
   1. Company engineers decision:

Hourly rate = $22

Rate per repair = $88 ($22 per hour x 4 hours)

Learning rate = 90%

1. Dealers recommendation:

                           Average time for the 1^st unit repaired = 9.6 hours

                           Average time for the 2^nd unit repaired = 7.2 hours

                           Suggested rate per repair = $110

1. Preliminary solutions addressing questions raised in item no.1 and taking into account observations listed in item no. 2:

Arithmetic Procedure:

 

Logarithmic Procedure:

Y2	=	(4) (2) log 0.9/log 2
	=	(4) (2) -0.322
	=	4/(2) 0.322
	=	4/1.25
	=	3.2

Therefore: three repairs in an hour