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Assume a company has a 10% scrap rate. For every 100 parts it ships it must produce, at least in part, 110

Assume a company has a 10% scrap rate. For every 100 parts it ships it must produce, at least in part, 110. If through the use of SPC the scrap rate can be lowered to 3%, then 7 fewer parts must be produced to ship every 100 parts in the order. This improvement in quality has a net effect that is the same as a productivity and capacity increase of 7%. This is in addition to the associated reduction in quality costs.

Assumptions:

1. To raise profits by $100

2. You are in a 33% duty and stamp tax bracket

3. Your profit rate is the same as the national average (about 5%)

Calculate 2 ways to raise your profits:

1. increase sales (how much do we have to generate in sales to make a $100 in profit)

2. reduce costs ( how much do we have to save to make a $100 profit?)­čśĽ

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