This case is intended to be the basis for a business analysis and class discussion rather than to illustrate either effective or ineffective handling of a business situation. Companies and characters are fictitious and are not intended to represent actual companies or people. Copyright 1997 by Joseph Martinich. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the permission of Joseph Martinich or the distributor, John Wiley & Sons, 605 Third Ave., New York, NY 10158. Printed in the U.S.A.

Aero-Flow Corporation has long been a leader in producing air and fluid movement products and components for manufacturers of pneumatic and hydraulic systems. Aero-Flow's two largest product lines are its vacuum pumps and its small industrial motors. The company has always manufactured most of its own components, especially those requiring material fabrication. Continual technological advances and the appearance of new foreign competitors have made competition in these product markets quite fierce. Aero-Flow has tried to be a leader in introducing new technologies into its products. This has resulted in stunning successes for some new products, but some abysmal failures in others. To make things worse Aero-Flow has been receiving an increasing number of complaints about the quality of its products. Alex Subramanian, president of Aero-Flow called a meeting of the division managers and their immediate subordinates. Alex asked the two managers to explain why some of their products had been such failures. Ed Mack, manager of the motor division, expressed considerable frustration. "Alex, we've had some great successes. When we introduced the use of titanium and composite material parts in the Model 200 Series motors the customers loved it. We couldn't make them fast enough. Marketing kept telling us the customers loved the light weight and durability, so we started using titanium and composites everywhere we could. The other small motors sold great, but sales for the 400 and 500 series dropped. Supposedly customers complained about the higher prices, But these materials cost big bucks; we had to raise the prices." Elisa Duville, manager of the vacuum pumps division concurred. "We've had similar experiences. We used the new tetra-polymer sealer on the high-pressure wafer pumps, and the computer chip makers loved them. So we used the sealer on the bigger pumps and some customers thought they were great and others complained that they developed leakage problems after a few months of use. They claimed the seals broke. So now we don't know what to do with the bigger pump lines. Some customers want this and others want that. What are we supposed to do?" "Exactly," Ed chimed in. "How are we supposed to know what each customer wants?" "There is definitely a sealer problem; I've checked out each complaint myself," said Michael Sauter. Michael was the quality assurance and customer service manager for the pump division. "We're studying the causes now, but it looks like two possibilities. First, the customers that had seals break seem to be using the pumps in much more demanding conditions. The chip manufacturers have air-conditioned, dust-free factories, but some of our other customers, like Dalbert Chemical and Calgary Alkaline, are operating them in 100o dust-filled conditions. And they seem to run them constantly. These conditions seem to make the polymer brittle and it cracks. The second thing we noticed at several sites was that the seals separated from the components they were attached to. We checked the measurements of the components, and they were all within spec. But it sure looked to me like the gaps the seals were supposed to close were awfully big." "I found a similar problem with some of our motors," said Janet Byrd, QA manager of the motor division. Some of our customers have been reporting that the motors are not providing the power they are supposed to; some describe the problem as having a `loose' feel to them, while others claim that they seem too tight and are running hot and burning oil. I think the problem is with the cutting and fabricating operations. I visited them a couple times to check on the quality of some of the parts they're producing. Although almost every item I checked was within spec, some were very close to the tolerance limits." Alex turned to Basil Campbell, manager of the material fabrication division. "Any ideas about these problems, Basil?" "We have been having some problems cutting and finishing some of the parts made out of the new materials. The cuts are not quite as clean and we sometimes have to grind and polish off more of the material to get the smoothness we need, which can make the parts a tad smaller than the target. But we try to make sure they are within the tolerance limits. I've suggested that the machine operators cut the parts a bit big, if they are having these problems. I've also told the operators to inspect every 30 parts for size and shape rather than every 50, the way we used to, just to make sure that if there is a problem, we catch it and correct it fast. Anytime an operator finds an item out-of-spec, he's supposed to check the next two or three items closely. If he finds any more out-of-spec, he's supposed to stop the process and correct it." "What's the typical tolerance limit, Basil?" Alex queried. "It depends, but most are 0.002 to 0.010 of an inch. And the rounded parts usually have to be within 0.5% of true round." "Can we do this with our processes?" Alex asked. "We should. Supposedly all of our product tolerances are at least two or three times the so-called process standard deviations. Although with the new materials we have to fabricate, it is certainly a challenge," Basil answered. "I think the quality assurance managers and the people in fabrication need to sit down and work on this quality problem. Let's put everything on the table: what's being made, how it's being made, the tolerances, the inspection process - everything," Janet said. "I think that's a good idea," concluded Alex. "Let's meet at 8 o'clock tomorrow morning. Bring your top people. I'll invite the marketing and product design folks too. We need to solve these problems the right way. No short-term band-aid approach."