solution

Quality Assurance and Purchasing Cycle ACME ACME is a large assembler of domestic electrical appliances. In keeping with a policy of substantially reducing its supplier base, ACME had only one supplier of component 149 used in the manufacture of domestic cleaner. The home and export sales amount to over 10,000 products. Component 149 is relatively cheap but has a high safety risk factor, one requirement being that the component should be adequately insulated to obviate any possibility of users receiving an electrical shock. Component 149 is supplied by Elston Electrical Industries plc. Elston was selected by ACME some six years ago from a shortlist of five potential suppliers. The selection criterion was that Elston was considerably cheaper in price than the nearest of its competitors. Additionally Elston had relevant BS EN ISO certification, and a thorough independent review of its quality system had been carried out by ACME’s design and purchasing staff. Elston delivers 750 items of component 149 to ACME at 2 days’ supply. A condition of the contract is that there is no need for ACME to carry out any independent inward inspection of component 149. Until recently there has been no record of any failure in the quality of components supplied by Elston. ACME has therefore regularly renewed the contract on a yearly basis subject only to agreed price increases. Confidence in the quality of the component supplied has resulted in no audit by ACME of Elston’s quality systems since the placing of the original order. ACME has recently started to ve complaints from retailers wh een approached by users of the cleaner who have had slight shocks. More seriously, a letter from a solicitor has threatened court action because it is claimed that the death of a user with a weak heart is attributable to the shock received. Adverse publicity regarding the cleaner has also appeared in the national press and there has been a fall-off in sales. Investigation shows that the shocks are due to component XYZ. Further investigation reveals that Elston, without notifying ACME, had decided a cheaper insulation might be used for component XYZ thereby enabling Elston to maintain its price differential by reducing their costs. Even worse, the failure can only be detected after assembly. ACME had decided to recall some 35,000 cleaners sold during the last four months. Elston has also been instructed that the insulation must revert to the original standards, but Elston states that it will Page 2 of 3 be at least 14 days before its own supplier can meet this requirement and that a price increase will also be necessary. In the meantime, assembly at ACME will be at standstill. Question: III Page 2 of 3 be at least 14 days before its own supplier can meet this requirement and that a price increase will also be necessary. In the meantime, assembly at ACME will be at standstill. Question 1. In the case of ACME, critically evaluate the contributions that purchasing function of a firm can deliver with respect to the assurance of product quality. (60 Marks) 2. Tabulate the potential costs that ACME are likely to incur as a result of the quality failure. (20 Marks) 3. What constructive action should ACME take to restore the reputation of its product?