Specialty Distilled Chemicals Corporation

Producer of high-value, small quantity chemicals is troubled by inaccurate weighing and filling which result in customer complaints of shortages. Considering that competition is based on customer service, the president is anxious to pinpoint the extent and case of the problem. Machinery and labor problems might be responsible, assuming that there are shortages in completed inventory. A sample has been taken of five items, and the question is whether to sample further, to refill and reprocess, or to ship somewhat more than the customer wants. Excerpt UVA-QA-0051 Specialty Distilled Chemicals Corporation Wiping his hand across his forehead, Mr. Robert Bannerman put down the telephone. He had just received the third call in a week complaining about a shipment that had averaged on the short side. To compound his irri­tation, he had learned the week before that consumption of material in the previous month was substantially in excess of the amounts needed given the output of finished goods. Since he knew that there had not been a change in work-in-process, Mr. Bannerman presumed that either there had been considerable waste or that some orders had been overfilled. Specialty Distilled Chemicals Corporation, of which Mr. Bannerman was president, was a small, regional processor and compounder of specialty chemical products. The company's line was a broad one, with its products typically being packaged in small units of high value. Individual containers ranged from one quart to 10 gallons and seldom were larger than 50 gallons. Although the composition of Specialty's products required great care, packaging them was less difficult. Weight sensitive machinery was used, but frequent changes in product, slight variations in density between batches, and the impact of certain compounds on the machinery itself adversely affected accuracy. Specialty Distilled Chemicals was one of 15 odd companies competing in a large metropolitan area. Competition was generally on the basis of customer service rather than on price because all firms could purchase raw materials at about the same cost. Margins were satisfactory but not generous, a situation Mr. Bannerman found tolerable given the relatively low fixed costs and high variable labor and material requirements. . . .