Keeping Up the Quality

Introduction

This report is compiled to highlight the current quality issues faced by the company and what steps are been taken to improve the quality of the product to meet the customer requirements. The company goal is to keep the customers satisfied by delivering quality products on time while making maximum profit. Therefore the total cost of production of the goods in both the short run and the long run should be minimized to gain maximum profit.

We are given a situation where we have to find the best way of making profit while satisfying the customer needs. At the moment company produce 20000 tones of coal a week using normal coal preparation techniques, at 23 Gj/t. Coal is usually sold to the customer by the energy content (Gj), and not by the weight (tonne), as it is the energy content that the customer wants. Other costs, such as transport, blending usually depend on the weight.

The local power station is the main customer of the company and requires coal with a minimum calorific value of 24 (Gj/t). Since the company was failing to meet the minimum requirement of the local power station the following methods were recommended to increase the energy content of the coal

• Method 1: Buy better quality coal and blend with the company coal

• Method 2: Adopt a different coal preparation technique

The report calculates the revenue and the cost for adopting each method and suggests what method should be adopted to maximize the company profit.

The power station has informed, because of problems with its sales of electricity, it is unable to take more that the contractually agreed amount of 20,000 tones a week from the company. The report also highlights what actions are taken to mitigate this and how much this has cost the company.

Calculations

Method 1: Buy better quality coal and blend with the company coal

The options for buying better quality coal from different sources and the cost are shown in the table 1.

First...