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Question 17

A Belt working in a supply chain environment has to make a decision to change suppliers of critical raw materials for a new product upgrade. The purchasing manager is depending on the Belts effort requiring that the average cost of an internal critical raw material component be less than or equal to $3,800 in order to stay within budget. Using a sample of 38 first article components, a Mean of the new product upgrade price of $3,680, and a Standard Deviation of $120 was estimated. In order to increase the Long Term Z value to 5, what is the maximum long term variation in pricing the Belt can accept for his upgraded critical raw material component?

    Correct Answer: C

    Given the scenario, the Belt requires the mean cost of the raw material component to be less than or equal to $3,800 while achieving a Long Term Z value of 5. The sample mean is $3,680, and the current standard deviation is $120. To determine the maximum acceptable standard deviation for a 5-sigma process, we calculate the difference between the budget limit ($3,800) and the sample mean ($3,680), which is $120. This difference represents the amount allowable within one standard deviation to stay within budget. For a 5-sigma process, this allowable difference must account for 5 standard deviations, so we divide $120 by 5, resulting in a maximum long term variation of $24.

Discussion
InvisibleBeingOption: C

The observed standard deviation is +-$120, in other words if we look at the positive side the first-sigma-level will have the value of $3680 + $120 = $3800. This shows that our current process is working at 1 sigma/standard deviation level. The belt needs the process to work at a 5-sigma level instead of 1-sigma. If we multiply the current standard deviation of $120 by 5 (sigma level), we will get a value of $600, which is way over the acceptable average cost of $3800 ($3680 + 600 = $4,280). The question is asking the maximum standard deviation per sigma level that this process needs to work at to have a process under control at 5-sigma. To solve the question, we first need to get the difference between the expected average value and the observed average value, which is $3800 - $3680 = $120. Now, we need to divide this difference of $120 with 5 (expected sigma level) to find out the maximum standard deviation per sigma level, which gives us $120 / 5 = $24.

Bemi

Reaarange the formula. sigma=x- population mean/z