Raw output rose 10%. Why are shipments flat?
Keep defects and demand in the operating result.
The question
Rill Works observes one fully loaded hour. Each defective unit is scrapped; there is no rework. Demand is 90 good units. Each shipment contributes $5; each scrap unit incurs an additional $2 loss. Unsold good units become inventory with no sales contribution in this window. Carrying cost is excluded.
| Raw units | Good units | |
|---|---|---|
| Baseline | 100 | 88 |
| Faster setting | 110 | 88 |
| Quality repair | 100 | 95 |
These are fixed observed outcomes in an invented case, not random defect probabilities.
“Compare shipments, good inventory, scrap and contribution. Which change should proceed?”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Count what can ship
What would you do here? Open the move you’d make.
Value all 95 good units as current sales.
Tempting, but it misses something. Demand is 90, so five of the 95 good units remain in inventory.
Separate shipments from inventory.
The strong move. Shipments are capped by demand.
See how a strong candidate says it
“Baseline and faster settings both ship 88. The repaired process ships 90 and holds five good units.”
Why it works: Shipments are capped by demand.
Step 2: Count the scrap
What would you do here? Open the move you’d make.
Check good output after defects.
The strong move. Raw output minus good output is the loss.
Reward the extra ten raw units.
Tempting, but it misses something. Extra raw units can all become additional scrap.
See how a strong candidate says it
“Scrap is 12, 22 and 5 units respectively.”
Why it works: Raw output minus good output is the loss.
Step 3: Calculate contribution
What would you do here? Open the move you’d make.
Ignore scrap cost.
Tempting, but it misses something. Scrap incurs the stated $2 loss per unit.
Use shipped units and observed losses.
The strong move. Use $5 per shipment minus $2 per scrap unit.
See how a strong candidate says it
“Baseline contributes $416, faster $396, and repaired $440.”
Why it works: Use $5 per shipment minus $2 per scrap unit.
Step 4: Choose the tested improvement
What would you do here? Open the move you’d make.
Repair and verify the defect cause.
The strong move. The faster setting loses $20 and still misses demand.
Choose speed based on raw throughput.
Tempting, but it misses something. The faster trace ships no more and scraps ten extra units.
See how a strong candidate says it
“Quality repair gains $24 per hour, meets demand and leaves five good units.”
Why it works: The faster setting loses $20 and still misses demand.
The answer, in short
- Decision
- Use the quality repair; do not approve the faster setting from raw output alone.
- Because
- It meets current demand with fewer losses and higher contribution.
- What would change it
- At demand of 100, the repaired trace ships all 95 good units but still falls short by five.
Demand rises to 100 good units. How do contribution and unmet demand change?
Common traps
- Counting inventory as current revenue.
- Confusing raw and good throughput.
Check your answer
- I capped shipments at demand.
- I recorded good inventory.
- I deducted scrap losses.
- I compared the actual contribution.
Last reviewed Nov 10, 2026