Compensation for Honda Dealers
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Honda Motor Company has discovered a problem in the exhaust system of one of its automobile lines and has voluntarily agreed to make the necessary modifications to conform with government safety requirements. Standard procedure is for the firm to pay a flat fee to dealers for each modification completed.
Honda is trying to establish a fair amount of compensation to pay dealers and has decided to choose a number of randomly selected mechanics and observe their performance and learning rate. Analysis demonstrated that the average learning rate was 90 percent, and Honda then decided to pay a $60 fee for each repair (3 hours x $20 flat-rate hour).
Southwest Honda, Inc., has complained to Honda Motor Company about the fee. Six mechanics, working independently, have completed two modifications each. All took 9 hours on the average to do the first unit and 6.3 hours to do the second. Southwest refuses to do any more unless Honda allows at least 4.5 hours. The dealership expects to perform the modification to approximately 300 vehicles.
What is your opinion of Honda's allowed rate and the mechanics' performance?
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Solution Summary
Solution compares the compensation amount offered to and demanded by Honda dealer.
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Please refer attached file for better formatting.
According to information provided by Southwest Honda, Inc.,
Time needed for first modification=P1=9 hours
Time needed for Second modification=P2=6.3 hours
Learning rate=6.3/9= 70.00%
Slope of learning curve=ln(learning rate)/ln(2)=c=-0.51457
Let us calculate number of units needed to reach a provided average level of 3 hours.
Unit # Unit improvement factor Cumulative factor Total time needed Average time
m m^c CF TT=P1*CF TT/m
1 1.0000 1.0000 9.0000 9.00
2 0.7000 1.7000 15.3000 7.65
3 0.5682 2.2682 20.4136 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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