How reliable is Reliable1

"Our Quality control is excellent. We do check the quality at each stage of the
production. Of all the ICs we produce, only 5 out of every thousand are defective and
this is based on this year's data", said Mukund Roy. He is the General Manager,
Production of the NS International Semiconductors (NSIS).

"Do you test these ICs before dispatch to the client?" asked Naveen. Naveen is
representing Reliable Devices (India) Limited (They always say "Reliable is reliable").
His company has developed, recently, a device and an associated testing procedure for
the ICs.

"As I said, we check the quality at each stage. There is no reason for testing them again",
replied Mukund. "Only 0.5% of our ICs are returned from our customers and we always
take care of them. But, of course, if your device is 'fail safe', we may decide to avoid the
costs involved in handling the defectives. How reliable is your system?"

Naveen is happy for the opening he got. He had done his home work, thanks to the
access provided by the company during his earlier visits. "I have tested your ICs on our
device using our procedure, lets call it our system. The results are very encouraging. We
collected 200 ICs which were returned by your customers as defective, and tested them
using our system and our system was able to diagnose all but 2 of them as defective. Of
course, we tested the ones which are certified as non-defective, about 160 of them and,
get this, all but 8 were accepted by our system as good as gold. I agree, our system is not
absolutely accurate but it is as absolutely accurate as ever possible. We always say
Reliable is reliable", said a confident Naveen. "It takes only 2 minutes to mount and test
each IC."

Mukund quickly did some calculations. Their ICs are used by many customers and they
go into many end products. The customers don't bother to test the ICs before they are
used. This is because of the company policy that not only the IC is replaced, free of cost,
but the entire cost incurred by the customer because of the defective IC is also
reimbursed. The Finance people have always been complaining about the accuracy of the
these costs as estimated by the customers. If we can catch the defectives before they are
shipped out,..., Mukund was thinking. But is Reliable really reliable?

11 V Nagadevara, Indian Institute of Management Bangalore