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operations were equal to B&L Inc.'s and B&L GmbH's respective
standard costs of such parts or materials plus (1) 15 percent in
1983, (2) 20 percent in the first six months of 1984, and (3) 30
percent for the remainder of 1984 through 1987. Both B&L Ireland
and B&L Hong Kong communicated with their suppliers (i.e., B&L
Inc. and B&L GmbH with respect to B&L Ireland and B&L Inc. with
respect to B&L Hong Kong) to identify and improve quality prob-
lems with respect to the parts they purchased from them.
B&L Ireland and B&L Hong Kong were responsible for managing
and controlling the parts and materials used in their respective
sunglass assembly operations. Each company maintained part
numbers for each of the parts and materials that it purchased and
used those part numbers for inventory control and management
purposes. B&L Ireland and B&L Hong Kong typically received parts
in boxes containing 50 or more units of a single item (i.e., a
single part number). Each box of 50 or more units was referred
to as a lot.
At B&L Ireland, the quality assurance department inspected
purchased parts (incoming inspection) to screen out nonconforming
or defective parts, identify problems that might arise during the
production process, and identify opportunities to work with its
suppliers to improve quality. To perform the incoming inspec-
tion, a trained inspector selected a random sample of parts from
each lot, examined the parts visually and with various gauges and
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