THE MANAGER'S MEMO
FROM: P. Dawson, Purchasing Manager
TO: F. Baumgartner, Vice President, Small-Cars Division
RE: Alternative Supplier of Seat Belts
The representative of a potential supplier has informed me that his company can supply us with seat belts made of a new material. The primary advantage of using this supplier is that the new material is less expensive. At our present rate of production, switching to this manufacturer could save our company $3 million a year.
According to the sales rep, the new seat belts are like the standard ones in every way except that they are slightly less strong. In crash tests, the seat belts tear apart in 1 in 10,000 tests. This seems like minimal risk, although the standard seat belts never tear apart in crash tests. (As an aside, I checked with the legal department and learned that the average settlement for a death of a driver of one of our cars when we were held liable is $1 million).
Considering the competitive pressure we are under, this alternative supplier may be a wise choice. I am, of course, aware that the company is considering closing the Mill City plant in order to cut costs. Perhaps the savings from this alternative supplier would enable us to keep the plant open, saving 500 to 1,000 jobs.
Let me know whether you want to try the new seat belts in your division's cars.
CASE DISUSSOION QUESTIONS
Based on what you have learned about individual decision making, assume that you are the vice president of the Small-Cars Division, and write a memo describing your decision. Consider whether your decision is a rational one and, if it is not, why is it not.