Read the attached mini-case then answer the following questions:
1. Describe the quality-related mistake or mistakes that occurred in this case. 2. What are the pros and cons of selling the shoes? 3. What are the pros and cons of destroying the shoes? 4. What should AFI's executives do - sell the shoes or destroy them? Explain your reasoning.
The Product Is Inferior, but the Profits Are Good
The executive management team of Athletic Footwear Inc. (AFI) faces both a threat and an opportunity. The threat is that unless it can find a buyer for a large production run of soccer shoes, the company is going to lose a lot of money. The opportunity is that the vice president of marketing has found a buyer. The problem is that although this batch of shoes is the company’s best-selling, most popular model, the shoes are defective. Several months earlier, AFI’s management team had decided to save on production costs by using a different glue provided by a new supplier. The glue came highly recommended, and it was much less expensive than that previously used. Consequently, AFI’s management team had jumped at the opportunity to save money without first running in-house tests on the glue. Much to their dismay, the new glue turned out to be inferior to that normally used when securing the sole of the shoe. Now, the company is stuck with a warehouse full of defective shoes. Normally, the company would simply write off the defective shoes and absorb the loss. However, the company has just gone through a year-long battle to stave off a hostile takeover. As a result, its coffers are practically empty and its debt has nearly doubled. Nobody seated around the table in the executive conference room is in a mood to just absorb the potential loss they face. Legal action against the supplier has already been ruled out for fear of permanently damaging the company’s image and credibility. Nobody wants the company’s regular customers to know that a defective batch of shoes was produced. Management doesn’t want customers thinking, “If AFI produces one large batch of defective shoes, maybe it will produce another.” The potential buyer is a distributor that has retail outlets throughout South America. This company is even willing to pay more than the market price for the shoes in order to be the first distributor in South America to carry the AFI brand. No sport in South America is more favored than soccer, and the AFI soccer shoe is very popular in the United States, Canada, and Europe. The shoe has a reputation for being comfortable and durable. It lasts a long time in even the most demanding conditions. But the defective batch in question won’t; in fact, based on initial trial runs, the soles will probably begin to separate after less than 20 hours of use.