NZ-29 is a raw material and an important ingredient in a special plastic used in automobile bumpers. The raw material costs $0, 50 per bumper. The plastic costs $5/bumper. The bumpers have a variable manufacturing cost of $25 each. MHN Motor Company buys the bumpers from the bumper supplier for $40 each and assembles them into its autos. When a repair shop orders a replacement bumper, it buys bumpers for $100 each and charges the car owner $250 including labor cost to replace it.
The original raw material has a bad batch that goes into 10.000 front bumpers. While the bad raw material originally costs $5000, the problem is not discovered until all 10.000 cars have been sold. The government requires MHN Motors to recall all the cars and have their front bumpers replaced.
1. What is the rough estimate of the failure cost to the company? Explain how you made that estimate.
2. Explain the supply chain (production) steps between problem creation and its ultimate effect. Describe how the problem could have been detected at two or more of these steps, and how they would have been dealt with if they had been detected. Don't just point out the obvious (e.g., that it would be best if the problem was stopped at the source). Consider all opportunities for catching problems and what is needed to deal with the problem at that step.