Question

1. 3N Nano-manufacturing purchases Anti-Static Dust-Free suits from a variety of suppliers. However, they have noticed that too many of their products must be discarded due to contamination from defective protective suits. Discarding a finished product costs much more than the suits.

a. A close inspection of the suits before use would eliminate almost all defective suits, and contaminated products, but would add some costs. What problems might emerge if 3N offered to pay a premium to suppliers to inspect their suits?

b. 3N could inspect the suits itself, but their inspection costs are double that of the suppliers. Would they want to outsource the inspection in this case? c. 3N had been contracting with multiple suppliers off and on in order to get the best price. How would a renewable long-term contract with one supplier change incentives to help get inspections done cheaply?

Answer 1

Answer to part (a)

Problems that may emerge if 3N chooses to offer premium to suppliers to inspect their suits

Increase in build up cost --Paying for inspection of suits will definitely add to the overall cost of the final product that is anti static dust free suits. As the premium offered will be charged to the costing of the product.

Increase in price of the product in the market-- Increased cost of inspection will directly be levied on the consumer. So for the consumer these increase in price may shift him to some other company . As a result 3N Nano manufacturing may lose his costumer .

No fixed inspection cost- 3N is purchasing its suits from various suppliers that means if 3N is offering a certain  premium that might be not acceptable to one or more supplier and might create chaos in pricing and costing of the product.

Answer to part (b)

If the self inspection costs are double as compared to the costs by the suppliers then 3N Nano manufacturing would like to outsource this inspection from some other party because double inspection cost would make the product over price and that may eventually be harmful for the company to retain its customers.

If the company chooses not to go for inspection that may bring to discard of contaminated suits and would build up on the cost of overall process.

Answer to part (c)

A renewable long term contract with one supplier would lead to change in incentives to help inspection done cheaply as 3N company is seeing on and off many suppliers so giving a particular supplier a long term contract may be beneficial for both parties as the supplier will get the manufacturing contact for a long-term. 3N can benefit from that if it specifies in the beginning that the company wants inspection of the products at a Particular  rate. Noticing that the 3N company wants a cheaper supplier For the inspection process of the Anti-static suit many companies or suppliers me fill the tender for it. By this 3N can get the better deal.

SUMMARY

3N Nano Manufacturing should definitely go for inspection of the suits from outsourced company or a A company with a renewable long-term contract because they have noticed so many of the products are getting discarded because of Non inspection that me lead to increased in the overall cost of the product as discarding the finished product cost more than the cost of suits.