PB Company had encountered the problem of multiple latent defects after buying some of its products. Being latent, the defects did not show up until after machining had taken place at PB company. This challenges of defects annoyed the manufacturing manager even though it is not difficult work just that its a repetitive prolonged activity, who declared that repairing those darn products is exerting up all the profits. When the defects were discovered on the products, the rough casting had to be taken off the machine and this requires monotonous supervisory work, the defect chipped out and repair- welded, and the casting re-machined when possible. Even with this process, almost 12 percent of the incoming castings ended up as scrap. The other issue was that who will be motivated enough and show interest in such tedious exercise? Who will be satisfied with doing such job? Actually, 1200 raw materials had to be purchased and machined in order to produce 1,000 good machined ones. The raw materials cost R6000 each from either of two suppliers. Worse than the costs associated with rework and high scrap rates were the continual changes in production scheduling necessitated by a machined casting not being available as scheduled. These changes were costly because they required shop personnel to tear down the job they were working on and set up a new job. Marketing was constantly complaining about the firms inability to meet delivery commitments for the finished machinery that incorporated the castings. Marketing claimed that many sales were lost as a result of this failure.

Ndivhuho Ratshitanga, the production manager, and Nhoza Pongo, the vice president, asked John Moloto, the supply manager who is about to retire, to investigate the costs involved in supplying finished machined products. If finished products were purchased, the responsibility for finding hidden defects would be that of the supplier. Such action would encourage the supplier to improve the product quality. Pongo B would accept and pay only for finished. The internal cost of machining each incoming rough casting and repair welding and re-machining it, as necessary, was approximately R3400 per product. This figure included R1800 of direct labor and R1480 of overhead. The accounting department estimated that overhead, which was 100 percent of direct labor, consisted of 50 percent variable and 50 percent fixed costs. No estimate was available on the cost of disrupted production schedules and operations.

John tended to work late at night and he immediately grabbed the bull by its horns and approached all his major suppliers of raw materials and even visited some of the factories even when their environment was toxic in an attempt to generate interest for the supply of finished machined products regardless of his anxiety disorder. Only one supplier, Makhungo Foundry, showed genuine interest. Of major concern to all the foundries was the R1200000 to R1600000 investment necessary to set themselves up to machine the raw materials. Makhungo was willing both to invest in the necessary machines and to guarantee delivery of up to 150 units per monthprovided Pongo B would contract with it as a sole

source for the castings for the next three years. The price per product would be R10000 the first year, with an annual increase or decrease in price tied to an appropriate economic index.

John was faced with the problem of deciding whether to recommend contracting with Makhungo Foundry for finished products, continue as in the past buying rough products, or developing a more attractive alternative as time is of great concern. The Pongo B machine shop was currently operating at 90 percent of capacity, but it was not possible to make a reliable estimate of what would happen in the next few months, let alone the next three years. The decision of whether to buy finished products or raw materials was of major money importance to Pongo B because the firm used at least 1,000 finished products per year and anticipated that this usage would continue for each of the next five years.

While John was still busy facing his own rigorous challenges; Mashudu Ramanala; the engineering manager has also come up with excellent idea in the engineering department, the department had recently introduced a new line of electric shavers for women. In the product design stage of the new product, the sales department had conducted an extensive marketing research survey to determine exactly what style-color combinations best suited the market for this new product. Not only has this been a good development but, it has also afforded the new method of working, this has made the department to get away with chairs, meaning that workers no longer need to work while they are sitting as this has always caused the back injuries, the style will require staff to work while standing so they can protect their back. The style finally selected was an extremely modish plastic case with an entirely new shape of cutting head. Unfortunately, no commercially available fractional horsepower motor could be fitted into the desired style of case. It was, therefore, necessary to have a supplier develop the required motor.

The vice president discussed the problem with the sales representatives of several suppliers. One of the persons contacted was the sales vice president of the Mbambo Company, which had been one of Pongos suppliers for years and was known to have one of the best developmental groups in the small mechanical field. In his conversation with Mr. Ramanala, the Mbambo company vice president expressed confidence that his firm could do the job, and he even roughed out a proposed method of attacking the problem, although it will require heavy items to be carried out, which will need a lot of affords that will consume a lot of vitality. Mr. Ramanala and his team were so impressed by the approach of the Mbambo Company and even stated that his staff is mainly men and energy is not an issue as compared to presentations of the other companies contacted, that it was decided to award the development work to Mbambo. In setting up the contract for this development work, it was discovered that the Mbambo Company had a rigid policy of billing separately for developmental services only on government contracts. For all other work, the Company recovered development costs through sale of the products that were developed. Consequently, the shaver was developed by Mbambo on a no

charge basis simultaneously with the product design work. Mbambo was very cooperative and made several modifications to the original design specifications. Finally, ten handmade products of the final design passed rigorous quality control checks by Pongo engineers. These prototypes were also provided on a no charge basis within two weeks of contract agreement, Prototyped were delivered in multiple boxes whereby Pongo staff just carried them single handedly with no fuss.

What advice would you give Mbambo staff that were carrying prototype boxes