Question

TOPIC # 2: Please give one real world example of an External Failure Cost that affects the company you work for or any other company you know of? How can the company reduce this cost?

Some things to consider - how does this relate to your job? How does this relate to a business that you know about? If you don't have a job, then try to relate the topic to a business or industry that you are interested in

Answer 1

External Failure Costs

Well, these are the kind of costs that are incurred on account of product FAILURES AFTER THE SALES HAVE BEEN MADE.

A perfect example of such costs would be WARRANTY COSTS

I am going to give you an example of a company that manufactures DIALYSIS MACHINES.

These machines are sent out to the hospitals and clinics after the sales are made. But there are a lot of warranty calls post sales. Most of these calls are just after the machines are installed. By just after I mean less than two weeks.

Such calls can very easily be avoided. This will save a lot of company money as well.

The trained company engineers who go to fix the machine must be the ones who go to install the machines as well. Not just that, these trained engineers must impart some sort of training to the staff at the hospital and the clinics, so that minor breaks can be avoided and fixed as well.