On a purely economic view, I can't imagine the practice of letting faulty products out the door can do anything by hurt the company's bottom line. There's the potential of costs in returns and repair, but the biggest cost may be in goodwill. As you can see from Made by Monkeys postings as well as the discussion boards, a customer who gets a bad product will talk to a lot of customers and potential customers. That's gotta cost.
Rob, I think you're right. There have been tons of studies done that demonstrate and verify this simple principle: people complain to each other about lousy products and bad service. Even more important, trying to reverse the effects of bad press, deserved or not, is not only nearly impossible but can backfire. It's mind-boggling that these messages don't seem to have been driven home for some companies.
It's amazing that they let it get this far. Knowing that this is the attitude of that particular company, I wonder if the engineers will continue to specificy its products in the future. And if word starts getting out about that company's name....
"Either a notification when the order is placed (a red flag in the manufacturer's order entry system to let the buyer know), or how about a warning label on the box, or an insert with the installation instructions?"
In semiconductor products (ICs, memory, ASICs, etc.), the customary practice is to indicate on the product's data sheet (online web page), and on all summary and selector guides, the phrase "Not recommended for new designs." That tells it all, without having to indicate that a part doesn't behave as expected. The savvy engineer either avoids the part or inquires about the fault.
Insert that phrase into your favorite search engine to see how widely it is used.
In today's world of tweets and Facebook chatter, companies--be they consumer focused or industrial--can really pay the price for letting faulty products out the door. Rob is right--there's a huge price to pay for that, both financially and in taking a hit on your brand reputation. But I have to agree with the others that the bigger lesson for engineering is getting the product right the first time.
I would think the economics of this are very clear. Sending bad products out the door will cost more in the long run than fixes would cost. Given that, this story is probably one of line managers rather than executives. This decisions was probably made to meet a quota, and those directly involved were probably hoping those at the top wouldn't notice anything except that the quota was met.
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