Consider a simple three-step manufacturing process as illustrated in the given figure.
Assuming that demand is 1,000 units, what is the required input to meet demand? You’ll note that the required input is the same if the scrap rates are reversed for processes 1 and 3. Assume that the scrap cost is $5 at process 1, $10 at process 2, and $15 at process 3. The defective rates are 3%, 5%, and 7%, respectively. Compute the total scrap cost for the given system and the system where the scrap rates are reversed. Which system would be preferred