OM2012

The Case of the Faltering Factory

An engineer with a flair for production management was the principal owner and founder of a company in Los Angeles. He had a special talent for working with airplane manufacturers, taking their designs of various small devices and subcontracting component parts, and producing them on a commercial basis. He operated a small plant in which he assembled the parts which were entirely purchased from outside and tested and shipped the completed assemblies. Subsequently, to meet the competition that sprang up, he decided to manufacture his own parts, which represented the greater part of the total value of his products. To have a favourable labour market and a climate that was good for his type of manufacturing, he located his new plant in Arizona, several hundred kms from Los Angeles. Not only did he set up the parts manufacturing there, he moved the testing and assembly operations there as well. The owner, however, remained in Los Angeles, in his executive headquarters, with a small group of sales engineers. This permitted him to maintain the same close contact with his customers that had made him successful. A qualified factory manager was put in charge of the new plant. During the start-up period, the owner made several trips to the plant, keeping in touch with what was going on and providing leadership and motivation to the local management. However, as time went on, these trips became less and less frequent as the complexity of his personal activities made continuing presence in Los Angeles more compelling. Accordingly, the time came when full responsibility for the factory operation had been shifted to the manager, with the owner depending completely on the managers activities and results. Soon, the owner began to hear from several of his customers that some of his prices were not competitive, some deliveries were seriously late, and quality was not up to the expected high standard. The owner began to develop a sense of disquietude. His uneasiness reached a point of where he procured the services of a consulting industrial engineer. On his introductory trip through the plant, the consultant got the impression that a rather slow working tempo prevailed. This led him to review the payroll records. Here he learnt that for several months, the workers productivity had been slipping. An investigation revealed that it was due to delays and slowing down of the workers caused by an uneven flow of work. When this was explored more deeply, the cause of uneven flow of work proved to be a combination of substandard materials and inadequate maintenance. Working backwards, the consultant unearthed the root cause of this difficultypoor control of materials. Purchased materials were not up to original standards. At first this caused low productivity, which increased labor costs. Then, to compensate for this, a drive towards overhead cost reduction ensued, which included a cutback in maintenance personnel. The result only lowered productivity still more. All this resulted in higher cost, lower capacity and poorer quality, which showed up later in customer complaints. A meeting of the owner, factory manager, and the consultant revealed that deterioration in purchased materials and parts was because of a misguided program on the part of the factory manager to reduce production costs by saving on purchases. The use of substitute materials created other cost increases that overbalanced the slight savings on purchases. Examine the case in terms of activities, functions and decision-making in a production system.