chapter 6

Setting and Solving Management-decision-d ype Problems

Successful management must make decisions as good as or a little better than their competition in a wide variety of matters, some of great and some of moderate importance. Some of the representative types of problems that management must solve are listed here.

6-1 Some Types of Management Problems
Shall we use the present equipment or get a new machine? Shall we make this product in one line or two? Shall we operate as one division or two? Shall we own some of our delivery equipment? Shall we expand our employee training program? Shall we install and use some automatic communication facilities? Shall we combine our purchasing work? Shall we change our sales representation? Shall we build a completely new plant? Shall we provide a warehouse in the Chicago area?

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Shall we discontinue, as obsolete, our records filing area? Shall we increase the competence and effectiveness in our New York sales area work? Shall we buy some knowledge we need from consultants? Shall we repair the warehouse building or build a new one? How can we reduce maintenance cost of the filter system? How can we double the capacity of our compressed-air system? How can we get the most of what we need for our medical payments?

6-2 Setting the Precise Problem
T o Be Solved

Usually between two and five persons are involved in the first stages of problem setting.
First

Precisely what are we (the five of us here now) trying to do? Encourage many short statements. One person should write them all down. The objective will clarify and become one precise clear objective. Usually in 15 to 30 minutes results will be achieved.
Second

Exactly what are we trying to achieve by the expenditure of money that we will pay for this service? Again, record every statement. Do not judge the statements at this time. Encourage short concise statements. The time required will depend upon the problem; however, in 30 minutes the principal desired specific acts will often stand out rather clearly. Meanwhile all of the minds in the group have again become "tuned into one direction of thought.
Third

Now the group should agree upon a precise, simple statement of what it is desired to achieve. Often one precise simple statement will not suffice. Then the group should agree upon two or more such statements, which constitute precisely the important results desired. In those cases it will be observed that there is not one problem but two or more, and that each will have somewhat different parameters and controllers. It will also be observed that each separate problem now has become considerably "more solvable." Decide which problem should be well started first, then second, then

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third. Reexamine problem No. 1. Modify the wording, if possible, so that it points attention as directly as possible into t h e area that must produce the solution. Now the problem has been "set" and is ready for the thinking of the "problem-solving system."

Case Study (with Detailed Information Concerning the Problem Setting )
PROBLEM: NOW THAT A PRODUCT WAS PROVED AND THE MARKET WAS ESTABLISHED AND G O I G SHOULD A COMPANY BUlLD R WN , MAUFACTURlNG FACILITIES FOR A N IMPORTANT PURCHASED ASSEMBLY?

In developing a new product, a control regulator was needed. It consisted of about 1 cubic foot of electrical and mechanical equipment. Its function was to control speed, load, fuel, etc., in response to inputs from an operator and a machine. A responsible vendor quoted a price of approximately $5,000 each on the basis of supplying the few hundred needed regulators. Included in his services would be adjusting some of the final details of the design, finishing a few minor tests, making sure that design details were such that assembly would be facilitated, etc.; thus the vendor did make small important adjustments on the drawings. During the initial three years that the product was earning its place in a very competitive market, the cost of the assembly had been reduced by experience and important modifications to $3,000. The vendor said that he had gone through all parts of his operation and had taken out all costs he could without lowering quality. His quotation for the future, even anticipating increased volume, stood at $2,500.
FIRST (MIND SETTING): "Precisely what are we (the four of us here now) trying to do?" Reduce costs Assure future business Be sure of quality Assure a profit Assure a reliable source of the essential assembly Increase sales Control the unexpected Build up our factory Obtain more control over design Obtain more control over manufacturing Facilitate future reductions in costs Facilitate making changes Minimize possibility of shipment delays Maximize earnings Provide a cost advantage over competition Provide flexibility

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Become self-contained Make an integrated product more practical Save money Make competitive selling price profitable
SECOND:

"Exactly what are we trying to achieve by the expenditure of money for this assembly?" Control fuel Control speed Provide proper amount of fuel for any load Prevent overspeed Prevent underspeed Prevent overload Protect from overtemperature Shut down in case of malfunction Accept operator's call for more speed or less speed Occupy minimum space Fail safe Function independently of ambient temperature

THIRD: The problem "set" for first action before others would be considered was: "Determine the efectiveness potential of the present supplier." A reexamination of this problem statement, pointing it toward the solutions needed, resulted in this problem: "Determine (1) the eficiency of the supplier's manufacturing operations (his effectiveness in lowering his own costs) and ( 2 ) his attitude toward progressively lowering his quoted prices."

The initial "problem setting" was completed, and the "problem-solving system" was then used with the following results. The supplier was apprized of the entire situation and asked to what extent he felt it was in his own best interests to provide manufacturing information. He was offered the help of value analysis trained personnel but advised that, to be effective for him, they must know and work with his costs. He advised that he felt his best interests would be served not by providing cost information but rather by showing the material, machines, and methods used to fabricate and assemble the parts. He then would hopefully receive specific suggestions pertaining to specific parts and subassemblies, which, at his election, he might use to reduce certain costs. The value engineer spent a few days studying the manufacture of the parts, the assembly, and the subassemblies as well as the various operations in the supplier's plant. On returning to his desk with a full understanding of the way costs are built up in the use of various processes, he made up a sheet for each of the parts and each of the important subassemblies, with estimates of the costs based on the processes he had seen being used. This gave him the information he needed to identify and evaluate the various functions and use the creative problem-solving methods of the value analysis job plan quite effectively. The value engineer was then able to

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provide positive suggestions to the supplier on further steps that might be taken to lower costs. Further he was now in a position to advise the vendor on approximately what costs he felt appropriate for many of the individual parts and individual subassemblies, and these costs the vendor could then use for comparison with his own costs. The tabulation below includes two items: first, the cost that the value engineer estimated after reviewing the supplier's manufacturing processes; second, the cost that he considered appropriate and that was the basis of positive suggestions made to the vendor. The latter cost is designated "value."
Item Estimated present cost Value

Spurgear . . . . . . . . . . . . . . . . . . . . . . . . . Gear. . . . . . . . . . . . . . . . . . . . . . . .. . .. Sleeve. . . . . . . . . . . . . . . . . . . . . . . . . . . . Side plate. . . . . . . . . . . . . . . . . . . . . . . . . Block . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shield. . . . . . . . . . . . . . . . . . . . . . . . . . . . Gasket. . . . . . . . . . . . . . . . . . . . . . . . . . . Gasket. . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusting sleeve. . . . . . . . . . . . . . . . . . . Spring. . . . . . . . . . . . . . . . . . . . . . . . . . . . Pin Special screw. . . . . . . . . . . . . . . . . . . . . . Shoulder bolt. . . . . . . . . . . . . . . . . . . . . . Spring retainer. . . . . . . . . . . . . . . . . . . . Cartridge pump. . . . . . . . . . . . . . . . . . . .

It should be noted that, in making these suggestions, the value consultant brought into play the various value analysis techniques such as utilizing vendors' functional products, buying standard products and modifying them slightly, using specialized vendors, and reevaluating tolerances which make no contribution to performance. After study and implementation of the alternatives, the vendor was able to make a new quotation of $1,800, and the redesigned equipment retained its capability to accomplish the total function with reliability. His costs had been decreased sufficiently so that his company was still provided with its proper earnings. The attitude of competitive cooperativeness found in the supplier was s d c i e n t to justify ending consideration of the establishment of an in-plant facility.

6-3 Some Management Problems for Deepening Familiarity with Techniques
It has been found to b e very useful for management people to objectively "set" a few of their own types of problems in "solvable" form. The
following are suggested.

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1. You have consistently sold 30 per cent of the 10- to 100-horsepower motors that are sold in California. You have just learned that last month a competitor increased his sales enough to reduce you to 20 per cent. Set the problem. 2. You are operating the public health service in a city of 200,000 persons. You have four professional nurses and two medical doctors. The work is not getting done. There are long delays, filled waiting rooms, and frayed nerves. Set the problem. 3. You have a warehouse in a tricity area. You have a sales office in each city, which receives the orders; some of the orders are c.o.d., and some are paid for in cash. Orders are relayed to the warehouse and serviced from there. The paper work is killing you. Set the problem. 4. You operate a cement plant. Dust-control authorities request you to install a dust collector on one group of six silos in which you accumulate cement for production and from which you later ship. Set the problem. 5. You are responsible for police protection of the citizens of a small city. You have twenty policemen. You find that the frequence and severity of nighttime robberies is increasing. Set the problem.
NOTE: Problems must be skillfully and creatively set, recognizing their severity and limitations and the directions from which in reality solutions will come. When necessary in order to have each problem in solvable form of similar parameters, set it in the form of a few separate unrelated or only partially related problems.

SUMMARY
Experience has taught that a higher magnitude of results is achieved sooner when dealing with management problems if the first step, the "mind-tuning" step ("Exactly what are we trying to do?"), is taken in two steps: 1. Precisely what are we (each person in the group personally) trying to do? 2. Exactly what are we trying to achieve by the expenditure of money we are studying? The greatest of attention must be given in problem setting to clarity of thinking in order to set the problem in action-directing words. For example, the initial problem Shall we or shall we not build a manufacturing facility? was changed to:

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Determine the effectiveness potential of the supplier as a first essential step and then was "set" in action words: Determine ( 1)the efficiency of the supplier's manufacturing operations (his effectiveness in lowering his own costs) and ( 2 ) his attitude toward progressively lowering his quoted prices. Each of the two subproblems could be solved, using good problemsolving techniques. The course of action most beneficial to the business then became very clear. Finally, because of the extreme importance of setting managementtype problems optimally, some situations are included to provide the reader experience in management problem setting.