The Faltering Factory

An engineer with a flair of production management was the principle 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 contract basis. He operated a small facility where he completed the assembly operations,
purchased outside and tested and shipped the complete assemblies.
Subsequently, to meet 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 favorable labor market
and a climate that was good for his type of manufacturing, he located his new plant in Arizona,
several hundred miles from Los Angeles. Not only did he set up the parts manufacturing there, but
he moved the testing and assembling 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 contacts with his customers that had made him successful.
A qualified factory manager had been put in charge of the new plant. During the starting-up period,
the owner made frequent trips to the plant, keeping in touch with what was going on and providing
leadership and motivation to the local management. But as time went on, these trips became less
and less frequent as the complexity of his personal activities made his continuous presence in Los
Angeles more and 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
manager’s 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
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 recorder. Here he learned that for
several months, workers’ productivity had been slipping. An investigation showed that it was due
to delays and slowing down of workers caused by an uneven flow of work. When this was explored
more deeply, the cause of the uneven flow proved to be a combination of substandard materials
and inadequate machine maintenance. Working backward, the consultant unearthed the root of
this difficulty – poor control of materials. Purchased materials were not up to the original
standards. At first this caused low productivity, which increased labor costs. Then, to compensate
for this, a drive toward overhead cost reduction ensued, which included a cutback in maintenance
personnel. The result only lowered productivity still more. All this resulted in high overall cost,
lower capacity and poor quality, which showed up later in customer complaints.
A meeting of the owner, factory manager, and the consultant revealed that deterioration in
purchase 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 several times the slight saving on purchases.
Discuss the case in terms of production functions and decision making in a production system.