Operations Management

Mini-case for Session 2

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 subcontracted component parts, and producing them on
contract 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 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, 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 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. But as time went on, these trips became less and
less frequent as the complexity of his personal activities made his 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 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 records. Here he learned that for several
months the workers' productivity had been slipping. An investigation revealed 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 uneven flow proved to be a combination of substandard materials and
inadequate maintenance. Working backward, the consultant unearthed the root cause of this difficulty
- poor 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 several times the slight saving on purchases.

Examine the case in terms of activities, functions and decision-making in a production system.