OM2014

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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 finally 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 difficulty - poor control of materials.

Purchased materials were not up to original standards. At first this caused low productivity, which

increased labour costs. Then, to compensate for this, a drive towards overhead cost reduction ensued,

which included a cutback in maintenance personnel. The result 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 carefully in terms of activities, functions and decision-making in a production system.