Case is divided into three parts; requirements are to:
Part I: Write a case synopsis. This is a concise relevant summary of the case study. Limit
the synopsis to 350 words.
Part II: Discuss and answer the questions from the case submitted as numbered Q&A.
Limit each question response to 250 words (not including graphs, charts, equations,
tables, etc.) unless a different word limit is specifically noted. Note: The 250 word limit
applies to each numbered question separately.
Part III: Provide a student opinion of the case study that demonstrates mature
understanding of the situation; provides insights and lessons learned, notes issues or
potential conflicts, and relates to work and community experience, going beyond the
obvious and digger deeper into the implications of the case study. Limit the student
opinion to 550 words (not including graphs, charts, equations, tables, etc.).
CASE STUDY
This was technically Alissa Jones’ second Division Plant Manager Quarterly Plant Performance
Meeting. Her first was three months ago when she was informed that she was to be the new
plant manager of the Minneapolis facility, Midwest Manufacturing. When she had been
summoned to that first meeting she was the chief operational analyst at the division and, as
such, was fairly aware of the performance problems with the Minneapolis plant. The facility
was missing on performance measures in virtually every category. Their labor costs were
constantly above budget. Their average due date performance was 70% with late deliveries
often being by as much as a month or more in spite of incurring huge overtime hours. Several
major accounts had left or threatened to go elsewhere due to the inconsistent delivery issues.
Their efficiency and utilization numbers were abysmal. Work in process, finished goods and
raw material inventories were climbing with no apparent end in sight and she had been
informed by a friend in accounting that even with that inventory they were constantly
requesting overrides for expedited shipping on both the incoming and outgoing sides of the
facility.
So, if everything was this bad why would she have even been interested in the job? Don Jones,
her predecessor, had been “asked” to retire early creating the vacancy she was being “asked” to
fill. She knew the road to a division vice presidency was through plant manager not through
corporate operations and that that position was likely to become available in 1-2 years. Even
though the job looked to be almost impossible she felt it was her only opportunity as many of
the other current plant managers were already vying for the VP opportunity. So, a week after
the meeting in which she was offered the position she found herself in Minneapolis at the
plant.
Her first task was to call a meeting with all the senior staff. In preparation for the meeting she
had it asked each staff member to look at the numbers for the last three years and be prepared
to explain what was happening and what they believed needed to be done to correct the
situation. After a quick introduction Alissa asked each in turn to provide their feedback.
Susan Alen, the materials manager said they had no choice but to continue ordering additional
raw materials as the parts needed to produce firm orders were often missing. When pressed
she said that they actually weren’t missing but they had already been process for or assembled
into other subassemblies and finished goods that were not appropriate for the items being
ordered.
Bob Johnson, the comptroller said that the reason that costs were spiraling out of control was
the additional labor being thrown into all the parts exceeding what was planned and quoted.
Ben Jacobs, the production supervisor, said that didn’t make sense as they constantly tried to
combine orders across different customers and even reached far into the forecast to create
large quantities of the same parts to reduce set ups and increase efficiencies. He had also
moved work from the more manual equipment to the machine centers as well to take
advantage of their efficiencies to the point that those pieces of equipment were constantly
busy and backlogged.
Ken Fraser the plant engineer shared that they had redesigned the processes for a number of
parts to accommodate the switch from manual equipment to more automated and to increase
the amount of common purchased materials and components from product to product. The
belief was that the increase in common parts would allow them to reduce the total inventory of
raw materials but still have the right materials for production.
The one thing they all seemed to agree on was that the numbers they were required to report
to division certainly could not be accurate and representative of what was actually happening
at the plant.
When asked what each thought needed to be done, Susan said that they obviously needed to
upgrade their old Enterprise Requirements Planning (ERP) system and the data bases as the
material problems and labor hour variances certainly must be tied to inaccurate and/or
incomplete data.
Ben agreed but said they also needed to invest in several more of the high-end machine centers
to be able to get more work off of the older manual machines and onto the more efficient
machines.
Ken was noticeably quiet. Alissa asked him why he was hesitant to share his ideas. Ken set for a
minute then slowly started to speak. “I do have some ideas but they’re very different”.
Before Ken could say more Ben rolled his eyes and said, “Here we go again”.
Susan chimed in, “We’ve been over this before. The things that we’re doing are what everyone
does, we just need more time and to find a way to do it better”.
Bob jumped in, “I know you’re in this new master’s program and you’re learning all these things
that you think are going to light the world on fire but these are just academics and books and
this is the real world”.
Ken was getting tired of this. “First of all”, he said, “The Engineering and Technology
Management program at Washington State University isn’t just a bunch of academics and
books. The entire faculty has significant business experience and brings real world situations to
the classroom. We have students from all over the world attending the classes and sharing
knowledge of what is working and what isn’t.”
Alissa interrupted, “OK, OK. I’m a supporter of education and I’m not here to debate the
program. What I’m interested in is what can we do to turn this plant around and it seems like
the things we’ve been trying aren’t accomplishing the job. So far what I’ve heard is what
everybody else is doing and that we just need to do it better but I do not believe that will be
sufficient to solve our problems and get us out of the hole that we’re in. Ken, please continue”.
Ken said, “One of the things that is really different about the program is that the assignments in
the classes often aren’t just questions at the end of chapters in the textbooks, they are
assignments to use the concepts we’re learning in our workplaces. As a result I have had a
chance to look at a lot of things we’re doing here and see some things that we need to change.”
“OK” said Alissa, “give me some examples.”
Ken started with, “In an effort to get efficiency and utilization numbers high we try to keep
everything and everyone busy all the time. What I’ve learned is that because of the high mix of
products that we produce and the high level of shared resources it’s not possible for all things
to be busy all the time in fact that makes us very inefficient as a system.”
Ben pounced,” see what we mean, this is crazy, we have to be efficient. We can’t have people
and equipment sitting idle all over the place. That’s why we pull work forward from the
forecast in anticipation of future orders to allow all that work to be put into the system to keep
the efficiencies up.”
“Exactly”, said Ken, “and as a result we end up drawing materials today to do work that is for
the future and then tomorrow when we have current work that needs to be done we are
missing materials to do that work with. We end up with massive mounds of work in process
and finished goods that we can’t use or sell and we have to buy even more materials and pay
expedited shipping so we can try to not miss the promises made to customers. And because
we don’t have those materials to do the work as scheduled we constantly change the schedule
and reprioritize the work which means it takes longer for everything to get through our system
so our lead times keep going up and our due date performance keeps going down. We also
hurt those measures by grouping different customers’ orders together to reduce the number of
setups and now everyone’s parts are waiting for everyone else’s that’s part of the same mega
batch.”
“Then, because we are so late on orders, we constantly go from the large batches we’ve talked
about to breaking them up into multiple small batches because we need to get specific parts
through the system to complete orders which means we’re spending much more time than
planned on changes and setups and often relying on overtime to expedite that work.”
“I’ve also learned that every system is limited by at least some factor or it would perform to
infinity. It doesn’t make sense to push more work into the system than that limiting resource
can process. The unavoidable result is just piles of work which is what we are experiencing. I
believe we have two primary resources that are overloaded. I’m not sure how much of that
overload is just in trying to meet the actual demand from firm orders versus all the extra work
we continue to release trying to keep everything and everyone busy.”
“I also believe we’ve made some major errors and assumptions in our calculations regarding
the efficiency of some of our high-end machine centers versus the work being done on the
manual standalone machines. For example, if we used to use four different machines in
sequence to produce a part and now do it all in one massive operation on one of the machine
centers we assume that the total time for the four separate operations is what we’re comparing
to the total time in the machine center and as long as that machine center time is less then
we’re being more efficient.”
Again, Ben jumped in, “of course it’s more efficient.”
Ken said, “not necessarily. Because we tend to do things in large batches there is a time to set
up each machine that is incurred once for the batch and then a cycle time per part for each
machine to do its particular task. The way we tend to do the work with the manual machines is
to set up all the machines so we can completely produce the part. That means that once the
setups are complete and we start processing, all the machines are running at the same time
doing their particular part of the work and the rate at which parts exit the system is driven by
the longest single cycle time on any one of the particular individual machines.” As he looks at
everyone in the room he can see they are not understanding.
“Let me give you an example. Let’s say we have a part that takes four steps in different
standalone machines and the various cycle times are 10, 15, 20, and 10 minutes each for the
respective machines for total of 45 minutes for each part. But say we can do the same work on
a single machine center in 30 minutes.”
“Exactly”, says Bob, “about a 33% increase in efficiency and corresponding lowered cost per
part.”
Ken smiles. “It looks that way, doesn’t it? Remember, the manual machines are running
concurrently so once the setups are done and the first part has made it all the way through the
four processes, based on the numbers I provided, we would see a new part exit every 20
minutes from that point on which is equal to three parts per hour. This compares to 30
minutes each or two parts per hour for the machine center.”
Ben jumps in again. “Ken, you also need to remember that those set up times are often an
hour or more on the old machines where is it is oftentimes 15 minutes or less on the machine
centers since the tooling is standardized and we simply have to load a new program.”
“You ‘re right Ben, Ken replies, “ but we still seem to do the work in very large batches even on
the machine centers meaning that we aren’t taking advantage of that fast setup time to do
multiple small batches and make things move faster through the system. Let’s go back to the
example I provided and assume that it takes 2 hours to set the four machines up and then
another 45 minutes to get the first part completely through the four steps but again, from that
point on we get a new finish part every 20 minutes. While that’s happening our machine center
would have been set up in 15 minutes and after another 30 minutes produced the first part and
continued to produce parts at the rate of one every 30 minutes or two per hour. Let’s compare
the two environments.” Ken created a table on the whiteboard:
Ken says, “he thought that at first as well but as he examined the data he realized that
It isn’t the hour to hour rate that matters it’s the total time and because the machine centers
take a much longer time to produce the same total number of parts, the hour to hour labor
advantage is quickly consumed. Bob, do you agree?”
“Based on your example, the math is correct and it does explain some of the variances we’ve
been seeing in lead times, labor content, and costs.”
Ken continued, “This is also one example of a much bigger problem. We tend to look at all the
pieces of the system independently and assume that if each piece is doing well the system is
doing well when in reality we need to be looking at the system as a whole.”
“So Ken”, said Alissa, “If we assume that what you are saying makes sense, what do you
propose that we do?”
Ken goes back to the whiteboard and begins writing a list of his suggested changes:
- Stop releasing work to keep everything busy and only release the work that is needed
for real orders and even that work should only be released at a rate equal to what the
system can actually process.
- Use the machine centers for small batches where we can leverage their fast setup time
and go back to running the larger batches on the old machines.
- Don’t start any job that we don’t have all the needed inputs for (materials, drawings,
information, etc.), a concept called full kit.
- On the resources that have become bottlenecks let’s not waste what we have.
Let’s make sure that we’re working on the right things by making be sure that we’re
using today’s capacity to produce today’s demand.
Let’s inspect the work coming into those centers prior to the working on it and make
sure that we have no quality issues.
All the workers take breaks at the same time meaning those critical work centers are
shut down for as much as an hour per 8-hour shift. That means we’re losing over 12%
of their capacity right off the top. Let’s stagger the brakes around those machines so
that they continue to run the full 8 hours.
Ken turned back to the group saying, “I have other ideas but this is a good start.”
Bob said, “Look, if we do this we have a major problem with the efficiency and utilization
numbers that we are required to report to the division. You’re basically proposing that we
intentionally idle large numbers of people and other resources for significant periods of time.
These are the only numbers division seems to be concerned about and we are already on their
radar.”
Ken thought for a moment and then said, “would you agree that we have a lot of past due
work?”
“Don’t waste our time with questions you know the answer to” said Ben. “We have weeks of
backlog that needs to be finished and shipped.”
“I’m not trying to waste our time I just want to make sure we’re on the same page. If we switch
our focus to getting work that we promised finished instead of starting work that isn’t needed
we aren’t working less we’re just working on the right things. Our efficiency numbers may go
down on some resources but I think overall, they will stay the same or maybe even get better
and, more important we will be shipping more finished goods. We should also see our
overtime hours drop off and not be expediting raw materials or finished goods shipments
nearly as much.”
Ben says looking at Bob, “But with your smaller batches and more frequent setups our labor
cost per part are going to go up which is another metric the division is infatuated with.” Bob
and Susan are both nodding in agreement.”
Ken says, “On paper they may, but in reality if we’re not adding any labor cost, because we’re
not hiring more people, and we are actually shipping more, which means our revenues are
going up, isn’t our actual cost per unit going down not up?”
The conversation went on for a few more hours but in the end Alissa was able to get them all to
agree that it was worth a try.
One thing that had surprised Alissa was how fast and significant the impacts were from some of
even the simplest changes. It took a couple of days to logistically prepare for staggering the
breaks at the 2 bottleneck resources that Ken had identified but once in place there was an
immediate increase of at least 10% capacity and it wasn’t in just the bottleneck areas it was in
shipped product. The big concern about large amounts of people and equipment sitting idle
also seemed to be unwarranted as the smaller batches resulted in product moving much faster
through the system so that even when there were idle times they were small and intermittent.
In just two months they had almost completely caught up on their past due backlog, were
shipping orders on time and had also significantly increased plant profitability. The raw
material and work in process inventories had dropped considerably yet materials needed
seemed to be available. It had been three weeks since they had expedited either a purchased
item or a finished good shipment. There had not been much drop in the finished goods
inventories however as those items required new orders to have the opportunity to be sold.
The good news was that at least those finished goods inventories weren’t going to come back
to bite them as they had already been counted in previous quarters.
Unfortunately, the predictions about efficiencies, and cost per part metrics had become true in
terms of individual work area efficiencies for some parts of the plant going down which created
the perception of cost per part going up. It seemed that the time being used for the additional
Discussion items:
Discuss and answer the numbered questions below as they pertain to the case. Reminder: The
250 word per question limit is per numbered question element, not cumulative across all
questions.
- Define and differentiate Strategy and Tactics. Identify an example of a strategy from the
case material and one corresponding tactic being proposed to support that strategy.
- Answer the appropriate sub questions below
2.3.1 Using the information in the case provide an outline of how you would approach
conducting an audit of the strategic management of technology and innovation within
the organization.
2.3.2 Using the ideas and concepts presented in EM 591, discuss how you as a manager
at Midwest Manufacturing would approach analyzing the need and use of the machining
centers being discussed in the case.
2.3.3 Discuss how both traditional and modern views of strategy, as typified by Michael
Porter and Jay Barney, might apply to this case.
- Pick a direction and defend it based on the current circumstances at Midwest
Manufacturing. Picking a middle ground is not an option, you must either agree with Alissa in
the direction she wishes to pursue or with the other plant managers and the direction they
think she should pursue? How would you strategically and tactically present your case to
convince the other side?
Source material
Schilling, Melissa A. Strategic Management of Technological Innovation Fourth Edition. McGraw Hill
