Reference no: EM131883060

Problem: Management Decision

Change Costs More Than Pennies As you wipe your feet, you can't help but notice how messy the carpet is. "Well, that's what it's for," you think. "This is a factory, not a bookstore." But seeing all those metal chips in the rug makes you think about the plant floor. You turn back around and survey the shop. Everywhere you look, parts are stacked in metal bins on wooden palettes, next to the palettes, on tables by machines, encroaching into the aisles-which are marked off with vibrant yellow striping to remind workers to keep them clear. It looks like there is much more work than the roughly $500,000 worth of parts that are actually in process. Slowly, you begin to wend your way through the machines. Your plant uses five basic types of machines to make hundreds of thousands of different parts for everything from motorcycles to hospital beds to nail guns to industrial water purifiers. You make the mechanism that fills Downy bottles at Procter & Gamble and the tumblers that spit the movie tickets out from under the counter at theaters across the country. Machines are organized by type, so as a job moves through the plant, it will hit any number of machines in a particular order. A job with multiple operations might get moved around the plant from area to area up to seven times. Even though things are always moving, many areas of the plant seem crowded, as jobs line up waiting for their turn on the next machine.

Red tickets in pans scattered around the shop and in a designated area are a reminder that there's still quite a bit of scrap (or bad) work being run. Twenty-five percent of jobs going through the shop have to be fixed or rerun because the parts are the wrong size, if only by 0.001 inch. When you make it to the scheduling area, colored Post-it notes show how many jobs are rush, how many are late, and how many haven't even been started. The on-time delivery rate is only 70 percent. For a precision machine shop that can cut metal to measurements in the ten-thousandths of an inch, the overall operations aren't so precise. Everywhere you look, you see disorder. Maybe those consultants were right: To be competitive, really to survive, you need to approach your operations in a more systematic fashion. A large percentage of companies with your capabilities have gone out of business, but even though there is less competition, there are fewer customers. The types of parts you manufacture are either being designed out of products or are being outsourced to China and Mexico. Without significant change, you're not going to be able to survive the decade, let alone double your size in 2 years (which is your secret stretch goal).

Last week, a local manufacturing consultancy sent a few members to your shop to present a preliminary proposal on how they could help you run a more efficient operation. The company would assign a team to help your workers learn new, leaner processes of doing work; promises of increased productivity, profitability, and morale were made, with references galore. The consultants even invited you and your management team to take a plant tour of one (or more) of their most recent clients. Ultimately, the consultants would provide materials, workshops, and follow-up support to your shop employees every day all day for several days over a period of 6 months-for approximately $200,000. Right out of the gate, they would send two consultants to your shop for five consecutive weeks. But at $250 per hour per consultant, that's a quick $100,000 to spend on teaching communication skills and showing workers how to identify waste issues that prevent them from doing their jobs effectively and efficiently. With only $8 million in revenue in a business where labor and the costs of goods sold are high, your profits are slim. Spending money on the outsiders could very well mean finishing the year in the red instead of the black. Maybe you could hire someone to do the job full-time for half that amount. For $100,000, you could hire someone to do the same job full-time for a year. That might be better than having some consultants come, give their workshops, and leave the rest up to you after they head home. And will telling your employees that "things are going to change around here" be the best way to get things in order? Maybe it would be better if change initiatives started from the bottom. The majority of your sixty-five workers have been with you for over 20 years (turnover is not one of your problems), but with tenure comes intractability. In general, your employees are set in their ways. Still, they want the company to succeed, so maybe that concern will be a strong enough motivator.

Questions: 1. Consider the above situation. What are the benefits to hiring outsiders to manage your change efforts?

2. Do you pay the $200,000 for the consultancy, do you hire a dedicated change agent, or do you try to marshal internal teams to spearhead a change effort?