When last year's fourth-quarter results were published, Joe Arhin knew there would be a change in top management. This was the seventh successive losing quarter for the company. Prior to this, the company had not lost money since 1975. The new management team that came in 6 months ago immediately introduced a host of changes. One of them was the productivity bonus. The idea was quite simple. If a division, department or unit had an increase in productivity, the managers in the area all got to share in the cost savings. In Joe's case the management estimated that it should cost about Ghlt37,000 /month to run the unit. This estimate included salaries, supplies, utility cost, maintenance, etc. The new management also sponsored a series of seminars for both managers and workers. The purpose of the seminars was to acquaint the personnel with ways in which productivity could be increased. Some of the specific ideas included quality circles, inventory control and work layout. Joe attended all five seminars. Many of the ideas that were presented had direct application to Joe's department and he was determined to use them. Joe estimated that a 20 percent increase in productivity could be achieved through increase in quality, better work layout and performance. Under the new productivity plan, if Joe could save 20 percent of the monthly cost of operating the unit, his Gh₵7,400 would go into a special fund. At the end of the year, the total value of the fund would be divided between the company and Joe on a 3: 1 basis. Joe estimated that he could save the company at least Gh¢60,000 each year. He began by focusing attention on work layout. By re-arranging the work flow and physically changing the location of some desks and machines, Joe hoped to reduce the work time and increase the output. He also held a meeting of his people and set up a quality and productivity improvement committee. The purpose of the committee was to make recommendations for changes that would improve quality, reduce the reject rate and cost as well as increase the work output. All of this occurred 2 months ago. Since then Joe's monthly cost for running the unit has risen from Gh¢37,000 to Gh¢39,250. The quality and productivity committee has offered seven ideas. Three of these Joe rejected straightway, two others were implemented but actually led to an increase in costs and the last two were introduced a week ago, so it is still too early to judge their value. At yesterday's management meeting, all of the managers reported the effects of their productivity efforts. Ten of them had monthly cost savings between Gh¢1000 and Gh¢2500: the rest reported either no change or increase in costs. No one had as large an increase as Joe, although no one had introduced as many changes either. On the way out of the room, one of Joe's friends said, "If you put in any more productivity - related ideas, you'll double the monthly cost of running your unit." Everyone laughed, including Joe. However, back at his desk he began to ponder what had been going wrong. No one had been trying as hard as he had, yet he was having the poorest results of all. a) Why is Joe having such poor results? b) As an operations manager, what would you advise him to do to bring improvements in his results
CASE STUDY
When last year's fourth-quarter results were published, Joe Arhin knew there would be a change in top
management. This was the seventh successive losing quarter for the company. Prior to this, the company had
not lost money since 1975.
The new management team that came in 6 months ago immediately introduced a host of changes. One of them
was the productivity bonus. The idea was quite simple. If a division, department or unit had an increase in
that it should cost about Ghlt37,000 /month to run the unit. This estimate included salaries, supplies, utility cost,
maintenance, etc.
The new management also sponsored a series of seminars for both managers and workers. The purpose of the
seminars was to acquaint the personnel with ways in which productivity could be increased. Some of the specific
ideas included quality circles, inventory control and work layout. Joe attended all five seminars. Many of the
ideas that were presented had direct application to Joe's department and he was determined to use them.
Joe estimated that a 20 percent increase in productivity could be achieved through increase in quality, better
work layout and performance. Under the new productivity plan, if Joe could save 20 percent of the monthly cost
of operating the unit, his Gh₵7,400 would go into a special fund. At the end of the year, the total value of the
fund would be divided between the company and Joe on a 3: 1 basis. Joe estimated that he could save the
company at least Gh¢60,000 each year.
He began by focusing attention on work layout. By re-arranging the work flow and physically changing the
location of some desks and machines, Joe hoped to reduce the work time and increase the output. He also held
a meeting of his people and set up a quality and productivity improvement committee. The purpose of the
committee was to make recommendations for changes that would improve quality, reduce the reject rate and
cost as well as increase the work output.
All of this occurred 2 months ago. Since then Joe's monthly cost for running the unit has risen from Gh¢37,000
to Gh¢39,250. The quality and productivity committee has offered seven ideas. Three of these Joe rejected
straightway, two others were implemented but actually led to an increase in costs and the last two were
introduced a week ago, so it is still too early to judge their value.
At yesterday's management meeting, all of the managers reported the effects of their productivity efforts. Ten
of them had monthly cost savings between Gh¢1000 and Gh¢2500: the rest reported either no change or increase
in costs. No one had as large an increase as Joe, although no one had introduced as many changes either. On the
way out of the room, one of Joe's friends said, "If you put in any more productivity - related ideas, you'll double
the monthly cost of running your unit." Everyone laughed, including Joe. However, back at his desk he began
to ponder what had been going wrong. No one had been trying as hard as he had, yet he was having the poorest
results of all.
a) Why is Joe having such poor results?
b) As an operations manager, what would you advise him to do to bring improvements in his results
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