Product Liability Suit - Positioning Manufacturing Plants away from Green Environment Policies - Case Study Example

Marketing 521: Week 3 Theme Case Product Liability Suit: Positioning Manufacturing Plants Away from the ‘Green’ Environment Policies of California and the United States [Name] Texas A&M University-Commerce In partial fulfillment of the requirements for MKT 521 [Name of Professor] [Date] Table of Contents Page Title Page …………………………………………………………………………. 1 Table of Contents …………………………………………………………………. 2 Abstract……………………………………………………………………………. 3 Introduction ……………………………………………………………………….. 4 Discussion…………………………………………………………………………. 6 Conclusion ………………………………………………………………………… 10 References ………………………………………………………………………… 11 Abstract Several states in America, specifically the state of California, practice strict environmental compliance policies that become a burden to most manufacturing companies. The costs attributed to the improvement of environmental management and production process are very high, adding up the labor costs in the US. This theme case will explore the complexities of the given scenario and examine the possible management strategies by functioning as the company’s CEO. The causes and reason why American companies move their manufacturing operations to an offshore location will be determined, as well as its implication in the American work force and community. Product liability will also be the foundation of the discussion, focusing on the quality of the products to reduce product recalls and product liability lawsuits. Methods in improving the production process will also be tackled. Product Liability Suit: Positioning Manufacturing Plants Away from the ‘Green’ Environment Policies of California and the United States Product manufacturers and service providers, especially in the US, are keen in maintaining the quality of their products and services; giving emphasis in ensuring that the commodities which they offer have no risks of causing harm to consumers (Polinsky & Shavell, 2010). This aspect is known as product liability. Heizer and Render (2011), the authors of the Operations Management book, describe this quality implication as a legislation that is implied to organizations that “. . . design, produce or distribute faulty goods and services”. The organization is held liable to any form of damages or injuries that may be incurred with the use of faulty products. According to Polinsky and Shavell (2010), thousands of product liability cases are filed each year in different states in the US, as well as in federal courts. These cases include class or mass tort actions that involve thousands or millions of individuals as plaintiffs (Polinsky & Shavell, 2010). Product liability suits attract the attention of the media, especially in cases where the product being sued is a widely sold commodity that can affect a large number of consumers. This situation will also be detrimental to the company since it will create doubts from consumers and result to an abrupt decrease in product sales. In 1982, the market share of Tylenol greatly fell from 35% to 5% after incidents of death associated with ingestion of Tylenol contaminated capsules. Audi car sales were also affected during the mid-80s when reports spread that the automobile has a risk of suddenly accelerating which can cause accidents (Polinsky & Shavell, 2010). Significant effects of product liability and the strategy of outsourcing the production of goods and services will be discussed in this paper by analyzing a given theme case. The case provides a scenario wherein a CEO is faced with a challenge to suppress the effects of a product liability case associated with the allegation that one of their manufacturing plants had been involved in the improper handling of chemical plumes. The plant is located in the state of California wherein “Green” programs are highly taken in consideration to protect the environment, which can cause the company to pay fines in millions of dollars if the state files a lawsuit against the company. Immediate closure of the plant can also be ordered by the state if there is a probable cause to the complaint. The complainant is a former employee of the company that claims to have documents that can support his allegations against the company. Pressing issues alarmed the higher administration of the company including the executive VP and legal departments of the company. The CEO then presents a White Paper to the board that recommends that company should never again acquire a property in the state of California as well as avoid constructing new business in the said state due to the strict implementation of its “green” program. At the end of this paper, several questions will be answered to create a sound judgment of the effects of the “Green” environment policy in America to the business sector as well as its effects in the environment of countries where American countries outsource production. The objectives of this paper are to present causes, reasons or rationalizations why many corporations in the United States are moving their remaining manufacturing operations to an offshore location, determine the negative implications of these movements and the long term consequences, analyze if these companies have an overriding responsibility to the United States or to the Global community of which they are a citizen of both, determine the level of liability that the company have for violations and activities that did not have laws or governance against them earlier when they began, analyze if the company have to responsibility to perform due diligence when such codes become laws, and the possible approach of a CEO in this damage control with convictions that are within the White paper. Discussion According to Washburn and Huang (2009), the outsourcing of production is not a new in American companies, goods that are sold or assembled in the US are most often outsourced from other countries rather than manufactured in the country. These can be products that are already finished and can be readily sold in the US market or parts of a product that is assembled at a plant in America. Considering the given case, the CEO decided that the company should plan to rely on product sourcing rather than continuing the operation of their old manufacturing plant that poses several problems, especially in environmental compliance. The state policies also affects the decision of the company to move its manufacturing plants away from US states in order to avoid the strict requirements of California. In order to effectively establish a manufacturing plant from a foreign country several considerations should be carefully studied. The article of Washburn and Huang (2009) discusses about two points for global expansion. First is the consideration for pricing issues, product warranties, and product liability insurances. When a manufacturing company outsources parts of the goods that they produce, the quality of the outsourced goods should be monitored. High product quality is important to reduce problems associated with product quality. The other part is mainly focused in contract enforcements with foreign partner organizations (Washburn & Huang, 2009). Conversely, skeptics believe that the outsourcing process is detrimental to the American workforce and economy. The Bureau of Labor Statistics have reported that over 3 million manufacturing jobs were reduced since several American companies have moved their operations to foreign countries such as China and other Asian countries that offers lower labor cost (Whalen, 2005). Negative implications and effects of outsourcing have been experienced by American workers when around one third of the entire work force was obliged to find new jobs and some got a salary reduction of 20 percent (Whalen, 2005). Outsourcing also affects local communities due to their dependence on a corporation that is based in the area. This will have an adverse effect if the company decides to move the manufacturing plant to another country, since employees will have to find another job and on worst situations, will be have no choice but to move to another state or place that can offer a stable job. A ripple effect occurs as the family suffers with the stress of moving to another place and children will also need to transfer to another school (Whalen, 2005). The liability of a company is still eminent both in its U.S. customers and in its role in the global market. Through the efforts of doing research and development as well as optimizing the production process even in outsources manufacturing plants, the company will be able to supply its consumers the highest possible quality of products and services. Since the company can save large amount of operating expensed in foreign countries due to lower labor costs and raw materials, more budget can be allotted to process developments and other product quality and environmental certifications such as ISO certifications and HACCAP for food industries. It is important for a company to be able to determine that continuous cause of product recalls and product liability suits. This process of identifying the problem may be costly and tedious but it will reinforce the trust of consumers with the products of the company (Goodden, 2010). Environmental considerations should also be addressed with great importance, though some developing countries have more lenient environmental policies, American companies that outsources their manufacturing plant should make it to a point that they will comply with the foreign governments laws and policies and strive to meet American standards such as environmental policies in the state of California. It is the company’s CEOs job to ensure that the employees are trained to practice product safety, recall and liability prevention. It is inevitable to encounter such problems in the manufacturing industry but intensive operations management can be employed to enhance the output and efficiency of any process. In the initial stage in planning to outsource company operations, the administrative staff and professional should analyze the capacity, scheduling and location of the new acquisition in foreign countries (Meredith & Shafer, 2009). Due to the nature of manufacturing plants, the capacity and location should be strategic since these investments are high and cannot be easily changed or reversed. Long-term capacity planning is vital in order to cater the needs of the desired market. A company has the option to expand their market operations globally and still meet the requirement of their costumers in the US. Measures of capacity are usually in terms of units produced per day, week, month, or year or based on the number of inputs per day, week, month, or year (Meredith & Shafer, 2009). In determining the location of the manufacturing plant, the company must consider regional factors such as taxes, regulations in operations, presence of barriers for imports and exports, and cultural and economic irregularities. In addition community factors and site factors should also be considered (Meredith & Shafer, 2009). After the manufacturing plant is constructed and operations are started, the company should also focus on the optimization of the production process. The reduction in expenses for the environmental concerns as well as labor costs can fuel the goals of the company to create a process that is efficient and effective. Thus, in the long run, would provide a significant reduction in operating expenses. The quality of products will greatly depend on the capability of process to create reproducible results through its operation. International quality standards can be applied for the process such as ISO 9000 for the standardization of the process and ISO 14000 for the development of environmental management standards (Heizer & Render, 2011). To further improve the process, the Six Sigma and the DMAIC process should be employed in the analysis of the operation, as shown in Figure 1. This process improvement system has been popularized by companies such as Motorola, Honeywell, and General Electric. Each Six Sigma Tool or methodology is accompanied by one or more DMAIC phases. These phases include Define, Measure, Analyze, Improve, and Control. The company should spend time in understanding well the Six Sigma program to ensure the success of the system and specifically address the requirements of the company (Meredith & Shafer, 2009). The role of the CEO is very important in the development and growth of the company. As illustrated in the given case, a CEO should be able to overcome problems and challenges well. The scenario wherein there is a whistleblower in the company should not hinder the goals that were set for the company, instead the CEO must use the situation as a leverage to further improve the production system and take time to re-position the company to a path of succeeding in the market. Conclusion The given scenario depicts a condition where a company is forced to move its manufacturing plant to a place that is beneficial to the growth of the company. Several factors can result to a decision of a company to change its operation and develop better strategies in order to thrive in the market and maintain its market share. Quality of products should be the primary concern of the company to be able to steer away from the problems brought about by product liability lawsuits and product recalls. The outsourcing of products and manufacturing process can be a good strategy for a company to reduce cost on some of its operational expenses associated with labor and give way for further improvements in the production process by employing the Six Sigma and the DMAIC process. Also, the planning stage for the needed plant capacity and the best plant location is a key concept for globalization and outsourcing. Finally, the role of the CEO is deemed to be the most important determinant factor for the success of the company. References Goodden, R. (2010). Understanding the continuous cause of product recalls & product liability lawsuits. Retrieved from http://www.industryweek.com/articles/understanding_the_continuous_cause_of_product_recalls__product_liability_lawsuits_22492.aspx?SectionID=2 Heizer, Jay., & Render, B. (2011). Operations management (10th ed). Boston: Prentice Hall. Meredith, J. R., & Shafer, S. M. (2009). Operations management for MBAs (4th ed). John Wiley & Sons. Polinsky, M., & Shavell, S. (2010). The uneasy case for product liability. Harvard Law Review. Retrieved from http://www.law.uchicago.edu/files/files/Polinsky.pdf Washburn, J., & Huang, S. (2009). Foreign sourcing of production: Key issues for consideration before sourcing production abroad. Retrieved from http://www.gouldratner.com/67934A/assets/files/News/JAW-ForeignSourcing.pdf Whalen, C. J. (2005). Offshoring: Still a threat to workers. The Journal of Labor and Society, 8(6), 717-719. DOI: 10.1111/j.1743-4580.2005.00080.x Appendices Figure 1. Six Sigma and the DMAIC process Read More