Problems within Leagile Manufacturing Company and their Root Causes - Case Study Example

PROBLEMS WITHIN LEAGILE MANUFACTURING COMPANY AND THEIR ROOT CAUSES: AN ANALYSIS BY: STUDENT’S NAME: COURSE/ UNIT NAME: INSTITUTION’S NAME: Executive Summary This paper explored the conflicting views on the effectiveness of the Lean production system as applied in motor vehicle industry. It considered a case of Leagile Manufacturing Company, a company that had succeeded with the MRP system of production but faulted it for increasing inventory and being less efficient. The company’s C.E.O had directed her deputy to ascertain the feasibility of the Lean production system and employ it if proven workable. The company eventually adopted the new production system but within 6 months, an array of problems had faced its implementation. This paper analyzed the reported problems, citing their root causes and observed symptoms. The analysis categorized the problems experienced into two broad classes of strategic and operational shortfalls. The strategic issue raised in the essay concerns insufficient strategic planning by the company’s management under the leadership of the vice – president, Scott Murphy. The paper observes that Scott failed to consider a fine analysis of the business environment. To start with, he appeared to have not considered, in his plan, the external Political Economic Social and Technological short term and long term implications of the proposed production system. Equally, he appeared not to have effectively consulted the primary stakeholders including: company employees, suppliers, customers, and transporters. This is reflected in the high disapproval rate of the system by the mentioned stakeholders as observed in their complaints. The operational issues discussed include: the management of employees, the souring customer and supplier relations, and transportation constraints. The paper also observes that there exists ineffective leadership in the top management at Leagile Company characterized by low motivation of employees (low wages) that is seen as directly linked to the diminishing production. Various theories and models on human management and operational management are used to support the symptomatic manifestation of the problems. Introduction Lean production system is a modern production technique mainly employed by automobile manufacturers in which production is aimed at reducing inventory and wastes while enhancing efficiency and performance vigour. The system is characterised by: waste elimination, inventory reduction, maximising flow of produce, production based on customer demands, meeting customers specific needs, improving efficiency, empowering workers, ensuring rapid changeover, and creating a culture of continuous improvement. Lean production system focuses on limiting wastes associated with intermediary operations linked to production with its main concern being the end user or final customer (Shah & Ward, 2007). As such the end customers’ desire is what drives production. Goods are therefore, produced with customers in mind, meaning an alteration of the customer’s desires will inevitably alters the production process. Accumulation of waste materials is hence avoided as orders for such materials are only made in fixed quantities relative to the work anticipated. The case presented in this paper is of a company, whose vice-president, Scott Murphy, admires lean production system. He was directed by the company’s C.E.O to investigate the feasibility of the production system and engage it in the industry in case of success. The vice-president got inspired by literary information regarding the success of lean production system elsewhere. He, however, lacks practical orientation or exposure with the production system and is, reportedly, apprehensive on applying it at Leagile Manufacturing Industry. It is also reported that the company had been successful with the previous MRP system and every employee trust it as best applied in a manufacturing operation. Scott Murphy, upon receiving direction from his boss, the C.E.O, decides to apply the lean system since it appears simple and can help reduce the company’s inventory significantly. He directs the subordinates to quickly adjust to the method. However, within six months problems and complaints stream to his desk. Company supervisors complain at the inefficiency and unreliability of the method. The workers are very furious at the trends of progress and largely blame him on that fate. The identified issues with Leagile Manufacturing Industry are of strategic and operational nature. The strategic issues relate to ineffective planning the company did before embarking on lean production system. The operational problems, on the other hand, relate to customer/sales, production hitches, procurement/ suppliers deficiencies, and transport related problems. This paper examines the problem with a focus on their root causes and symptoms as displayed in the case. It also compares the actual situation with an ideal one if the challenges were lacking. Strategic Issues From the Leagile Manufacturer’s case issues related to planning and strategy are evident in the statement of complaint delivered to Scott Murphy. To start with, Scott himself had a feeling that the MRP system was the best way to run a manufacturing operation since the company had seen success using it. In addition, many employees approved it. He decides to introduce a new technique without prior strategic analysis and making consensus with key stakeholders. It is reported that after just a few months, Scott is wondering if the success stories he ready were really genuine. This in its own right is an issue leading to current problems the company is facing. It is clear that Scott himself was confident in the MRP system. Secondly he knew that everybody else trusts that. On the other hand, he is not much informed of the practicability of the lean production system. It is, therefore, ironical that Scott puts the company to practise a system not well researched on and in which no one is confident including himself. The system therefore is ill-fated since it holds no approval from any employee. Scott hurriedly engaged the unpopular lean production system without consulting the stakeholders. He appeared not to have given attention strategic issues affecting production and sales of motor vehicles within the environment of league industry. He ought to have built his operational strategy on four key targets of: customer orientation, creation of strong stakeholder partnership, building and maintenance service, and acquiring competitive advantage (porter, 1996; 1998, write 1987). In addition, objectives and control mechanisms were not formulated in the pre-implementation program. By not designing a proper strategy for the system, Scott and the company are courting problems and business irrelevancy. Regarding strategic factors, the external environment of the business was not analysed. Had Scott use analytical tools for external business environment such as PEST, he could have realised the political, social, economic and technological implications that the lean production system is associated with. Regarding PEST factor, economy, Scott never realized the production cost implication of lean system of production. He did not realize that by limiting raw material stock, the company would need emergency supply to buffer production needs. The emergency supplies would go at an extra cost. Secondly, the possibility of straining suppliers with urgent orders was not foreseen. The planners failed to realize that suppliers would strain at searching raw material needed by the company to work out urgent orders. This could break the mutual business relations the company had enjoyed over a long period of time. Thirdly, a change to the Lean production system would imply an increase of labour and inconveniences to employees who had been used to the MRP technique. This would lead to an increase in production cost. On the social front, the strong business relation that the company had established with stakeholders was threatened to sour due to inconveniences caused by the system. This would result in withdrawals from service by several stakeholders leading to reduced overall performance. Regarding analysis of internal environment, which equally seem to be a major problem, Scott was expected to engage the company resources at the planning stages. The company resources here refer to human resources (directors, employees and board members), the company’s physical resources like infrastructures (machines, space in the packing bays, buildings). Though it is not very clear whether he did this, evidence shows that little was done in planning for adjustments to meet the needs of the Lean system. It was necessary that the company improves its infrastructural development in line with the implementation of the lean system production method. Alongside company resources, Scott should have established the level of competencies of employees and whether their competence levels would blend well with the new production system and make the company remain competitive in the market. Competence, as defined by Prahalad and Hannel (1990), enables a company differentiate itself from competitors. According to Clarkson (1995), the main strategic problem the company faces is lack of coordination, of stakeholders’ activities in line with production and sales, to match the new system. This arose from improper planning and has resulted into blames being shifted from one person to another, and from one department to the other. It is also evident that employees of the company, except for the Vice – president and probably the C.E.O, never approved the system. This is justified by their fury when presenting complains to Mr. Scott. The disapproval of the plan could be explained in terms of inadequate consultation or involvement of these people during the planning stage. It is expected that employees, being primary stakeholders in a production system, be involved in decision making so that they own up company decisions and policies. This will deter any revolt in case of a default along the implementation process (Kazmi, 2008). The failure to engage employees in planning and hence complaints, reflect poor leadership traits in Scott. He is portrayed as a dictator who rules by himself. He does little consultation from subordinates, who according to contemporary management systems, are considered very important players and the ultimate bosses in an organization. The C.E.O is also exposed as a delegative leader who allows a subordinate to run the company’s affairs without bothering to offer close supervision to identify weak areas. Cherry (2012) observes that this style, in most cases, leads to poorly defined roles hence conflicts on interest, low motivation and little cooperation. In brief, the strategic problem here is insufficient planning and poor leadership. These are characterised by non-involvement of key stakeholders, failure to consider environmental aspects of the business, failure to conduct feasibility study or research. Operational Problems These range from sales and customer relation problems, production constraints, transport – related challenges, and procurement/ suppliers related problem. From the complaints presented to Scott, elements of sales and customer related problems are evident within the company. For instance, it is reported by the operational management that the company appears to be taking much of buyers’ time by not having ready products and by delaying production upon order. Timely delivery record has gone down from the initial 95% to less than 59% within the past 6 months. This statistic can reflect efficiency in the company which must have dropped by a similar margin. The above are symptoms of inadequate planning and preparedness in accordance with Gupta & Boyd (2008) view that when planning is adequately undertaken production constrains are limited. With good planning and sound preparation, it is possible to avail to the markets goods without compromising interest of the client. It is also reported that the unsatisfied customers give threats of leaving while others are pushing for price reduction. It should be noted that this behaviour of customers is indicative of dissatisfaction which must have come in with the new technology employed by the company. The problem facing the company in this case is low production characterised by customer dissatisfaction. Moreover, it is reported that customers claim that product delivery methods are so poor that they feel compelled to keep more of the company’s inventory in their raw material store to account for their lack of faith in the delivery promises. This is a problem of poor management characterized by poor co-ordination in the production process. The issue raised here reflects client uncertainty of the company’s timely supplies. It is worth noting that the company seems to be making empty promises of timely delivery, probably to keep its loyal clients. This is a symptom of struggle by the company to manage its efficiency when the system seems unfavourable to meet its production levels. A report of customers increasing raw material inventory costs as a result of the company’s faults and are in demand of compensation through price cut is a symptomatic show of the company’s low efficiency and struggle to keep promises. There are frequent changes in orders made by the clients and these are said to be radical. The company is said to be poor at delivery, hence customers make advance orders to compensate for late deliveries. This is a sign of a slow production process in the company. It is evident that the previously used MPR was faster and loyal clients could make fewer orders and very frequently as delivery was timely. They have since shifted to larger orders. The company’s production department has been malfunctioned. There exists evidence of problems associated with the production process. According to report by production managers, the company is accumulating more purchase orders making production more costly. The frequent delivery of small loads, with high transport charges, puts cost high. Schedules are changing more frequently, there is lack of adequate raw materials hence the production department postpones already running processes to handle emergencies. There is increased paper work associated with the many deliveries. This has caused the managers to ask for more man power to help with handling the paperwork. High traffic of raw materials is reported .this makes it difficult for the company to access raw material in urgent use. The packing and offloading area is not spacious while the manpower to handle deliveries is equally insufficient to fast track the required materials. The change of schedules has caused the company to at times fly in raw materials despite the very expensive cost of hiring planes. In addition, the JIT system is reported not to give any visibility of an impending problem or need unlike the previously used MRP. This has caused inefficient downtimes for set up changes and denies the company enough time to acquire raw materials. It is also reported that with the JIT system, a single problem in a production line affects the entire process since the processes are in many ways interdependent. The trickiest of all the production constraints is the reported threat by very productive employees of quitting. Employees contemplate leaving citing low payouts. The company’s wages have been based on efficiency and productivity yet the process itself is inefficient and less productive. This has automatically rendered most employees take home low pays prompting threats of quitting. Employees also cite tedious work propagated by the so many changes in schedule. The processes are also less co-ordinated hence delays and inconveniences. The central problem leading to agitation by employees to leave is the low levels of motivation. It is evident that what this company does in terms of motivating its employees is very little. Several factors of the work environment appear to work perfectly in demotivating employees. These factors are consistent with motivational theories of Maslow’s need-based, Hertzberg Two factor theory and Adam’s Equity theory of motivation. The aspects of Leagile’s work environment do not provide the security, social and esteem needs in the Maslow’s model of motivation. Provision of physiological needs is also limited since, as described by managers, wages at the company are dependent on an employees output which in its own right affected by the inefficient production system. According to Maslow’s motivational perspective, the behaviours of human are pegged on the satisfaction of their needs (Ifinedo, 2003). He says that when unsatisfied needs of humans are met, then their behaviour is modified. According to this model, the area of the triangle occupied by each category of need reflects the extent to which it elicits a response. In addition, Maslow observed that, the needs are important from level 1 to level 5 up the hierarchy and that once a need is met, it is no longer a need hence cannot motivates, instead another need up the hierarchy will motivates when met (Kroth, 2002).  . Herzberg’s two factor theory is equally applicable here. In Leagile’s company work environment, there exist both motivating and demotivating factors. The demotivating factors include: company policies, job security, pay and fringe benefits. These factors seem to lower employees work morale. The demand for more work-force by managerial teams is symptomatic of demotivation behaviour. Adam’s Equity theory of motivation applies here as well. This theory presupposes that people tend to compare their input and benefit relations of their work. It suggests that employees endeavour to strike a balance or equity between the two components of their work. When their work is balanced i.e. the rewards are consistent with their skills, competencies and agility, and then they become motivated to work. However, an imbalance in the two only evokes dissatisfaction (Graham & Weiner, 1996). The Leagile company environment provides an imbalance between employee effort and rewards. The production system seems to pull down employees wages despite their hard work and competencies. According to this theoretical model, those feeling underpaid (negative inequity); give less effort to the work Other production based issues cited by employees include: lack of spare parts or materials to assist emergencies. This challenge could be linked to laxity in the management since they fail to conduct a day-to- day analysis of the company’s progress and provide mitigation to recurrent problems. Within six months the management is unable to expand the packing bay for instance. According to Caulton, (2012), this feature in indicative of the management’s insensitivity of current problem and that analysis of current operations and supervision is not done well. The problem in this case is inadequate leadership. According to the financial report presented to the C.E.O, the company lose apparently from increase of expenses in all areas of production. This report defends the notion that the top management in the company is not keen enough to observe the dwindling production capacity relative to the very costly process. This laxity amounts to inadequacy in leadership. This company’s leadership, having enjoyed great economic development, are expected to be sensitive enough to detect the simplest incident of drawback. The reported significant financial loss within six months could also reflect low motivation levels which seem to have diminished a sense of responsibility in the departmental heads particularly concerned with finance management. The head of finance is expected to give monthly mini reports on financial aspects of the company’s operation. This either was not reported or was never treated as serious. Procurement and suppliers related issues include: frequent changed schedules of supplies compelling suppliers to keep huge inventory of orders beefing up administrative costs on their side. Second is more requests for supplies by the company sent in a rush order. This force them to store huge quantities of the raw materials hence impose high charges to buffer their storage expenses. The problem related with procurement as characterised by suppliers’ complaints is insufficient strategic planning. It is expected that the strategic plan outlines a projected input – output capacity variables. The quantities of raw materials needed may be worked out and be publicised in the tender documents. It is worth noting that the company has been in the trade for a while and that it has perennial clients. This wide experience in the market is meant to inform the planners of customer preferences. The market study findings in the strategic analysis should also supplement this knowledge. If this information was obtained during the feasibility study, then adjustments could have been made and in liaison with potential suppliers to advise them on what goods to stock, and the seasons during which specific goods may be stored. The problem of rush orders, frequent changes on orders, and inconveniences on suppliers could, hence, be avoided. Transportation of implements for production encounters problems. According to the report, the urgency of some raw materials has forced the company to engage aeroplane services. The track bays are not spacious enough to allow faster deliveries. There are also delays in offloading of goods as the much traffic has to wait to access the delivery area. It can be argued that stakeholders (transporters) were not sensitised in good time on the adjustments associated with the company’s new initiatives. Equally, their consent was not sought at the planning stage. If transporters are sensitized and are involved in planning, challenges akin of those expressed here will be reduced significantly. It is also suggested that the transport agencies could have advised Leagile Company to expand their delivery / packing bay and probably plan on increasing labour so enable fast tracking of supplies. In addition, the use of aeroplanes to supply urgently needed goods is indicative of panic in the company in the fear of loosing loyal clients. The company is also noted to have failed in fast managing crises to suit its stakeholders’ interests. It is widely expected that the company could have mitigated the required packing area even when it was not defined in the plan. This is because; its limited space directly impairs production. In conclusion, this paper reviewed operational management related to a management scenario in a manufacturing company. The intension of the paper was to highlight strategic and operational problems related to challenges faced at Leagile manufacturing company presented in the case. In addition, an analysis of the root cause of the problems was also discussed. The paper discussed separately strategic issues mentioning elements of business environment analysis at the planning stages of policy enforcement. It raised the value of examining both external environment and as well internal environment. Analysis tool of PEST was mentioned as useful in this analysis. It was diagnosed that Mr. Scott, the Vice-president of the company discussed did not partake proper analysis of the business environment as this could explain his failure to recognise the economic and social implications of the lean system of production and a need to provide mitigations in time. The internal business environment was not properly studies in the strategic plan, if at all one was made by this company. Primary stakeholders in the business including employees, contractors, customers and the management teams appeared not to have been consulted effectively (Croson R et,al., 2012).. This is reflected in the outrageous complaints these people present at the failure of the process. Regarding operational problems, sales and customer management were noted to be poor. The causative factor is the slowed production speed and uncertainty regarding shifts of orders leading to poor communication among persons involved. Production department faces the most difficult task. Ranging from unavailability of materials, suppliers high charges on raw materials, and frequently changed orders among other. These factors greatly demotivate employees’ added to the fact that the company only pays on the basis of performance. The employees’ demotivational behaviour is consistent with theories of motivation identified in the paper. The theories are Maslow’s need based model, Hertzberg et, al. Two Factor model, and Adam’s Equity theory. Moreover, models of organizational management and models of leadership traits have been incorporated to clarify the definition of problems in Leagile Company. the models predict poor leadership on the side of management as a cause to the imbalance in managing employees and production. List of References Caulton, J. R. (2012). The Development and Use of the Theory of Emerging leadership Journeys: A Literature Review. Emerging Leadership Journeys, Vol. 5 Iss. 1, pp. 2- 8. December 14, 2012. Cherry Kendra . (2012). Lewin's Leadership Styles. December 14, 2012. [Online]: http://psychology.about.com/od/leadership/a/leadstyles.htm Clarkson, M. (1995) ‘A stakeholder framework for analyzing and evaluating corporate social performance’, Academic of Management Review, Vol. 20, Issue 1, Pp 92 – 117. Croson R et,al. (2012). Behavioural Operations: The State of the Field. Journal of Operations Management.December 13, 2012. 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