McConkie Company has decided to pursue a cost leadership strategy. This decision is prompted, in part, by increased competition from foreign firms. McConkie’s management is confident that costs can be reduced by more efficient management of the firm’s operational activities. Improving operational activity efficiency, however, often requires some strategic changes in organizational activities. McConkie currently uses a very traditional manufacturing approach. Plants are organized along departmental lines. Management follows a typical pyramid structure. Labor is specialized and located in departments. Quality management follows a conventional acceptable quality level approach.

(Batches of products are accepted if the number of defective units is below some predetermined level.) Materials are purchased from a large number of suppliers, and sizable inventories of materials, work in process, and finished goods are maintained.

The company produces many different products that use a variety of different parts, many of which are purchased from suppliers.

Required:

Given this brief description of the firm and its setting, for each of the following operational activities and their associated drivers, suggest some strategic changes in organizational activities (and drivers) that might reduce the cost of performing the indicated operational activity. Explain your reasoning.

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Operational Activity Inspecting products Moving materials Reworking products Setting up equipment Purchasing parts Storing goods and materials Expediting orders Warranty work Operational Cost Driver Number of inspection hours Distance moved Number of defective units Setup time Number of different parts Days in inventory Number of late orders Number of bad units sold