Part I: Answer each question thoroughly, read over each problem, discuss the pros and cons of each option, and select the best option including your justification.

Your Position

You are to assume the position of the new plant manager. You must now solve several major problems and participate in a number of important decisions that occurred over a three-year period of time at the Southwestern plant.

Problem 1

In addition to greeting all plant visitors and ensuring appropriate sign-in, the job of the receptionist is to answer all telephone calls and route them to the appropriate employees. The receptionist reports to the personnel manager and begins her workday at 8:00 a.m.Her quitting time is 4:30 p.m.The receptionist is entitled to one 15-minute break in the morning, a 30-minute lunch break, and one 15-minute break in the afternoon. The plant office hours are from 7:30 a.m. to 4:30 p.m.

The human resources manager must secure relief for the receptionist for the two breaks, lunch, and for the period before the receptionist is scheduled to arrive at work (7:30 a.m. - 8:00 a.m.). There are six administrative assistants who provide relief, none of whom work for the human resources manager. While all six of the administrative assistants know that relieving the receptionist is important and must be done, each assistant thinks of the job as menial and undesirable.

At one time the human resources manager made out the entire schedule for receptionist relief. As it turned out, the schedule satisfied no one and too much time was spent each week rescheduling the relief team. The solution was proposed to encourage the relief team to schedule their own time. This system worked very well for several months. The subject of switchboard relief was rarely brought up.However, when general plant activity began increasing, one of the relief team members convinced her manager that her work load was such that she could not afford to be part of the relief team.The manager was successful in getting her removed from the relief team. The other relief team members resented that their numbers had been reduced by one. The amount of time each had to devote to switchboard relief was increased, and they did not see themselves as being less busy than the member who was excused.From this point forward, receptionist relief has been a constant source of irritation for administrative assistants and managers. Administrative assistants and managers alike continue to think of reasons why a particular assistant is too busy to participate on the receptionist relief team.

The human resource manager has brought the problem to your attention. You are discussing several potential options as solutions to the problems.

Problem 1 Options

Option 1 Hire an additional clerical person. In addition to providing receptionist relief, this person could handle other miscellaneous tasks.

Option 2 Tell the managers and the administrative assistants that the present situation will not be changed. The five administrative assistants currently participating will continue, and furthermore, you donot wish to hear further complaints.

Option 3 Have the manager whose secretary has been excused justify this action. If the justification is valid, communicate this information to the other assistants and then leave the situation alone.

Option 4 Make no exceptions. Insist that all administrative assistants participate on the relief team. If the work load is really to great for the one assistant, tell her manager to make adjustments within his/her department or hire part-time clerical help if necessary.

Problem 2

The production department is headed by the production superintendent who has two area supervisorsreporting to him. Three shift supervisors report to each of the area supervisors. Each shift supervisor is responsible for 40 to 50 production workers.

Production workers are scheduled to work 12 hours each day for three days and then are given three days off. On this schedule, each worker will work 36 hours in the first week and 48 hours the second week. Over the long run they average 42 hours per week.

The work is considered to be very demanding physically. The work environment is hot and the summer months are particularly uncomfortable. In addition, the work can be monotonous and boring. However, the pay for this work is considered very competitive in the local area.

Shift supervisors are generally promoted from the ranks of the production workers. Training initially consists of a two-week period where the new supervisor works with a veteran supervisor. The only formal supervisory training is an occasional two-day seminar attended by all supervisory personnel.

The performance of the supervisors is measured primarily against manufacturing standards. Piece efficiencies, labor through puts, material usage, and quality are the most important measures of supervisory performance.

One particular supervisor, Jim Murdock, was promoted to a supervisory position in 2002. Initially, his performance was better than that of any of the other supervisors. In a short period of time he proved that he, with his shift, could produce the lowest-cost product. Jim's leadership style was very much of a Theory X style. He tolerated no socializing on the job and demanded total subservience to his direction. He had no interest in discussing alternatives with his subordinates because, after all, it was his job that was on the line. The production superintendent was aware of Jim's leadership style, but because of Jim's impressive performance statistics, he was hesitant to intervene.

In 2004 Jim's performance begin to slip. However, there was no noticeable change to his leadership style. At the semiannual labor management meetings, workers began to complain of Murdock's harsh style. The most frequent complaint was that Murdock was too demanding and refused to recognize that the production workers were human beings. Absenteeism increased in the months following.Turnover at the plant also increased.Jim's record was proving to be worse than other supervisors in these areas.

The number of grievances filed by employees has exceeded those filed by employees on other shifts.These proceedings have proved to be costly and have required a great deal of time. Employees have stopped trying to earn the approval of Murdock and many are content to turn in the minimum level of performance required to get by.

By this time, the production superintendent has realized he has a serious problem on his hands.He has scheduled a meeting with you to discuss the problem. At this point you are considering several potential recommendations.

Problem 2 Options

Option 1 Counsel the shift supervisor. Explain to him that if he is more considerate he is likely to get a more favorable response from his workers.

Option 2 Encourage Jim to enroll in a Dale Carnegie course to improve his interpersonal skills. It is hoped that he will then gain an understanding of the problems his subordinates face.

Option 3 Terminate Murdock on the basis of low performance.

Option 4 Enroll the supervisor in a series of management training courses designed to teach him about motivation and leadership.

Option 5 Conduct meetings with the production workers pledging 100 percent support of the supervisor. Let it be known that complaining will not work and that you expect a return to the previous high levels of performance.

Problem 3

The plant ships its products nationally from one location in the Southeast. Seventy percent of the

Market for this product is located within a 600 mile radius of the plant. The plant has a capacity capable

of producing 300,000 units per annum with its six presses.Existing business calls for about 270,00 units

per annum which means the plant operates at about 90 percent capacity. From time to time, business

activity has been higher than 90 percent, but it has not achieved 100 percent in the past three years.

It is well known by division management that a large market exists in California, and it is estimated that

California will be the fastest growing market segment in the country for the predictable future. This

market has not been pursued, however, because it is not as profitable as existing business. There are

many producers competing in the California market, which depresses the price below levels achieved in

other areas. The competition is so strong that customers demand that the price of the product include

installation. In other markets, the customer secures and pays for the installation. This coupled with the

higher freight costs to ship to California and the costs that would have to be incurred to set up a

stocking warehouse have precluded any serious consideration of entering the market.

Realizing that the plant was operating at less than full capacity, management wanted to evaluate the

possibility of entering this market even if it meant accepting lower margins. The reasoning was that

additional business, even marginally profitable business, was an additional profit opportunity. It was

reasoned further that any profitable use of capacity was better than letting the equipment go unused.

In forecasting the expected volume that the plant could reasonably expect to obtain, the marketing

manager could reasonably expect to obtain, the marketing manager submitted the forecast presented in

Figure 2. In addition, the following information was gathered:

Selling price $ 250.00/unit

Installation cost 45.00/unit

Production/Warehouse handling 125.00/unit

Warehouse storage 4.50/unit

Freight 35.00/unit

Sales force 100,000.00/year

Building 25,000.00/year

Based on this information, you decide to do a breakeven analysis and calculate the breakeven point in

units for setting up a warehouse and entering the California market. Since it has been some time since

you have done a breakeven analysis, your recollection of the formula is somewhat rusty. At first

attempt you calculate four different solutions.However, only one is the correct breakeven point based

on the appropriate formula.

Figure 2

Hercules Construction Products, Inc.

Forecasted Sales

50,000 .

Unit

Sales 40,000 .

30,000

.

20,000

10,000 .

.

0

Year 1 Year 2 Year 3 Year 4 Year 5

Problem 3 Options

Option 1 3,086 units.

Option 2 6,888 units.

Option 3 5,750 units.

Option 4 4,226 units.

Problem 4

After you had completed your analysis, a meeting was scheduled with the marketing manager. He indicated that he was certain that the required number of units needed to breakeven was virtually without risk.Furthermore, he was confident that his submitted sales plan could be reached.

Next, a meeting was scheduled with the controller to make a final decision that would then be submitted as a recommendation to the division manager. At this point there are essentially three alternatives that you and controller can consider.

Problem 4 Options

Option 1 Enter the market.

Option 2 Decline to enter the market.

Option 3 Make no decision until further analysis is undertaken.

Problem 5

In spite of all the well-laid plans, within six months existing business did increase substantially.Existing orders were able to occupy all of the available manufacturing capacity. It was now becoming necessary to pass on some of the business. Some action would have to be taken. A meeting was scheduled with the division manager to discuss the problem and to determine an appropriate solution. You are considering several potential solutions that can be recommended to the division manager at the forthcoming meeting.

Problem 5 Options

Option 1 Continue to serve customers on a first come-first serve basis and start the process of

adding plant capacity.

Option 2 Stop serving the less-profitable California business.

Option 3 Stop serving the additional existing business in order to preserve the large California

market.

Problem 6

The company was aware of a quality problem. In essence, the problem was that the surfaces of some of the parts were discolored, giving the part a slightly dirty appearance. Since the defect could be repaired and was of a cosmetic nature (rather than structural), there was no problem with shipping the product to customers.The repair to the product was not noticed by some customers, and some did not consider it important. At least 40 percent of the customers, however, did think that it was important and considered it in their buying decisions.

Up until 2002, technology was not available to keep the defect from occurring. Then in 2002, it was discovered by R & D that the problem could be eliminated. The solution to the problem dictated that throughput be allowed by almost 25 percent.The slower throughput allowed for a better cure and eliminated the slightly dirty appearance and the need for repair. The effect of the solution was to increase labor costs by 25 percent or about $300,000 annually.

The company has been profitable. However, a $300,000 reduction in annual profits is considered significant. The motto of the company has always been to produce a better product at an equal price or an equal product at a lower price.You are meeting with the division manager to determine what course of action should be taken. You have basically two options.

Problem 6 Options

Option 1 Implement the proposed solution.

Option 2 Do not implement the recommended solution.

Problem 7

Sales continued to increase and by 2005 the plant's capacity was strained. It would of course be possible to increase the capacity of the plant by simply reversing the quality improvement. The throughput loss would be regained with a corresponding increase in production.

The high sales volume was expected to continue for only another two months. Any units that were ordered but not shipped due to capacity constraints would represent lost sales. The profits that the additional sales would generate were considered to be very significant. At this point a meeting was scheduled with the division manager to consider solutions.It was concluded that there were only two viable options.

Problem 7 Options

Option 1 Reverse the quality improvement for the short period that the plant's capacity is being

exceeded.

Option 2 Forego the profits and maintain the quality of the product.

Problem 8

With its major product the company enjoys a 15 percent share of the market. Since the plant's opening about 10 years ago, sales have increased at an average annual growth rate (adjusted for inflation) of about 10 percent per year. At the time, the process used in manufacturing was new. The company has since been on the leading edge in technological advances for this particular process. While there have been other entries to the market, the company considers that its technological advantage in manufacturing is substantial.

In recent years, competitors have improved their products. The marketing manager believes that historical growth rates cannot be maintained without improving Hercules' product or without substantial price cutting.He believes the competitive products are improving at a rate that will quickly make their product equal to Hercules', which would erode the premium price.

In meeting after meeting the subject of the strategy was pursued. The major issue was whether a strategy of growth should be pursued or one of limited growth where pricing remains stable without costly product modification. Retrenchment was clearly not a strategic alternative.

There were several factors that were in favor of product development. The most important was that installation of the existing product was more difficult than what the customers wanted. Market surveys indicated that volume would increase if installation could be simplified. However, estimates of the potential volume increase could not justify the purchase of new equipment for product development. It was also not known if just lowering the price of the existing product could achieve the same volume increase. Another factor in favor of product development was that if the product was to be redesigned, it could be done in a way that twice as many units could fit into a truck for transportation. The effect would be to cut freight costs in half. Again the freight savings would not be sufficient to justify the purchase of new equipment. Finally, it was believed that in redesigning the product the style could be changed to make the product more appealing to the customer.

These three factors were to be weighed against the alternative of investing nothing in new equipment and simply lowering the price of the existing product in the hopes of achieving the growth objective. All of the financial indicators were in favor of lowering the price in some way. The major uncertainty, in spite of the market surveys, was the accuracy of the volume projections. If the volume turned out to be greater than estimated, the financial indicators would be entirely wrong and an opportunity would have been missed.

In a meeting with division management you are asked for your input on the decision.

Problem 8 Options

Option 1 Lower the price of the existing product.

Option 2 Make the investment in product redesign based on the probability that the volume

estimates have been underestimated.

Option 3 Lower the price of the product and invest in the product redesign. This essentially

combines Options 1 & 2.

Option 4 Pursue a strategy of limited growth at this time.Forego product modification and price

cuts.

Option 5 Increase advertising to increase brand awareness.