Question Description

What are the key issues in this case? Be sure to classify them as much as possible as symptoms versus core causes. Be sure to keep in mind the constraints as defined by the type of customer and the internal conditions. Once you have analyzed and classified the issues, develop a comprehensive solution for MasterChip that can deal more effectively with their situation.

Sally Jackson, production manager of the MasterChip Electronics Company, was having another frustrating day. The final assembly area was woefully behind schedule, and several large orders were several days, and some several weeks, behind the promised delivery date. Customers were not happy and were giving lots of angry messages to the sales force. At the same time, some of the work areas in the early portions of the production process apparently did not have enough work. Sally viewed this as an equally important issue, since she could think of only two possible solutionseither let the people stand around and do nothing or have them work ahead on some of the components even though no order existed for those components. Working ahead was risky because their products competed in a market where customers could demand a lot of options for a basic product, and some of those options had highly variable demand (one option, for example, could go for months with no demand and then all at once have a very large demand as one customer ordered a large number of a product with that option). That was not likely to change since most of their customers were large retail chain stores. Letting people stand around was also bad, since she was evaluated on labor efficiency and utilization, and a worker not working would make those numbers look very bad.

She would like to be able to send some of the workers home for a day or part of a day, but the local union agreement prohibited that. She also liked to think about the possibility of using some of those workers to help out in another area (final assembly, in this current situation), but the union agreement also had specific work classifications for each worker, and those could not be violated. Even if that were possible, she knew it could be a problem since most of the production workers in the area with little work knew almost nothing about how the final assembly area worked, and that could generate lots of quality problems.

Sally made a note to herself to develop some specific numbers for her weekly meeting with the human resources manager. Every week she looked at the demand for each area and put together a set of recommendations for laying off some workers in one area and calling back some workers for another area. She knew that was allowed, on a week by week basis, under the union contract, but she still hated that task. Even though she could usually come up with some good numbers, she could not neglect the following impacts:

These workers often were the sole source of income for their families, and even a week of layoff would likely imply hardships on their families.

The longer a worker was not working, their skills were not allowed to remain at a high level of effectiveness. When they returned, they typically would not be able to work as efficiently as before, and also represented the potential for a larger number of quality problems.

Even if they remained effective (if, for example, they had only been gone for a week), it was highly likely they would be resentful of the layoff, and why should they feel loyalty to the company when the company had not been loyal to them? The feelings of resentment might make them less efficient on purpose.

Many of their best workers had skills that were in demand by several other companies. Why should a highly skilled worker with those skills in demand put up with those occasional layoffs when they had other choices? Just in the last few months, she had lost more than 10 of her best workers by having them go to work for one of the competitors of MasterChip.

Just as she was starting to work on the numbers for her meeting with the human resources manager, Andy Morgan (the sales manager) came into her office. The conversation went like this:

Andy: "Sally, I've got some good news and some bad news for you. First, the good

News: I just got off the phone with the buyer for Ajax Department Stores. They want a very large order of over 1000 of the A77 product. They have some sort of promotion in the works and that product is to be featured."

Sally: "When did you promise them that we would have the order done?"

Andy: "I gave them our standard lead time for the product, six weeks."

Sally: "That's going to be a problem for us. The A77 uses a power supply that is somewhat expensive, so we have only about 200 in stock. It generally takes us 8-10 weeks to get those in from our supplier. I suppose we could expedite a shipment, but that supplier would demand a much higher price since it disrupts their own operation so much to do an expedite. It might cost us enough extra to almost eliminate any profit on the order for us."

Andy: "Why don't you people keep enough inventoryyou know ours is a competitive business and we have to be responsive to our customers? If we can't make this order in six weeks, we are messing with a planned promotion from a major retail chain, and they won't be at all pleased. I wouldn't be a bit surprised if they started buying from one of our competitors. That point brings me to the bad

News: I'm getting lots of angry phone calls about those orders you have behind schedule in final assembly. Remember, the customers of our customers tend to walk out of a store that doesn't have a product they want and go to a different store. Our customers are very sensitive to having their orders shipped on time. Can't your production people get your act together?"

Sally: "You should know that we can't keep a lot of inventory sitting around. It is expensive to hold, since electronics are easily subject to being damaged in storage, and as the technology changes so fast it also may become obsolete before we can even use it. Management would not like it too well if our inventory expense kills all our possible profit. Also, you taking an order like this without checking first if we can do it, is kind of stupid. It's that kind of thing that causes the problems we have."

Andy: "Sally, that's just silly. I have a customer on the phone that wants to spend a lot of money with us for a big order. How do you think it would sound if I told them to wait while I get permission from someone else to take the order? We can't mess around like that in sales; we need to work hard to get orders, and we did quote the standard lead time we give all our customers for that A77 product. You people have to work better. We can do our job to sell it, why can't you do your job to make it?"

All Sally could do after that conversation was to search for a pain killer for her newly developed headache, knowing she had to deal with that before she started to think on how she should deal with the problems she had in addition to the new one that was just handed to her by Andy.