Introduction:
The General Motor’s manufacturing plant in Fredericksburg plant is facing some operational changes within the plant that would lead to increased productivity and a decrease in costs in the long-run. Although cost cutting and meeting the budget can be overcome through restructuring (lay-offs), Joe Hinrichs is fully aware that the social costs of restructuring are perhaps too high for the small community in which the plant operates. Reengineering the processes at the plant to meet QS 9000 standards is another level of change occurring in order to produce more efficiently. Hinrichs is trying to regenerate its core strategies in its production process while gaining the support of its parent company, plant employees and the United Auto Workers Union. Structural variables such as goals, culture and environment, technology, and size that influence the operational effectiveness are discussed below.
Analysis:
One of the key issues at the Fredericksburg plant as mentioned before was meeting budget through reduced labor costs and increased productivity. Reducing labor costs would require Henrichs to stop paying the overtime to the employees, a frequent scenario to which they had become accustomed. But in order to facilitate this change we would need to determine on how to keep his employees motivated to improve production processes while their rewards were decreasing. This could only be accomplished focusing the employees towards the bigger picture; which in this case was to keep the plant operational. The employees were aware that although the Fredericksburg plant was a key in the production of GM’s automatic transmission it was not considered irreplaceable. Other plants could take over the production of the TCC and eliminate the need for the Fredericksburg plant altogether. Additionally, GM could outsource the production of the TCC causing there to be no need for the Fredericksburg plant.
Another issue was the ability to improve the production processes via the new assembly processes in order for the Fredericksburg plant to compete in the future and meet its budget. The older assembly processes resulted in worker idle time, old machine breakdowns and little room for adjustments which all contributed to going over budget and delayed production and a larger proportion of rejects. The gradual integration of new projects and processes to the current one, allowed the plant employees to voice their concerns and objections and increase their job satisfaction. Although he new process which allowed individuals to produce full TCC’s, share machinery and be accountable for their own daily work initially faced some hesitation, but, soon it facilitated higher motivation and satisfaction among the employees. It also reduced the dependence of task completion on other workers as experience in the older process. Henrichs’s decision to put employees with high seniority to test out these systems was a wise one as knew that if the employees with the most experience, and therefore the more hesitant ones could work the new cells, then the others would soon follow and thereby he would minimize resistance to the changes. Furthermore these test groups demonstrated an increase in productivity and quality improvement (decrease in number of rejects). Henrichs long term goal should be to incorporate these processes throughout the plant in order to eliminate the inefficient older assembly process’ which also consumed a larger floor space. Thus this would add additional space for individual worker cells which were considerably less space consuming this would not only maintain productivity but could also increase it.
In addition to the process changes Henrichs was also concerned with the implementation of the QS 9000 certification; this would help the Fredericksburg plant compete in the future and ensure that the plant remained in operations. On a higher level, GM saw this as a critical issue since its competitors were working to acquire this certification as well, and as this would result in reduced costs and improved quality, GM, and by extension the Fredericksburg plant, would face tougher competition and may suffer in terms of decreased revenue and loss of customers. To promote the completion of the certification, Hinrichs should initiate a reward policy for adhering to the certifications’ qualifications; he should incorporate the qualifications into the new assembly processes changes. The QS 9000 required thorough documentation and internal discipline which was currently missing from the plant but would improve quality in the long-run. As the new worker cells were run by individual employees it would be easy to document each of these worker cell’s activities in terms of productivity and quality as each worker could be required to fill out all necessary tracking statistics onto one page at his shift’s end.
In March 1996, the UAW strike at the two GM component plants would be seen as a obstacle by most managers but Hinrich approached it from a chance for improvement perspective.
The UAW strike in March 1996 really created a nightmare for Hinrichs, of which he turned into a dream for improvement. Even though the strike resulted in halts in production and lost jobs, in the other plants producing automatic transmission, Hinrichs decided to seize this opportunity and improve job assignments, conduct regulatory classes and test out new production processes. While this was a risky move as it involved paying employees when no revenue was accessible, Hinrichs pursued it to gain employee trust, boost morale and take a position of leadership within the community by offering the employees something that no other plant manager would have done; a job when they should have been laid-off.
The most recent problem faced by Hinrichs was the February 1997 break-down of the press; as this was the first step in the production process and the process bottleneck there was no way to continue with the TCC production. The three available options were either to repair the press by outsourced technicians or replacing the 20 year old parts using new ones or repairing the press for short time but at the same time installing the new die that would allow the press to complete three jobs at once. In order to make a decision regarding the broken press, Hinrichs needed to take into consideration the year’s budget, the amount of time the press would be out of commission and the its implication on the changes within the plant that he was trying to create for the future and find the best solution that would not only server him in the short term but also in the long-term.
Recommendation:
In order to deal with the broken down press situation, for the betterment of the Fredericksburg plant and guarantee its continued success, Hinrichs should opt for the third solution and introduce the new die to the plant. (Exhibit 1) Although the new press option is risky, technologically advanced and time consuming it would provide the highest benefit in terms of short term and long term. The first option offers the fastest and cheapest fix but will most likely result in resistance from the union and although Hinrichs believes he could take care of it, it involves the risk of damaging his relations with the employees he has worked towards. Furthermore the costs associated with this option would generate approximately $277,000 average daily revenue (excluding normal production costs, Exhibit 1) which does not seem beneficial in the long term, as compared to the other two options. Although the second option seems viable enough from the employee morale, UAW resistance and average daily revenue generated perspective; it does not improve production efficiency as compared to the last option and thus would also not be beneficial in the long run. Thus the last option would be optimal in terms of long term growth. Although the costs incurred with this option would be significantly high, Hendrichs could incorporate the costs involved with $30 million investment budget for new equipment and tooling for Carbon Fiber. The new die has the potential to forever change the way production is done and if the Fredericksburg plant were first to incorporate the change, they could experience huge success with first mover advantage. Hinrichs will need to plan ahead for the TCC production and to financially meet the budget. Even though they would incur a $2 loss per TCC while the production was being outsourced, with the cost saving experienced with the QS 9000 and the addition of the individual cell processing stations will help bring down the costs and to help mitigate the entire bottom line for the plant while the press was down for the new die.
Furthermore, Hinrich should continue to utilize his most experienced of workers in the new processes. This would not only minimize resistance by other workers but also build their motivation and enthusiasm to participate in the new process. The QS 9000 certification will aid in cutting costs at the Fredericksburg plant by reducing waste through quality control systems and Hinrichs should make sure the QS 9000 qualifications are met by incorporating its completion into the assembly process changes. Thus by following these procedures and gradually replacing the old assembly process with individual worker cells would not only help the Fredericksburg plant remain operational but will also provide a competitive edge in the industry ensuring its future success.