Jones Ironworks, Inc.

Jones Ironworks is a job shop specializing in heavy duty gray iron castings which is not a “growth industry” in Detroit in 1973. One particularly troublesome department is the raw castings foundry. The average hourly wage rate in the foundry is approximately $3.85 and the fringe-benefit package is about 20%, based on paid wages. The base rate is $3.75 and there is a $50 per hour raise after four months, for those who stick around that long. The job requires a very strong back, a high tolerance for dismal working conditions, and very little else. The foundry is hot, dirty, dark (except for the blinding flames from the furnaces) and rat infested. The normal production crew is 125 men on each of two shifts, or 250 men in total. Usually, about 122 of the 125 scheduled workers actually come to work. Profit margins have been steadily declining in recent years and are now at dangerously low point. Gray iron foundries in Detroit are closing in droves in the early 1970s due to declining auto industry, the move to lighter materials (alumunium vs. iron) induced by the oil “crisis”, the depressed “rust bell” economy in general, and a trend to new materials technologies. Those foundries that remain have good backlogs because they are picking up the extra volume from those that close. But, trying to raise prices just increases the rate of defecting customers even more. For companies that want to stay in the business, the trick is to accept iron casting prices (or maybe even cut them!) and learn how to make a profit (“price based costing”).

Freddie Jones, son of the founder, has just returned from two years in a well-known rural eastern business school and is convinced “new management ideas” can turn around the company’s declining fortunes. He would like the company to switch from an hourly pay systems to a unit of production pay system for the foundry