Section B – TWO questions ONLY to be attempted
Cuthbert is based in Ceeland and manufactures jackets for use in very cold environments by mountaineers and skiers. It also supplies the armed forces in several countries with variants of existing products, customised by the use of different coloured fabrics, labels and special fastenings for carrying equipment. Cuthbert incurs high costs on design and advertising in order to maintain the reputation of the brand.
Each jacket is made up of different shaped pieces of fabric called ‘components’. These components are purchased by Cuthbert from an external supplier. The external supplier is responsible for ensuring the quality of the components and the number of purchased components found to be defective is negligible. The cost of the components forms 80% of the direct cost of each jacket, and the prices charged by Cuthbert’s supplier for the components are the lowest in the industry. There are three stages to the production process of each jacket, which are each located in different parts of the factory:
Stage 1 – Sewing
The fabric components are sewn together by a machinist. Any manufacturing defects occurring after sewing has begun cannot be rectified, and finished garments found to be defective are heavily discounted, or in the case of bespoke variants, destroyed.
Stage 2 – Assembly
The garments are filled with insulating material and sewn together for the final time.
Stage 3 – Finishing
Labels, fastenings and zips are sewn to the finished garments. Though the process for attaching each of these is similar, machinists prefer to work only on labels, fastenings or zips to maximise the quantity which they can sew each hour.
Jackets are produced in batches of a particular style in a range of sizes. Throughout production, the components required for each batch of jackets are accompanied by a paper batch card which records the production processes which each batch has undergone. The batch cards are input into a production spreadsheet so that the stage of completion of each batch can be monitored and the position of each batch in the factory is recorded.
There are 60 machinists working in the sewing department, and 40 in each of the assembly and finishing departments. All the machinists are managed by 10 supervisors whose duties include updating the batch cards for work done and inputting this into a spreadsheet, as well as checking the quality of work done by machinists. The supervisors report to the factory manager, who has overall responsibility for the production process.
Machinists are paid an hourly wage and a bonus according to how many items they sew each week, which usually comprises 60% of their total weekly wages.
Supervisors receive an hourly wage and a bonus according to how many items their team sews each week. The factory manager receives the same monthly salary regardless of production output. All employees are awarded a 5% annual bonus if Cuthbert achieves its budgeted net profit for the year.
Recently, a large emergency order of jackets for the Ceeland army was cancelled by the customer as it was not delivered on time due to the following quality problems and other issues in the production process:
– A supervisor had forgotten to input several batch cards and as a result batches of fabric components were lost in the factory and replacements had to be purchased.
– There were machinists available to sew buttons onto the jackets, but there was only one machinist available who had been trained to sew zips. This caused further delay to production of the batch.
– When the quality of the jackets was checked prior to despatch, many of them were found to be sewn incorrectly as the work had been rushed. By this time the agreed delivery date had already passed, and it was too late to produce a replacement batch.
This was the latest in a series of problems in production at Cuthbert, and the directors have decided to use business process reengineering (BPR) in order to radically change the production process.
The proposal being considered as an application of BPR is the adoption of ‘team working’ in the factory, the three main elements of which are as follows:
1. Production lines would re-organise into teams, where all operations on a particular product type are performed in one place by a dedicated team of machinists.
2. Each team of machinists would be responsible for the quality of the finished jacket, and for the first time, machinists would be encouraged to bring about improvements in the production process. There would no longer be the need to employ supervisors and the existing supervisors would join the teams of machinists.
3. The number of batches in production would be automatically tracked by the use of radio frequency identification (RFID) tags attached to each jacket. This would eliminate the need for paper batch cards, which are currently input into a spreadsheet by the supervisors.
You have been asked as a performance management consultant to advise the board on whether business process reengineering could help Cuthbert overcome the problems in its production process.
Required:
Advise how the proposed use of BPR would influence the operational performance of Cuthbert.
Business process reengineering (BPR) involves radical and fundamental changes in the way processes in organisations are designed. A focus on the needs of the customer, and customer satisfaction, are key to BPR. BPR aims to improve key performance measures such as reducing costs, improving quality, service delivery and customer satisfaction.
The proposal is to move away from the existing functional structure where staff are attached to only one stage of the production process, or even to one type of machine within each function, to team working. This is a radical change for Cuthbert and as such, is an example of BPR.
Reorganising into teams
Currently, there is very little multi-skilling of production staff at Cuthbert. This was seen where there were insufficient trained zip machinists available for the emergency order for the Ceeland army, even though there were enough machinists to sew buttons. This led to the emergency order failing to meet the customer’s requirements as it was not delivered on time.
Furthermore, it seems that machinists also prefer to work on one particular type of machine. This is probably because they are currently rewarded according to the speed of production, rather than the quality of production, and can work faster when using just one machine.
A change to team working would imply job enlargement for machinists, who would need to be trained so that they were multi-skilled in different parts of the production process. They could then perform the roles of other members of their team, to ensure that there were no bottlenecks in production.
The cost of reorganisation and the costs of training the machinists should be outweighed by the resulting improved efficiency and flexibility of production. In this way, there is more focus on the outcome (goods of the correct quality produced on time) and less focus on the individual tasks within the process, which is a key principle of BPR.
Production teams are responsible for quality
Cuthbert’s brand has a strong reputation, and the use of its products for protection in harsh environments and by the armed forces means that quality is a key element of customer satisfaction. Cuthbert must be able to manufacture goods which are free of defects, unlike the emergency order for the Ceeland army.
Reorganising the production into teams of machinists, sometimes known as production ‘cells’, would make machinists responsible for decisions about quality of a particular product type. This should lead to improvements in quality and therefore to meeting the needs of the customer.
Reducing the number of processes for checking is typical of a reengineered process, and the quality checking currently performed by the supervisors would no longer be necessary. The production teams will be managing themselves in this respect, and the distinction between supervisors and machinists will be removed, which is again typical of organisations which have undergone BPR.
Encouraging machinists in each team to suggest improvements in the production process should bring about improvements in both quality and efficiency, and hence a reduction in costs. It is the machinists who are closest to the production process and may be able to see how it can be improved. Cuthbert could also consider a more formal system of incremental continuous improvements such as Kaizen costing.
Tracking with RFIDs
Typically, organisations with reengineered processes end up having a flatter hierarchy. It seems that the supervisors’ current roles will no longer be required if the proposal is adopted. Quality checks will no longer be undertaken by them, nor will recording of batches, which will become automated using RFID tags. This should save salary costs and improve lines of communication in the business.
The use of RFID tags would capture the information required to manage the production process at source, and there would be no distinction between the gathering of information and processing it. This is in contrast to the current system of inputting batch data into a spreadsheet, and is a feature in organisations which have undergone BPR.
Practical and cultural aspects of the proposal
New performance measures related to quality rather than just quantity produced will have to be developed and processes and systems developed in order to record and report these. New rewards systems will also have to be developed and introduced as a result of the changes proposed.
The proposal by definition represents a significant cultural change for Cuthbert, and may meet resistance by staff who may perceive it is a threat and a one-off cost cutting measure rather than a fundamental long-term change in the business. It will also impact the organisational hierarchy, relationships between employees and the roles within Cuthbert. There will be significant costs with training staff and with the disruption the transition may cause.
Evaluate the effectiveness of the current reward systems at Cuthbert, and recommend and justify how these systems would need to change if the BPR project goes ahead.
The current reward system
The machinists are currently paid a basic hourly wage plus an amount depending on how many items they sew. This will encourage them to work quickly, which will reduce product costs. However, as they are not directly rewarded for the quality of the work which they produce, they may not be motivated to produce high quality work. Furthermore, in order to work quickly, machinists prefer to work on only one type of machine. This reduces Cuthbert’s overall flexibility to respond to customer needs such as with failure to deliver the emergency order for the Ceeland army.
The production supervisors also receive a bonus according to how many items machinists in their team are able to sew. This too does not reward the production of high quality work, and supervisors may also neglect quality in order to increase the speed of production. The machinists in their teams could also see it as unfair that the supervisors obtain a bonus based on what they see as their efforts.
The production manager does not receive a bonus for production or quality. It seems that the he has currently no direct motivation to improve on either of these two aspects of the process.
At 5% of salary, the bonus related to Cuthbert’s overall profits is relatively small and it is unclear whether it is a significant motivator to any of the employees. Furthermore, machinists in particular may perceive their own efforts as too remote from the company’s overall profit for them to bother to achieve it. Even if they were to be motivated by this, it is unclear what proportion of the total costs are related to direct labour as Cuthbert incurs many other costs such as advertising to maintain the brand. If the costs of direct labour were relatively low, even a large improvement in production efficiency by the machinists may have little effect on overall profit.
Under the new proposal
The existing reward systems would likely need to change if the move to team-based production were to be adopted.
It may still be appropriate to reward machinists with volume related bonuses, but as they worked in teams, a team-based performance bonus would be more appropriate. In that way the rest of the team would ensure that any underperforming machinists would improve their performance.
Rewards based on other factors such as quality, innovation, on time delivery and the ability to work as part of a team would also be appropriate and consistent with the machinists’ enlarged job role. This would be a significant change for Cuthbert, where machinists are now being encouraged for the first time to bring about improvements in the production process. Rewards based on direct costs of production, or for the number of suggestions made by each machinist may be appropriate here.
New performance measures would need to be developed against which to align rewards to ensure that employees work towards the overall objectives of the organisation. New reporting systems will need to be put in place to feedback information regarding quality to each cell. This may incur additional costs in the development of existing or new information technology systems.
The commitment of senior management to these changes would be required, as well as communication and training of employees at all levels. This may again incur additional costs and divert management time away from existing activities.