The Manufacturing Manager of New Technology Company Is Concerned About

question 79

Essay

The manufacturing manager of New Technology Company is concerned about the company's newest plant. When the plant began operations three years ago, it had the best of everything. It had modern equipment, well-trained employees, engineered work and assembly stations, and a controlled environment. During the first two years, the evaluation results were very good with almost all cost variances being favorable. However, recently, things have turned negative.
In recent months, everything seems to be operating in a crisis management mode. Although most cost variances remain favorable, the plant's segment contribution is declining and customers are complaining about poor quality and slow delivery. Several customers have suggested that they may take their business elsewhere if things do not improve.
The shop floor is in continual turmoil. In-process inventory is everywhere, production employees have difficulty finding jobs that need to be worked on, and scheduling has requested a larger computer to keep track of work in process.
The vice president of sales does not know where to begin with solving the customers' problems. It seems that everyone is working very hard and the plant has the best facilities and trained employees in the industry.
Required:
What is the nature of the plant's problems? What recommendation would you make to help improve the situation?

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Definitions:

Price Elasticity

A measure of the sensitivity of demand for a product or service to a change in its price.

Elasticity of Demand

An evaluation of how sensitively the demanded amount of a product responds to changes in price.

Demand Curve

An illustration that depicts the connection between how much of a product consumers want to buy and its cost.

Perfectly Inelastic

A situation in demand where the quantity demanded does not change regardless of the change in price.