Problem
Plastco Packaging Ltd. is a medium-sized manufacturer of plastic bags, located on the West Coast. These bags are used in the retail sector for purposes ranging from groceries to clothing and other goods. These bags are made from a variety of types of plastic and in a variety of sizes, depending on the intended purpose. Usually the retailer's name is printed on them.
There are three main phases in the bag-manufacturing process: (i) producing the plastic sheeting (produced as rolls of tubing); (ii) printing the retailer's name on the tubing; and (iii) passing the rolls of tubing through bag-making machines that cut and seal the tubing into bag lengths.
This case focuses on the third step of the production process, the bag-making department. The department has 12 bag-making machines. Each machine operates semi automatically but has to be manually loaded, set for the type of bag to be produced, started, monitored, and adjusted. The machines need frequent servicing to replace the cutting knives, adjust slipping belts, and lubricate the many moving parts. These functions and major repairs, when necessary, are carried out by mechanics from the maintenance department, a separate department reporting to the plant manager. The mechanics report machinery problems and future replacement and servicing needs to the maintenance supervisor, who reports significant problems to the plant manager. The plant manager then conveys any implications for production of bags to the bagmaking supervisor.
There are six bag-making machine operators, with each operator tending two machines. There are also six inspectors/packers, who inspect the bags to ensure quality and pack them into boxes. Defective bags are thrown into waste bins, based on the type of plastic. They are then melted down and remanufactured. Whenever an inspector/packer discovers poor-quality output, she must notify the operator to correct the problem. If the inspector/packer deems waste to be excessive, she is expected to report the operator to the bag-making supervisor.
In addition, four utility workers handle miscellaneous tasks, such as delivering rolls of plastic tubing and hauling boxes of finished bags to the shipping department. Traditionally, operators and utility workers have always been male, while inspectors/packers have always been female.
When a new operator is needed, the bag-making supervisor selects one of the utility workers and assigns him to an experienced operator for on-the-job training. It takes up to six months before a new operator is able to consistently produce an acceptable-quality product without supervision, since the machines are "finicky" to operate. The length of time needed to do bag changeovers also declines as the new operator gains experience.
The plant is unionized, and pay is based on an hourly wage. Operators receive approximately $28 per hour, utility workers $21 per hour, and inspectors/packers $14 per hour. Overall, benefits constitute about 20 percent of total compensation and increase with seniority.
The bag-making supervisor sees a number of problems at present. First is the high turnover among the inspectors/packers, as high as 100 percent a year. Turnover among the utility workers is about one-third of that, and lower than that among operators, who quit or retire at the rate of about one a year. Second, while the department usually meets the minimum production levels, the bag-making supervisor believes that productivity could be much higher.
He also believes there's a high level of waste. However, whenever he questions an operator about this, the operator either blames maintenance for doing a poor job servicing the machines or the inspectors/packers for being unnecessarily fussy. It is also difficult to pinpoint specific operators for performing poor-quality work, since inspectors/ packers seldom report an operator to the bag-making supervisor. When one does so, the operators usually accuse the inspectors/packer of incompetence. All in all, there are very poor interpersonal relationships among the operators, mechanics, and inspectors/packers. Few members of the department appear to enjoy being at work.
Another problem is that customers are complaining about inconsistent quality in the products they receive. Sometimes the bags are of very high quality, but at other times, many bags are defective. These complaints are a concern to the plant manager since a new competitor has recently opened up nearby and is competing aggressively for business. This competitor seems to be producing a product with fewer defects for a lower price. As if this weren't bad enough, the overall market for plastic bags has become more uncertain, as they have become the target of environmentalists; some communities have actually banned the use of plastic bags.
Answer the questions one by one and sequentially, in essay form:
A. Identify two problems that suggest something has gone wrong with the company's compensation system and compensation practices.
B. Analyze compensation-related root causes of the two problems you have identified. (All points must be compensation related).
C. Recommend solutions, in terms of compensation system and strategy design and implementation, to solve the two problems you have identified. You need to explain and justify your recommendations with established findings in the field of compensation studies.