Chapter 1 - 3rd Edition Factory Physics 192f11

Solution Manual - Chapter 1 Study Questions 1. The First Industrial Revolution was characterized by technological breakthroughs that allowed substitution of capital for labor, and the steam engine, which provided cheap, potentially distributed, power. The result was the transition from the craft guild and domestic systems to the factory system. The Second Industrial Revolution was characterized by innovations in mass production and mass transportation. The result was a huge increase in scale and integration of manufacturing facilities. The First Industrial Revolution made factory management a job. But, because of the relatively small scale, overseers and shop foremen could manage all of the necessary functions in early factories. The large-scale integrated manufacturing enterprises brought about by the Second Industrial Revolution became too complex to be managed by overseers or foremen. The result was the creation of functional areas, staff positions, formalized ing techniques, and much greater reliance on “managing by the numbers.” A professional managerial class, which neither produces nor owns, arose. 2. Some key impacts of Frederick W. Taylor's Scientific Managementon the practice of manufacturing management in America were: •

Recognition that management is something that can be studied and developed as a profession.

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Separation of planning (i.e., by the managers) from doing (i.e., by the workers). Scientific Management was a result of and a contributor to the adversarial relationship between management and labor in America.

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Emphasis on setting standards for how tasks should be done and at what rate.

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Framed debate over what motivates workers. Although Taylor viewed money as the prime motivator for workers, he did recognize some psychological component. His followers, particularly Lillian Gilbreth, pursued this issue more explicitly.

3. Agriculture was automated, which meant that jobs declined but output did not (it increased). Some of the loss of American manufacturing jobs is due to offshoring, i.e., other countries taking over manufacturing functions, as in the case of VCR production. Offshoring manufacturing may cause tightly linked jobs, which are often classed as service sector (e.g., management consulting, equipment maintenance, financial and insurance services, etc.), to go with them. If we lose service jobs that are tightly linked to manufacturing jobs, as well as some jobs indirectly linked to manufacturing jobs (e.g., pizza sales, home improvement services, etc.), the overall effect could be a significant downward pressure on wages and a decline in standard of living. 4. Some signs of a decline of American manufacturing include: •

Perceived inferior quality of American goods relative to some foreign goods, since at least the 1970's.

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GM has dropped from 50% to 35% of the American automotive market in the past two decades, has posted enormous losses, and has reduced its workforce from 500,000 to 250,000. Recall that Robert MacNamara said “what's good for GM is good for the country.”

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IBM has gone from being the bluest of the blue chips with a defacto policy of never laying people off to posting billion dollar losses and downsizing its workforce from 400,000 to 200,000.

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Productivity growth in U.S. manufacturing has not kept pace with that in Japan, , and elsewhere in recent years.

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The fraction of U.S. patents granted to foreigners has doubled since 1970.

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Loss of some high visibility markets. For instance, there is no American manufacturer of VCR's. Zenith was the last American producer of consumer electronics (although a significant amount of their manufacturing is done in Mexico) was recently bought out by foreigners.

5. Counter-arguments for each of the following “usual answers” as to why American manufacturing is in decline are: •

Growth of government regulation, taxes, etc.–some economies (e.g., Sweeden) have much higher taxation and heavier regulation than the U.S.

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Deterioration in the American work ethic combined with an adversarial relationship between labor and management. Labor/manager relations were even worse during the first half of the twentieth century when American manufacturing was acknowledged as the world leader. Americans work longer hours and more days than many of their European (e.g., German, French) counterparts.

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Interruptions in supply and price increases in energy since first OPEC oil shock–Japan is much more dependent on foreign oil than is the United States.

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Massive influx of new people into workforce–teenagers, women, and minority groups–who had to be conditioned and trained. America absorbed a much greater influx of foreigners into its manufacturing sector during the 1880-1920 “glory” period.

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Advent of unusually high capital costs caused by high inflation. European inflation (except ’s) has generally been higher than that in the United States.

If it is none of the above, what else is left? Bad management! 6. Some post WWII management trends that may have contributed to the decline of American manufacturing include: •

Finance View: encouraged myopic focus on short-term returns.

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Marketing View: fostered conservative view of product development (i.e., by relying too heavily on the numbers) and diminished use of manufacturing as a strategic weapon.

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Fast Track Manager System: diluted experience of upper management.

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Profit Center Approach: encouraged segmentation of business enterprise rather than itegration of various functions with manufacturing to achieve business goals.

7. It was unimportant for a manager to be terribly concerned with production details in the 1950's and early 60's because, in the wake of WWII, American manufacturing was the only game in town. No other country could match us on a cost basis because we had an enormous domestic market and huge economies of scale, while their plants were bombed out rubble. Saving a few pennies in cost efficiency due to

better production was not a major concern. The major challenges during this period were Finance, to fuel growth, and Marketing, to open up huge potential markets (e.g., convince American housewives of the efficacy and desirability of dishwashers). Business schools responded by making Finance and Marketing cornerstones of their programs. Companies responded by promoting people from Finance and Marketing to upper management positions, thereby establishing these as the areas with the most promise and making these views predominant in corporate planning. 8. Pros of a portfolio management approach to managing a manufacturing enterprise are: •

it encourages use of measurable performance criteria (e.g., ROI)

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it encourages balancing activities with respect to risk (e.g., diversifying the product lines to avoid being catostrophically sensitive to conditions in a single market).

Cons of this approach are: •

It can pit parts of the firm against one another (e.g., as each tries to achieve individual numbers rather than ing overall corporate performance).

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It neglects the fact that performance of a manufacturing enterprise, unlike that of an externally purchased financial instrument, is subject to internal control. Too much effort spent trying to massage ROI by buying and selling companies can sap needed efforts in making better products and selling them profitably.

9. The need for the “fast track” manager in the 1950's and 1960's was caused by the rapid growth following WWII that left many firms with needs for more managers than they could develop via the traditional career paths. Unfortunately, fast track managers may have skipped rotations through important parts of the enterprise (e.g., the shop floor?). By being moved to corporate staff too quickly, they may have failed to develop an appreciation for key non-financial facets of the business. 10. A “professional” manager (i.e., a manager who is allegedly capable of managing any business) and a manager of a purely financial portfolio both are accustomed to looking at businesses in general financial , the financial analyst to evaluate stocks, the professional manager to evaluate performance. Both view ``business as business,'' the financial analyst buying stocks from any sector, the professional manager managing any business. The professional manager is unlikely to appreciate the deeper non-financial determinants of a business's success and therefore may be prone to a conservative maintenance approach rather than a technologically innovative leadership approach. 11. A modern professional manager in America shares a desire for freedom, individualism, and adventure with the early settlers of this country. This may have led to a tendency to focus on the big glamorous aspects of business (e.g., leveraged buyouts) at the expense of a hard-headed attention to important details. 12. Managers may pursue imitative designs even in circumstances where it can be documented that innovative designs have had markedly better long term performance, because imitation is safer. If you are evaluated on short-term criteria, then a high probability of a small success is better than a lower probability of a big success (with a significant probability of a high-visibility failure). 13. Some policies that might discourage the the over-reliance by American manufacturing on short-term financial measures include:

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Greater use of physical measures (throughput, WIP, quality indices, etc.) to make evaluations at the plant level.

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Management bonuses that are carefully tied to long-term performance of the firm.

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More government emphasis on commercially relevant R&D.

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Alterations in stock market regulations that would require more investors to hold stock for the long-term.

14. The essential skill a manufacturing manager requires to be able to appreciate the “big picture” and still pay attention to important details without becoming completely overwhelmed is good intuition. A manager with sound intuition can focus on the areas that offer leverage without being distracted by the myriad of details that do not. 15. Possibilities for the next important dimension of global competition are: •

Flexibility (e.g., mass customization).

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Customer service after the sale.

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De-manufacturing (i.e., taking back products for recycling, and maybe upgrading, purposes).

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“Green manufacturing” (i.e., environmentally benign products/processes)?

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Who knows? But, tomorrow's success stories are figuring this out today.