Answer Happy

AN AMERICAN TRAGEDY: HOW A GOOD COMPANY DIED CASE ZACHARY SCHILLER The Rust Belt is back. So say bullish observers as U.S. exports surge, long-moribund industries glow with newfound profits, and unemployment dips to lows not seen in a decade. But in the smokestack citadels, there's disquiet. Too many machine-tool and auto parts factories are silent, too many U.S. industries still can't hold their own. What went wrong since the heyday of the 1960s? That's the issue Max Holland, a contributing editor of The Nation, takes up in his nutsy-boltsy but fascinating study. When the Machine Stopped. The focus of the story is Burgmaster Corp., a Los Angeles-area machine-tool maker founded in 1944 by Czechoslovakian immi- grant Fred Burg. Holland's father worked there for 29 years, and the author interviewed 22 former employees. His shop-floor view of this small company is a refreshing change from academic trea tises on why America can't compete The discussions of spindles and numerical control can be tough going. But Holland compensates by conveying the excitement and Innovation of the company's early days and the disgust and cyni cism accompanying its decline. Moreover, the fate of Burgmester and its brethren is crucial to the U.S. industrial economy. Any man- ufactured item is either made by a machine tool or by a machine made by a machine tool. Producing innovative turret drills used in a wide variety of metal working tasks, Burgmaster was a thriving enterprise by 1965, when annual sales amounted to about $8 million. The company needed backing to expand, however, so it sold out to Buffalo-based conglomerate Houdaille Industries Inc. Hou- daille was in turn purchased in a 1979 leveraged buyout (LBO) led by Kohlberg Kravis Roberts & Co. By 1982, when debt, com- petition, and a sickly machine-tool market had battered Burg- master badly, Houdaille went to Washington with a petition to withhold the investment tax credit for certain Japanese-made machine tools. Thanks to deft lobbying, the Senate passed a resolution sup porting Houdaille's position, but President Reagan refused to go along. Houdaille's subsequent attempt to link Burgmaster up with a Japanese rival also failed, and Burgmaster was closed. Holland uses Burgmaster's demise to explore some key issues of economic and trade policy. Houdaille's charge that a cartel led by the Japanese government had injured U.S. toolmakers, for example, became a rallying point for those who would blame a fearsome Japan Inc. for the problems of U.S.industry. Holland describes the Washington wrangling over Houdaille in painful detail. But he does show that such government deci sions are often made without much knowledge of what's going on in industry. He shows, too, that Japanese producers succeeded less because of government help than because they made better cheaper machines. For those who see LBOS as a symptom of what is the US. economy, Holland offers plenty of ammunition. He argues persua sively that the LBO crippled Burgmaster by creating enormous pres sure to generate cash. As Burgmaster pushed its products out as fast as possible, he writes, it routinely shipped defective machines. It promised customers features that engineers hadn't yet designed And although KKR disputes the claim, Holland concludes that the LBO choked off Burgmaster's investment funds just when foreign competition made them most necessary. As for Houdaille, it was recapitalized and sold to Britain's Tube Investments Group But Burgmaster's problems had started even before the LBO. Holland's history of the company under Houdaille is a veritable catalog of modern management techniques that flopped. One of the most disastrous was a system for computerizing production scheduling that was too crude for complex machine-tool manu- facturing. Holland gives a dramatic depiction of supply snafus that resulted in delays and cost increases. As an independent company, "Burgmaster thrived because the Burgs knew their business, Holland writes. Their departure under Houdaille was followed by an "endless and ultimately futile search for a better formula." But, be concludes: "No formula was a substi- tute for management involvement on the shop floor." In the end, however, Holland puts most of the blame for the industry's decline on government policy. He targets tax laws and macroeconomic policies that encourage LBOS and speculation instead of productive investment. He also criticizes Pentagon procurement policies for favoring exotic, custom machines over standard, low-cost models. This adds up to an industrial policy. Holland writes-abad one. The point is well taken, but Holland gives it excessive weight Like their brethren in Detroit and Pittsburgh, domestic tool- makers in the 1970s were too complacent when imports seized the lower end of the product line. The conservatism that had for years served them in their cyclical industry left them ill-prepared for change. Even now some of the largest U.S. tool-makers are struggling to restructure. Blame the government, yes. But blame the industry, too. Questions ontemal and operations 1. We a brief report exter for Burm mera Country 2. Doou think Whise. strategic plan was a fao company's ask rote on? the text 3. Cao of a strat ed Burg Ju think at st mas egy o Source Reped from April t ek by special pem sion, copyric1989 by The McGraw Hill Companies
The Company The baking company is located in a small town in New York State. The bakery is run by two brothers. The company employs fewer than 200 people, mainly blue-collar workers, and the atmo- sphere is informal The Product The company's only product is soft cookies, of which it makes over 50 varieties. Larger companies, such as Nabisco, Sunshine, and Keebler, have traditionally produced biscuit cookies, in which most of the water has been baked out, resulting in crisp cookies. The cookies have no additives or preservatives. The high quality of the cookies has enabled the company to develop a strong mar- ket niche for its product. The Customers The cookies are sold in convenience stores and supermarkets throughout New York, Connecticut, and New Jersey. The company markets its cookies as "good food"-no additives or preservatives- and this appeals to a health-conscious segment of the market. Many customers are over 45 years of age, and prefer a cookie that is soft and not too sweet. Parents with young children also buy the cookies. The Production Process The company has two continuous band ovens that it uses to bake the cookies. The production process is called a batch processing system. It begins as soon as management gets orders from distrib utors. These orders are used to schedule production. At the start of each shift, a list of the cookies to be made that day is delivered to the person in charge of mixing. That person checks a master list, which indicates the ingredients needed for each type of cookie, and enters that information into the computer. The computer then determines the amount of each ingredient needed, according to the quantity of cookies ordered, and relays that information to storage silos located outside the plant where the main ingredi ents (flour, sugar, and cake flour) are stored. The ingredients are automatically sent to giant mixing machines where the ingredients are combined with proper amounts of eggs, water, and flavor- ings. After the ingredients have been mixed, the batter is poured into a cutting machine where it is cut into individual cookies. The cookies are then dropped onto a conveyor belt and transported through one of two ovens. Filled cookies, such as apple, date, and raspberry, require an additional step for filling and folding. The nonfilled cookies are cut on a diagonal rather than round. The diagonal-cut cookies require less space than straight-cut cookies, and the result is a higher level of productivity. In addi tion, the company recently increased the length of each oven by 25 feet, which also increased the rate of production, As the cookies emerge from the ovens, they are fed onto spiral cooling racks 20 feet high and 3 feet wide. As the cookies come off the cooling racks, workers place the cookies into boxes manu- ally, removing any broken or deformed cookies in the process. The boxes are then wrapped, sealed, and labeled automatically. Inventory Most cookies are loaded immediately onto trucks and shipped to distributors. A small percentage are stored temporarily in the com- pany's warehouse, but they must be shipped shortly because of their limited shelf life. Other inventory includes individual cookie boxes, shipping boxes, labels, and cellophane for wrapping Labels are reordered frequently, in small batches, because FDA label requirements are subject to change, and the company does not want to get stuck with labels it can't use. The bulk silos are refilled two or three times a week, depending on how quickly sup- plies are used. Cookies are baked in a sequence that minimizes downtime for cleaning. For instance, light-colored cookies (eg, chocolate chip) are baked before dark-colored cookies (e.g. fudge), and oatmeal cookies are baked before oatmeal raisin cookies. This permits the company to avoid having to clean the processing equipment every time a different type of cookie is produced. Quality The bakery prides itself on the quality of its cookies Cookies are sampled randomly by a quality control inspector as they come off the line to assure that their taste and consistency are satis- factory, and that they have been baked to the proper degree. Also, workers on the line are responsible for removing defective cookies when they spot them. The company has also installed an X-ray machine on the line that can detect small bits of metal filings that may have gotten into cookies during the production process. The use of automatic equipment for transporting raw materials and mixing batter has made it easier to maintain a ster- ile process. Scrap The bakery is run very efficiently and has minimal amounts of scrap. For example, if a batch is mixed improperly, it is sold for dog food. Broken cookies are used in the oatmeal cook- ies. These practices reduce the cost of ingredients and save on waste disposal costs. The company also uses heat reclamation: The heat that escapes from the two ovens is captured and used to boil the water that supplies the heat to the building. Also, the use of automation in the mixing process has resulted in a reduction in waste compared with the manual methods used previously. (continued)
New Products Ideas for new products come from customers, employees, and observations of competitors' products. New ideas are first exam- ined to determine whether the cookies can be made with existing equipment. If so, a sample run is made to determine the cost and time requirements. If the results are satisfactory, marketing tests are conducted to see if there is a demand for the product. Potential Improvements There are a number of areas potential improvement at the bakery. One possibility would be to automate packing the cook- les into boxes. Although labor costs are not high, automating the process might save some money and increase efficiency. So far, the owners have resisted making this change because they feel an obligation to the community to employ the 30 women who now do the boxing manually. Another possible improvement would be to use suppliers who are located closer to the plant. That would reduce delivery lead times and transportation costs, but the own- ers are not convinced that local suppliers could provide the same good quality. Other opportunities have been proposed in recent years, but the owners rejected them because they feared that the quality of the product might suffer. Questions 1. Briefly describe the cookie production process. 2. What are two ways that the company has increased produc- tivity? Why did increasing the length of the ovens result in a faster output rate? 3. Do you think that the company is making the right decision by not automating the packing of cookies? Explain your reason- ing. What obligation does a company have to its employees in a situation such as this? What obligation does it have to the community? Is the size of the town a factor? Would it make a difference if the company was located in a large city? Is the size of the company a factor? What if it were a much larger company? 4. What factors cause the company to carry minimal amounts of certain inventories? What benefits result from this policy? 5. As a consumer, what things do you consider in judging the quality of cookies you buy in a supermarket? 6. What advantages and what limitations stem from the com- pany's not using preservatives in cookies? 7. Briefly describe the company's strategy.