Reference no: EM132095008

Case study Chapter 13 Continuing or Abandoning the Special-Order Fabrication Business Labor Relations (12th Edition)

Case: Continuing or Abandoning the Special-Order Fabrication Business

It is three months since the effective date of the GMFC-Local 384 contract. In today's GMFC's executive council meeting, financial officers reported on a study on the profitability of the special-order fabrication operations. They recommended GMFC take no more orders for this area and close it when present commitments were shipped. Their data showed that the operations lost money two out of the last three years, and they argued that the Speedy- Lift assembly lines could be expanded into that area to meet the increasing demand for GMFC forklift trucks.

Top-level managers in the special-order fabrication operations conceded that profits, when earned, were low, but they pointed out that, from a return-on-investment standpoint, their operations had been among the best in the company during the 2003 to 2007 period. Besides, they argued, many of the special orders were from some of the largest customers in the standard product lines and GMFC could not afford to lose that business if it was dependent on occasional custom orders as well.

The finance people reiterated their recommendations to terminate the operations, pointing out that labor costs had risen over the past several contracts and, due to the custom nature of the work, productivity gains had been small because new technologies could not be introduced.

After both sides presented their final summations, the chief executive officer announced that the firm should prepare to terminate operations. After the announcement, the industrial relations director pointed out that GMFC would have to negotiate the termination with Local 384. The union might demand severance pay, job transfers, and so forth. The point was also raised that this decision offered the union and the company the opportunity to devise a method for reducing and controlling labor costs.

The CEO designated the vice president of finance, the general manager or special-order fabrications, and the industrial relations director as the bargaining team to present the company's decision and bargain a resolution. The CEO made it clear that the company intended to abandon these operations but could reverse its position with the kind of labor cost reductions.

Although the meeting was not publicized, Local 384's leadership had been concerned about the special-order fabrications area for some time. Management had frequently grumbled about low in the shop often grieved about work rule changes. The stack of grievances, coupled with management's lack of action on them, led the leadership to request a meeting with the industrial relations director to solve the problems.

Directions:

Rejoin your original labor or management bargaining team.