Reference no: EM133242393

Rubatex Corporation manufactures rubber and foam for a variety of products, including artificial turf housing and insulation, hockey helmet liners, scuba diving suits, sports sandals and mouse pads. The company was purchased by an investment firm called American industrial partners (AIP) that has so far earned only a 1 percent return on its investment. Obviously the company is having problems. Its sales are up but earnings are down. In the first three months after acquisition, the company lost $2 million on $68 million in sales. Understandably, AIP wants to know why and is demanding aggressive action.

Employees at the Bedford, Virginia, plant say they know something's wrong. The plant is hot and dirty and crumbling, and they are working harder to produce items of poorer quality. Fewer than 7 of 10 orders are shipped on time, and 2% of sales are returned as defective. Built in 1924, the plant sprawls over 14 buildings, with only the offices and lunchroom air-conditioned. Equipment is old and outdated, much of it purchased in the 1940s. The 800 to 2000 workers at the Bedford plant are paid an average of $11.50 an hour, far above the minimum wage average for the area. In the mill room, workers get a 20-minute lunch break and two 10 minute breaks each 8 hour shift. They spend their day lifting and loading heavy bags of compounds into mixers and working with rubber stock that can reach temperatures of 300 degrees F or more. At the end of the day, workers leave covered with chemical dust from the mixing compounds. The company say's exposure to the chemical poses no cancer or health risks. The workers aren't so sure.

Recently, in an effort to increase productivity, workers in the mill area were asked to increase the amount of rubber made in a single batch and decrease the bake time. Batches that used to take 30 minutes to cook were scheduled for 15 minutes, and 15 minute batches were reduced to 12 minutes or less. Paradoxically, even though the workers were running about a third more batches than before, they produce less usable rubber.

Labor-management relations are not good. Management says it pays the workers well and expects top-notch performance. If productivity does not increase soon, AIP will be forced to lay off about a third of the Rubatex workforce and may eventually close down the Bedford plant. Cost estimates to update the plant exceed $6 million. AIP does not want to authorize additional investment in plant and equipment until worker commitment to improved productivity is ensured. Rubatex management vows to engineer a turnaround. They set goals for the plant to increase sales by 30%, institute mandatory overtime to increase output, and reduce health care benefits to retirees to save costs.

Bedraggled workers call a strike that lasts nine months. Only 324 workers are rehired when the strike draws to a close. Rubatex files chapter 11. The executive Vice President of Rubatex Corporation explains, "with the exception of the Bedford, Virginia, facility, our operations continue to perform reasonably well and provide positive cash flow. We are a competitive company facing some significant challenges. Our capital structure has become unmanageable and we have been greatly affected by a nine-month strike at our

Bedford plant and the continued disruption associated with operating in the absence of a labor contract at that location."

Three years later Rubatex closes the Bedford plant for good, and more that 900 retirees lose their retirement benefits in bankruptcy court.

1. Examine the responses by management to the problems of the Bedford plant. Why didn't they achieve the results expected?

2. What did the Rubatex need to do at the Bedford plant to remain competitive?