Reference no: EM131415818

As Don Newhart walked into Ms. Martha Boyd’s office and took a seat, he felt that he had learned more in the last six weeks that he had learned in four years of college. In June, Don had received his degree in business administration. He had immediately taken a job with the Check-Rite Corporation reporting to Ms. Boyd, the corporate Operations Manager. Check- Rite prints personalized bank checks in 27 plants located in major cities throughout the U.S. Don had just completed a six week training program, during which he had spent several days in each production department of the Lexington Plant. He had performed almost every job in the plant for at least a day. Ms. Boyd had invited Don to her office to discuss his experiences in the training program.

          Check- Rite is one of only four relatively large check printing companies in the nation, but many smaller companies compete within individual cities. The checks are printed for and mailed to individual bank customers. However, the checks are always ordered through the bank, and the banks decide which check printing company will print checks for their customer.

          Ten different operations involving seven types of equipment are required to produce an order of checks. The cost of producing an order of checks is about 50% labor, 30% material, and 20% plant overhead.

          The price markup on the check is usually 80 to 100 percent on the total production cost. Check- Rite invoices the bank for checks printed for banks customers. The bank, in turn, debits the customers’ accounts to recover the cost of the checks. In most cases, customers do not even know their monthly bank statement showing the debit.

          Any quality or delivery problems in check printing can create major problems for the bank. If an order of checks is not received in a reasonable length of time (about 10 days) or if there are errors in the name, address, or other printed information, the customer will usually call the bank to complain. (In fact, many customers seem to think that the bank prints the checks.) The bank must then deal with the Check- Rite to solve the problem. If the account number printed in magnetic ink at the bottom of the check is incorrect or not computer readable, the check processing operation at the bank is disrupted. Processing such checks by hand is extremely expensive for the bank.

          “Well, Don, how did you like your six weeks in the plant?”

          “Oh, I really enjoyed it, Ms. Boyd, and I can’t believe how much I learned! You know before I started my training program, the closest I had come to operating a printing press was using the photocopier in the university library.”

          “Based on your experience so far, Don, what would you say is the most critically important measure of operational performance in our business?”

          That’s easy. It’s labor productivity. The production process is labor intensive with about half the production costs in labor profits. Improvements in labor productivity could really boost profits. In fact, I wanted to discuss that with you. The plant seems to be somewhat overstaffed, except on Mondays and Tuesdays, when the inflow of orders is heaviest. I also noticed that about one third of the labor time that goes into each order of checks is devoted to proofreading or other manual inspections rather than actual production work. I believe there are some opportunities for significant improvements in labor productivity in our overall operation.”

Question:

Do you agree with Don that labor productivity is the most critically important measure of operational performance in the check printing business? If not, what measures of operational performance do you believe are more important than labor productivity? Why?