Reference no: EM132236555

By Steven L. McShane, Curtin University (Australia) and University of Victoria (Canada); and David Lebeter

Conifer Corp. is a sawmill operation in Oregon that is owned by a major forest products company but operates independently of the parent company. It was built 30 years ago and completely updated with new machinery five years ago. Conifer receives raw logs from the area for cutting and planing into building-grade lumber, mostly 2-by-4 and 2-by-6 pieces of standard lengths. Higher-grade logs leave Conifer's sawmill department in finished form and are sent directly to the packaging department. The remaining 40 percent of sawmill output are cuts from lower-grade logs, requiring further work by the planing department.

Conifer has 1 general manager,16 supervisors and support staff, and 180 unionized employees. The unionized employees are paid an hourly rate specified in the collective agreement, whereas management and support staff are paid a monthly salary. The mill is divided into six operating departments: boom, sawmill, planer, packaging, shipping, and maintenance. The sawmill, boom, and packaging departments operate a morning shift starting at 6:00 a.m. and an afternoon shift starting at 2:00 p.m. Employees in these departments rotate shifts every two weeks. The planer and shipping departments operate only morning shifts. Maintenance employees work the night shift (starting at 10:00 p.m.).

Each department, except for packaging, has a supervisor on every work shift. The planer supervisor is responsible for the packaging department on the morning shift, and the sawmill supervisor is responsible for the packaging department on the afternoon shift. However, the packaging operation is housed in a separate building from the other departments, so supervisors seldom visit the packaging department. This is particularly true for the afternoon shift, because the sawmill supervisor is the furthest distance from the packaging building.

Packaging Quality. Ninety percent of Conifer's product is sold nationally and internationally through Westboard, Inc., a large marketing agency. Westboard represents all forest products mills owned by Conifer's parent company as well as several other clients in the region. The market for building-grade lumber is very price competitive, because there are numerous mills selling a relatively undifferentiated product. However, some differentiation does occur in product packaging and presentation. Buyers will look closely at the packaging when deciding whether to buy from Conifer or another mill.

To encourage its clients to package their products better, Westboard sponsors a monthly package quality award. The marketing agency samples and rates its clients' packages daily, and the sawmill with the highest score at the end of the month is awarded a framed certificate of excellence. Package quality is a combination of how the lumber is piled (e.g., defects turned in), where the bands and dunnage are placed, how neatly the stencil and seal are applied, the stencil's accuracy, and how neatly and tightly the plastic wrap is attached.

Conifer won Westboard's packaging quality award several times over the past five years, and received high ratings in the months that it didn't win. However, the mill's ratings have started to decline over the past year or two, and several clients have complained about the appearance of the finished product. A few large customers switched to competitors' lumber, saying that the decision was based on the substandard appearance of Conifer's packaging when it arrived in their lumber yard.

Bottleneck in Packaging. The planing and sawmilling departments have significantly increased productivity over the past couple of years. The sawmill operation recently set a new productivity record on a single day. The planer operation has increased productivity to the point where last year it reduced operations to just one (rather than two) shifts per day. These productivity improvements are due to better operator training, fewer machine breakdowns, and better selection of raw logs. (Sawmill cuts from high-quality logs usually do not require planing work.)

Productivity levels in the boom, shipping, and maintenance departments have remained constant. However, the packaging department has recorded decreasing productivity over the past couple of years, with the result that a large backlog of finished product is typically stockpiled outside the packaging building. The morning shift of the packaging department is unable to keep up with the combined production of the sawmill and planer departments, so the unpackaged output is left for the afternoon shift. Unfortunately, the afternoon shift packages even less product than the morning shift, so the backlog continues to build. The backlog adds to Conifer's inventory costs and increases the risk of damaged stock.

Conifer has added Saturday overtime shifts as well as extra hours before and after the regular shifts for the packaging department employees to process this backlog. Last month, the packaging department employed 10 percent of the workforce but accounted for 85 percent of the overtime. This is frustrating to Conifer's management, because time and motion studies recently confirmed that the packaging department is capable of processing all of the daily sawmill and planer production without overtime. With employees earning one and a half or two times their regular pay on overtime, Conifer's cost competitiveness suffers.

Employees and supervisors at Conifer are aware that people in the packaging department tend to extend lunch by 10 minutes and coffee breaks by 5 minutes. They also typically leave work a few minutes before the end of their shift. This abuse has worsened recently, particularly on the afternoon shift. Employees who are temporarily assigned to the packaging department also seem to participate in this time loss pattern after a few days. Although they are punctual and productive in other departments, these temporary employees soon adopt the packaging crew's informal schedule when assigned to that department.

Discussion Questions

1. What symptom(s) in this case suggest(s) that something has gone wrong?

2. What are the main causes of the symptom(s)?

3. What actions should executives take to correct the problem(s)?