Kenneth Briggs, general manager of the technical division of Milford Processes, has just finished reading a long, well-prepared brief written by a task force he had put together to report on the severe quality-control problems of the wholly owned subsidiary's plant in Matumba, East Africa. Reports of problems with the chemical-producing plant had been coming in for the last six months, becoming more serious in the last two months. Concerned with the future of the plant, Briggs had put together a small task force of head office and subsidiary technicians to investigate the problems and recommend solutions. Their report is extremely direct. Quality at the plant is dropping and productivity has fallen. The defect-ive rate of chemical batches has risen from 12 per thousand to 98 per thousand over the past six months. Productivity decreased by 16 percent in the past quarter. These statistics trouble Briggs. The plant in Matumba had gone online only a year ago and was equipped with the latest equipment and machinery and the most advanced processing technology. The entire tech-nical side of the operation was run by Milford's engineers, who had several years of experience. The first six months, in fact, had been a great success, and Matumba's productivity had matched Milford's worldwide standards in nearly every way. After the first two quarters, however, things began to go wrong. One of the most difficult problems was electricity. When the plant was set up, the Matumba government had guaranteed an uninterrupted electricity supply to the plant as a part of the package of incentives it had offered to attract Milford into setting up an advanced-technology facility in the country. However, much of Matumba's electricity-gen-erating capacity was based on hydroelectric projects, and these were dependent on the degree of rainfall that the country's catchment areas received during the rainy season, during the first four months of the year. This year the rains had failed to come, and water levels in the hydroelectric project reservoirs fell below operating levels. There was nothing the government or anyone else could do to generate power in adequate amounts to meet the country's needs. Bound by its promise and eager to maintain a hospitable environment for overseas investment, Matumba authorities had given high priority to the Milford plant's power needs. Despite their best efforts, however, the plant had no power for one day a week in the past four months, and in the past six weeks, production had to be shut down for two days a week. To keep up pro-duction volume and minimize production losses because of the plant shutdown, the production managers had reduced the number of quality-control checks both at the point of raw-material feeding and at final-production testing. The electricity shortage also resulted in the malfunctioning of the plant's temperature control systems at two stages of the production process, which was also affecting quality. The task force had come up with two options, both of which assume that the electricity situation in Ma-tumba is not likely to improve soon and that over the long term it could fluctuate considerably, depending on the pattern of annual rainfall. Moreover, if Matumba's drive to attract other overseas companies to the country meets with even moderate success, the demand for industrial consumption would go up sharply, and Milford would lose its most-favored status in this regard. The government is already under criticism from some quarters of the political opposition for bending over backward to please Milford. The opposition is actively calling for retracting Milford's privileged access to the country's generating capacity in times of scarcity. The first option recommends that the company set up a captive power station, which, in effect, means the building of a complete power-generating facility to supply electricity exclusively to Milford's plant. The plant would cost an estimated $16 million to build and could be completed in about a year and a half. The facility would ensure that the chemicals factory would receive an uninterrupted supply of electricity, which would lead to consistent production performance and progressively higher productivity standards. The other option is to modify the subsidiary's technological processes to be less dependent on elec-tricity and to meet its energy needs from other sources, especially natural gas, which is readily available in Matumba at relatively inexpensive rates. Although using natural gas would be relatively cheaper, even after taking into account the costs involved in modifying some of the plant's technological processes and equipment, the option does pose some difficulties. The processes using natural gas are not as advanced as those using electricity, and there could be a marginal decline in product quality, even though the produc-tion volume could be maintained at the same level. Another issue is safety. Although Milford's safety stand-ards are quite strict and well developed, it is possible that they could be compromised at the subsidiary level. The main problem is the safety orientation of local employees. Most had little experience in working in such a plant. A comprehensive safety training program and continued emphasis on safety consciousness could reduce the risks significantly but not eliminate them. Briggs looks again at the report, which concisely puts together the main pros and cons of each option and closes with a clear, strong emphasis on the need for early action. "We'll have to decide within the next few weeks," he thinks. "Before the Germans and Italians come in and set up their operations, we have to dig in and dominate; it will be impossible to do it later." The next morning the members of the technical operations committee receive a notice of a policy meeting to be held Thursday in the main conference room in such a plant. A comprehensive safety training program and continued emphasis on safety consciousness could reduce the risks significantly but not eliminate them. Briggs looks again at the report, which concisely puts together the main pros and cons of each option and closes with a clear, strong emphasis on the need for early action. "We'll have to decide within the next few weeks," he thinks. "Before the Germans and Italians come in and set up their operations, we have to dig in and dominate; it will be impossible to do it later." The next morning the members of the technical operations committee receive a notice of a policy meeting to be held Thursday in the main conference room to discuss the problems at the Matumba plant. Attached to the notice is a copy of the report with a request for each member to read it before the meeting.
DISCUSSION QUESTIONS
- Assume that you are a member of the Milford technical operations committee. What questions would you raise at the meeting? Which of the options would you suggest? In your opinion, could Milford take other approaches to resolve these issues?
- What environmental constraints are present with each of the possible options?