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University Technology Malaysia

Razak School of Engineering and Advanced Technology CASE STUDY FOR OLD B&W company Program: Master of Business Engineering Management

Operation Strategy and management: MD1513

2013
Recommended by: Dr. Abdul Rahman Abdul Raheem

Case study: B&w Company

Prepared by:Mohammed Hassan Salih
Matrix No: 201202M106

2 The analysis will be based on two areas. These include management and operations

Management:
Q-1 Having been a successful company for many years, B&W had gained so much respect and recognition as a top performing company. However, failure to meet its clients needs destroyed this reputation in the 1960s. The problems of B&W Company can be attributed to the failure of its management then. The companys top management made the critical decisions of the company. The top management made several management mistakes that later created the problems the company faced. One of the management mistakes was the appointment of unqualified individuals to head the company. The company appointed Morris Nielson as the president and chief executive officer (CEO) despite the fact that he lacked the necessary academic qualities. Nielson had dropped out of school for bad reasons and thus did not attain a college degree (Meyer, 1969, p. 4). As such, he lacked the necessary technical knowledge and competence to head the company. B&W is a company that relies heavily on technology. It employs very professional and skilled personnel such as engineers. With such a highly educated and trained workforce, it was a bad idea to appoint a person who lacked equal or more technical expertise to manage the highly technical workforce. In fact, Nielson had problems with the engineers, who found it difficult to explain certain things to him (Meyer, 1969, p. 5). It would have been wiser to appoint an equally qualified person who understood the technical issues in managing such a company. Nielsons lack of academic competence created a rift between management and the employees, which contributed to the companys problems. The other management mistake was the centralization of decisions. The companys management developed a centralized system where all sections and activities were controlled

3 from a central point (Meyer, 1969, p. 5). This centralized system created management problems as managers of specific business units could not exercise their authority effectively. Instead, they depended on the top management to run their business units. This created problems whereby the top management would make decisions that were contrary to those of the business unit managers. The death of Paul Craven who was in charge of the besieged Mount Vernon plant through suicide attests to the tension between the top management and middle-level managers (Meyer, 1969, p. 8). The centralized management system denied the middle-level managers the ability to make critical decisions based on their own direct contact with the operations. Q- 2 To be successful in operations management, several things are crucial. First, one needs to understand the scope of operations management. Operations management involves the entire continuum through which inputs are transformed into the desired quality of outputs. Thus, operations management is a combination of management activities that are involved in the transformation of inputs into outputs. Notably, it can be applied in both products and services (Kumar & Suresh, 2009, p. 1). Second, a successful operations management involves planning. Capacity planning is of greatest importance in operations planning. Third, monitoring, controlling, and evaluation are critical success factors in operations management. Through continuous controlling and monitoring, it is easy to identify problems in the operations and correct them before they exacerbate. Q- 3 B&W produced two main products. One of these products was the fossil equipment, particularly the boiler. The other main product of the company was the nuclear equipment, mostly the nuclear pressure vessels. The main difference between the two products was their

4 technological make up. The boiler used fossil fuel while the nuclear vessel used nuclear power. The company was manufacturing the fossil driven boiler before the nuclear vessels. The reason for the transformation was the energy crisis where fossil fuel resources were diminishing and their use was responsible for environmental damages. Thus, nuclear energy was adopted as a strategy for addressing present and future energy demands. The orders for the B&W products are placed beforehand because of the complex production process and massive resources needed in the production. Thus, utility companies and other clients place orders with the company providing the exact specifications of the product design. The company then starts production based on the specifications. Q- 4 Various companies have different qualifying criteria for winning contracts. However, the B&W case, the qualifying criteria for winning contracts involves several aspects. First, the company had to have the necessary resources to manufacture the nuclear pressure vessels. Secondly, the company has to have the necessary technical capacity to build the nuclear vessels. Building of nuclear vessels requires high technical skills. Other companies such as Westinghouse and GE lacked the technical skills and resources to match those of B&W. Thus, they subcontracted B&W to produce their nuclear pressure vessels. B&W had gained a long experience in heavy steel fabrication, which enhanced its capacity to manufacture the huge nuclear pressure vessels (Meyer, 1969, p. 8). Q- 5 The most appropriate organizational structure in B&W Company is the bureaucratic structure. Bureaucratic organizational structures involve complex systems of decision-making and standardization. Decisions are made from top management to bottom. In such organizational

5 structures, the top executive is responsible for all organizational decisions. This brings about the notion of centralized systems such as the one adopted by B&W. In B&W, the top management made decisions while the managers of departments and units only implemented them. In some cases, some management roles clashed. For example, John Craven served as the vice president of the company overseeing the power-generation department while at the same time headed the Mount Vernon plant (Meyer, 1969, p. 8). This created some complexity and confusion in the organizational structure. Craven was overwhelmed by this confusion to a point of depression.

Operations
Q- 6 Delivery reliability is crucial in organizations. Reliability in the delivery system of an organization involves the safe and timely delivery of goods or services to the clients. It determines the level of customer satisfaction with the organization. When the delivery system of an organization is good, customer satisfaction is high. However, delays in delivery annoy customers and create dissatisfaction. In the case of B&W, its delivery system was so unreliable. Almost all orders that placed with the company were delayed for various reasons. The main one was the failure of the company to develop a capacity plan. Without capacity planning, the company took more orders that it could actually handle. As a result, there were excess orders to handle. Moreover, it experienced faults in critical manufacturing equipment at the Mount Vernon plant (Meyer, 1969, pp. 2-3). The company was thus forced to extend its delivery schedules beyond the originally stipulated periods. To avert this, it is important to conduct a comprehensive capacity planning. The capacity planning should involve an internal analysis of the companys ability to produce and deliver client orders. Based on the internal capacity of the company, it can then take orders that it will be able to deliver within the stipulated period. Finally, during

6 capacity planning, assumptions should not be used. For example, B&W based its capacity on assumptions that the Mount Vernon plant would be fully functional only to experience delays in delivery of some crucial equipment and machines. Q-7 A job-shop workshop layout is suitable for B&Ws nuclear pressure vessel production. This is because of the nature of the nuclear pressure vessel. The vessel has to be assembled within the workshop into a small number of large parts before being shipped to the installation site. Nuclear pressure vessels require complex planning and technical processes, which can only be possible in a workshop. Moreover, movement of smaller parts to be assembled at the installation site could create faults in the assembled vessels. Thus, to avert these problems, the vessels require a job-shop workshop layout (Meyer, 1969, p. 12). Q- 8 The main concentrations of the production control system were in the welding of heavy steel. In welding process, perfection is of great importance. In this regard, any faults must be corrected before proceeding with the process. When welding the steel together, X-ray is used to detect any faults in the welds. If a problem is identified, the weld is removed and redone to perfection. The welding problems in B&W were higher compared to industry levels. Besides being very costly, such a high rate of welding faults led to time wastage and delivery delays. This highlighted the need for increased supervisory role in the process to reduce such errors (Meyer, 1969, p. 7). Q- 9 As stated earlier, old B&W experienced capacity problems especially in its Mount Vernon plant. It had made assumptions that the demand for nuclear pressurized vessels would

7 increase and thus ended up taking more orders than it could actually deliver. At the time it was taking these orders, the Mount Vernon plant was not fully functional. However, the companys management thought that the plant would be fully functional within a considerable period. However, to their amazement, the plant was not fully functional as earlier planned. There were delays in acquiring equipment and machines as well as malfunctioning of the installed machines. Thus, the company was not able to handle the large number of order it had taken. To avert the problem of overcapacity, B&W should not entirely rely on assumptions that attract haste decisions. Such decisions do not take into account the potential risks in production. Generally, the company should have first ensured that the plant was fully functional before taking the orders. This would have allowed it to correct any problems in the plant before taking the orders. Q- 10 B&W Company also experienced human resource problems. It experienced shortage of skilled labor in the Mount Vernon plant. The company had assumed that there would be adequate and skilled labor in the plant location only to realize that it was not so. In this regard, it developed two strategies to address the labor shortage. The first was the training of local people to equip them with the necessary skills. The second was the automation of processes in the plant to reduce labor requirements. However, these strategies failed. For instance, the company suffered huge labor outflows despite the substantial resources used in training (Meyer, 1969, pp. 6-7). To overcome the problems of shortage of labor, various HRM strategies can be adopted. The two strategies adopted by B&W were appropriate. However, the company ought to have developed a binding contract with the trained employees to serve it for a stipulated period before they could move to other jobs. Secondly, it should have adopted best HRM practices that provide a favorable working environment and conditions for the employees. Some of the measures the

8 company should have adopted include paying higher wages, increasing employee benefits, and providing safe working environments. These strategies would have increased employee retention in the company through motivation (Sandhya & Kumar, 2011, pp. 1782). Q- 11 The management of B&W can solve the problem of late deliveries by developing and adopting a scheduling plan. The scheduling plan is part of the capacity planning that outlines the planned timelines for deliveries. Through schedule planning, B&W can forecast future demand and capability and thus be able to develop a reasonable timeline for meeting customers demands. In the case study, old B&W Company experienced late deliveries because they lacked a schedule plan. The company did not conduct an extensive market research to understand potential trends rendering it unable to meet customers demands. Q- 12 Engineering support is of utmost importance in B&W Company. The company is a highly technical one dealing with sustainable energy technologies such as nuclear energy. Thus, it relies on engineering equipment and technologies to produce the nuclear compartments such as the nuclear pressure vessels. The importance of engineering support can be seen in the malfunctioning of the equipment at Mount Vernon manufacturing plant. The company did not have the necessary engineering support, especially adequate and qualified engineers to provide system maintenance and repairs (Meyer, 1969, p. 7). Had there been such engineering support, the plants malfunctioning would have been averted. Q- 13 The location of Mount Vernon plant was suitable in the sense that it was strategically located near a waterway, Ohio River that could be used to transport the heavy nuclear pressure

9 vessels. Additionally, the plant site was high above flood levels, which reduced the risk of flooding in the facility. However, considering labor availability, the plants location was not suitable. Contrary to what the company had thought of, the area where the plant was located was a farming area. The locals did not possess knowledge and skills necessary to operate the machines in the plant. With the shortage of labor, the company adopted some strategies to solve the problem. These too failed (Meyer, 1969, p. 6). Q- 14 Making of nuclear pressure vessels is a highly technical process. The vessels are designed to withstand the extremely high temperatures and pressure due to nuclear reactions that occur in the vessels. One of the technical challenges involved in the process is the need for a perfect work. The pressure vessel is supposed to be finely welded such that no faults are found on them. For example, an X-ray scan is used to detect any welding faults, which when discovered must be corrected (Meyer, 1969, p. 7). Another technical challenge involves the transportation of the finished pressure vessels to their final installation sites. The vessels have to be transported as whole. With their giant sizes, they can only be transported through limited transportation channels. The most preferred channel is by water (Meyer, 1969, p. 6). Q- 15 It is not wise to have a centralized control of the entire operations management. B&W had adopted such a centralized control in its entire operations. The centralized control denied the unit managers and employees an opportunity to give their input since they were best placed to understand the operations. This resulted in loss of morale by unit managers and employees, leading to suicide of one manager. Additionally, such a centralized control failed to consider the real problems affecting certain areas in the operations management (Meyer, 1969, p. 8).

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Q- 16 There are two main conflicts in this case study. The first conflict is between the companys top management and the middle-level management. Because of the centralized control, middle-level managers felt that they were undermined in their authority and performance yet all responsibility was on them whenever things went wrong (Meyer, 1969, p. 8). The second conflict, which is also the greatest, is between the company and its customers. The main customers involved in this conflict are the utility companies Westinghouse and GE, which had placed orders for pressure vessels with B&W. After B&W delayed in its delivery of the pressure vessels, the two companies requested for their unfinished vessels to be handed over to other companies that would finish them in due time. However, B&W was first reluctant to honor the requests from the utility companies. This led to a legal battle where B&W was taken to court to force it to release some of the unfinished vessels. In the end, B&W had to release most of the unfinished vessels to other companies, suffering losses and creating new competitors (Meyer, 1969, pp. 10-11). Considering the negative consequences of the late transfers, it would have been wiser for B&W to sub-contract the vessels earlier. This would have ensured timely delivery of the vessels and avert the losses incurred (Holl, 2007, p. 2). Q- 17 Outsourcing is the process whereby a firm contracts another independent company to perform a particular job, which is then bought back by the original company. Outsourcing has become common in many industries because of its advantages. The greatest advantages of outsourcing are cost reductions, risk reduction, competitive advantage, and enhanced efficiency. Through outsourcing, a company is able to transfer part of the production costs to another

11 company as well as the risks involved. Additionally, through outsourcing, a company is able to utilize the prowess of another company and learn from it. Finally, the subcontracting increases efficiency since there is less likelihood of increased workload (Davies, 2012, p. 1; Tagliapietra et al. 1999, pp. 4-5). However, outsourcing can also have negative impacts. These include creation of competition as in the B&W case (Meyer, 1969, p. 3), control loss over supply chain, loss of vital skills, and loss of autonomy. Through outsourcing, the contracted company may overshadow the other company thereby emerging as the greatest beneficiary (Tagliapietra et al. 1999, pp. 5-6). Q-18 One of the most important decisions in a manufacturing company such as B&W is the choice of machine and equipment to be installed in the production plants. Being a manufacturing company, the efficiency, and effectiveness of the manufacturing plants is core to the success of the company. This can be seen in the adverse implications of the problems at Mount Vernon plant on the entire company. Thus, when purchasing machines and equipment, it is important to select the right ones. This will ensure that the installed equipments work properly with no malfunctions that would affect production. Had B&W done that, the machines at Mount Vernon plant would not have experienced malfunctions and other problems (Meyer, 1969, pp. 2 & 7).

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References Davies, P 2012, Reducing costs and improving efficiency by outsourcing and selecting suppliers, [online] Available at: http://www.qfinance.com/contentFiles/QF02/g1xtn5q6/12/0/reducing-costs-andimproving-efficiency-by-outsourcing-and-selecting-suppliers.pdf [Accessed 8 January 2013]. Holl, A 2007, Production subcontracting and location, [online] Available at: http://www.ucm.es/info/ecap2/seminario/seminario06.07/Adelheid%20Holl.pdf [Accessed 8 January 2013]. Kumar, S. A. & Suresh, N 2009, Operations management. New Delhi: New Age International Publishers Ltd. Meyer, H. B 1969, The great nuclear fizzle at old B&W, Time Inc. Sandhya, K. & Kumar, P. D 2011, Employee retention by motivation. Indian Journal of Science and Technology, Vol. 4, no. 12, pp. 1778-1782. Tagliapietra, S. Platan, P. Li, N. S. & Schneider, R 1999, Gaining competitive advantage through outsourcing, Business Logistics, [online] Available at: http://www.peterplatan.com/other/files/outsourcing.pdf [Accessed 6 January 2013].