Fabritek Corporation Case Report

1

Fabritek Corporation

Case Report 2 1. Fabritek’s Problem

The high scrap rate in milling department is problem of Fabritek Corporation. Before

Moreno was assigned to the drilling operation, the group settled down to an average

performance of 135% of standard. When Moreno came to this position, he wanted to get

more bonuses paid and reached a high production level. Moreno produced 167 milled casting

units per day, which means 167% of standard. However, 38 pieces auto parts were rejected

by the inspector on January 26th, Paul Clark had to work three hours overtime on these

products.

2. Problem Analysis

I have drawn a process map of the production. (Exhibit 1)

It is very hard for Fabritek to get the order out because of the high scrap rate. Fabritek

needs workers to redo their work to guarantee the quality of products. From Exhibit 2 we

know that the total cycle time for these four milling cuts steps is 11.584; total machine time is

8.358 and total external time is 3.226. According to the case, total cycle time = machine time

+ external time. It is almost impossible for Fabritek to change machine time without

introducing new technology. At present situation, the only way for experienced operators to

increase output is to reduce the external time. Thus, the total cycle time for milling cut steps

at least is 8.358. All of these data is based on 100 units output per day. If the actual output is

33% higher than standard, the total cycle time should be 11.584 / 1.33 = 8.71. It is possible

because operators could reduce their external time to achieve this result. However, Moreno

could reach an average 167 units output per day, which means that he could make the total

cycle time decrease to 6.937. (11.584/1.67) It is impossible for he to complete all these four

steps. The only reason is Moreno has skipped one or more steps in milling cuts. He may skip

mill cut 2 or only do mill cut 1 and 2. In this way, the quality of products cannot be

guaranteed. 3 The bonus incentive system of Fabritek is a good way to explain why Moreno wanted

to achieve higher output. But, this bonus incentive system brings some ethical issues involved

in this case. Moreno wanted to get more salary paid so that he cannot ensure the quality of

products and obey the process of production.

According to the case, Moreno got $645 per week in his previous job, and $255 was

the premium pay. So we can figure out Moreno’s basic salary is $390 and the premium pay

takes about 65% of his basic salary. However, as a milling cut operator, Moreno could get

$522.42 per week, which means his premium pay turns to $132.42, only takes 34% of his

basic salary. That is why Moreno unhappy. He cannot get as much premium pay as before.

3. Recommendations to Frank Deere

At present situation, we cannot kick Moreno away immediately. Fabritek do not have

enough experienced workers like Moreno. Just like Deere said, Moreno is the best man in his

hand. New workers need time to familiar with milling machines and Fabritek have to pay for

the training of new workers. Beside, Fabritek has a few time to complete the contract with

Pilgrim, if Fabritek keeps producing 135 units per day, the contract can be completed. And

Deere may use more than one shift per day.

Transfer Moreno to grind and drill operation seems to be a good idea for Frank Deere.

Based on the operation process, operator at drill and grind position needs to keep the same

pace of the operator at milling position. Therefore, if assign Moreno to drill and grind

position, Moreno cannot increase his speed because he has to wait for Clark to complete

previous steps. It is a good way to reduce ethical issues of Moreno. However, we cannot

make Moreno happy by doing these, others things need to be changed in the future by Baker.

4. Recommendations to Stewart Baker

The premium pay incentive policy should be modified in the future. Present incentive 4 policy is based on total output; the quality of products does not take into consideration at this

policy. As a result, in order to receive higher premium pay, workers turns to achieve higher

output and do not care about the quality. This incentive policy would cause ethical issues. So

it is better for Fabritek to evaluate workers performance by calculating total good products

they produced.

One way to make incentive policy more efficient is to increase the basic salary and

reduce the premium pay. By doing this, the total labor cost would not change, but Fabritek

needs to make sure the premium pay will at acceptable level, thus, the output level will also

acceptable.

The second recommendation is to increase production capacity. As we know, the