The Venomous Caterpillar


After reading an article in Bloomsberg Businessweek, I am left questioning the business strategy of the world’s biggest manufacturer of construction and mining equipment, Caterpillar. In this article, Doug Oberhelman, chief executive officer, discusses the problems and vision he has for Caterpillar. Oberhelman believes that looser trade restrictions, lower corporate tax rates and greater infrastructure spending are key policy changes that will boost exports and create jobs within the company and industry. The opinionated CEO participates in trade organizations, CEO groups like Campaign to Fix the Debt, and visits Washington DC to promote international trade deals and corporate tax reform.

While Oberhelman seems to advocate positive ideas, Caterpillar plays host to many unhappy workers. In 2012, Caterpillar had record-breaking sales of $66 billion, producing $5.7 billion in profits, yet some employees are surviving on food stamps. As the CEO’s salary, wages and benefits increase- due to the need to remain competitive at every level, claims Oberhelman- factory workers have incurred health care and other benefit cuts as well as low or frozen wages.

Since 1991, Caterpillar employees have gone on multiple strikes- two of which spanned more than six years and led to higher divorce and suicide rates within the company. Strikes have been caused by employees unwilling to accept 50 percent pay cuts, others by employees who noticed unequal skill-wage levels. According to Moody’s Analytics, as a percentage of gross domestic product, corporate earnings recently hit their highest level in more than 60 years, while wages fell to new lows. One employee has worked for Caterpillar since 1999 and receives $15.66 per hour, yet the company claims to offer market-based wage increases, pay quarterly bonuses to workers and offer locally competitive rates. The worker’s leverage has weakened due to the declining number of manufacturing jobs combined with the decline of unions. In order to keep profits high, Caterpillar released 30,000 workers in 2009. Even in times of high profitability, they will not share the wealth because they want to save it for times of low profitability. In 2012, Caterpillar made $45,000 per employee, increasing significantly from $12,000 per employee in 2007.

Oberhelman often addresses the need for better school systems within our country, believing that 60 percent of people in Peoria, Illinois who apply for blue-collar positions are not suitable due to lack of basic skills. Some economists disagree with Oberhelman, however, by saying that the skill gap is because companies like Caterpillar have created it by demanding too much from workers for too little pay. When asked by the journalist when Caterpillar worker’s wages will rise Oberhelman replied, “When we start to see economic growth through GDP.”

Is there a way that Caterpillar could decrease operations costs and put the saved money towards employees’ salaries? Is Oberhelman’s approach to success, selfish? Should Caterpillar hoard money during profitable times in order to be prepared for times of lower profitability? Could the Caterpillar issue be resolved through improved operations management? Could an increase in automation relieve workers of some stress while creating higher profits and satisfying the CEO?

Kimes, Mina. “King Cat.” Bloomsberg Business Week May 20-May 25 (2013): 68-72. Print.

A Thousand Lives: The Hidden Cost of Clothes

Three weeks ago the Rana Plaza factory building in Bangladesh collapsed, killing 1,127 people. A majority of these were workers producing garments for sale in the United States and Europe. The factory manufactured apparel for brands including Benetton and Walmart among others. An investigation revealed that the building was deemed unsafe just days before the collapse, but factory supervisors ordered their employees to continue working in these hazardous conditions.

jp-bangladesh1-articleLargeThe obvious question is why a tragedy like this would occur, even after there had been a forewarning. The answer is because factories like Rana Plaza and others in Bangladesh are under immense pressure to produce a high volume of low-cost garments for their biggest buyers, Walmart, H&M, Inditex (which owns Zara), and Gap to name a few. These companies pride themselves on their ability to get apparel into stores only weeks after designing them. However, this incredible efficiency requires a tremendous amount of manual labor, and no where are labor costs cheaper than in Bangladesh. The massive global supply chains of a majority of apparel manufacturers flow through the South Asian country which trails only China in terms of garments exported. Unfortunately, most of the large Western companies are unaware of the conditions that exist in the factories where their products are being produced.

The latest tragedy has finally caught the attention of European and American companies. This past week H&M, the largest buyer of garments from Bangladeshi factories, agreed to a plan to improve fire and building safety in Bangladesh’s apparel factories. The five-year plan calls for independent safety inspections and for companies to make the findings public. Joining H&M were Inditex, the world’s biggest clothing retailer, and several other European apparel companies. However, PVH, the owner of brands such as Tommy Hilfiger and Calvin Klein, is the only American company that has signed the pact. Companies including Gap, Walmart and JC Penney have considered the plan, but have not yet signed on, mostly due to the cost and how legal issues would be resolved.

130430150217-made-in-bangladesh-620xaI believe this safety pact is a step in the right direction on the road to abolishing subpar working conditions around the world. Therefore, from a management perspective, I think that companies that are not signing the pact, like Walmart and JC Penney, are making a mistake. Not signing sends a negative message to consumers and investors, if the companies are unwilling to spend money to protect human lives customers will question the ethics of the company’s management. Ethics is an important facet of operations management. The managers at American apparel companies need to recognize these issues, like their European counterparts have, and address the dangerous working conditions that exist in their supply chain. I think in the long run the benefits of ensuring safe conditions for all in the supply chain will outweigh the cost.

What is your opinion on the decision of many American companies to not sign the safety pact?

Do you think it is the duty of American companies to ensure the safety of workers in foreign countries?

 

Sources

http://www.businessweek.com/articles/2013-05-13/h-and-m-pledges-to-make-bangladeshi-factories-safer 

http://www.ft.com/cms/s/0/79cedd4e-c000-11e2-b19c-00144feab7de.html#axzz2TmPslBBP

http://money.cnn.com/2013/05/13/news/companies/hm-bangladesh-safety/index.html

http://www.nytimes.com/2013/04/25/world/asia/bangladesh-building-collapse.html?pagewanted=1&_r=0&hp

http://www.bloomberg.com/news/2013-05-14/h-m-inditex-joining-bangladesh-pact-pressures-wal-mart-retail.html

More Money & Less Features, Does Not Make Sense!

More Money & Less Features, Does Not Make Sense!

 

Any flight feels long because time wasted in traveling is just time wasted. Airlines are trying to figure out how to cut time and provide the best service. According to American Airlines and cutting time in placing the carry on baggage is too much trouble. They believe that due to the small compartments over the seat, there is typically not enough space and trying to accommodate carry on space has created many delays. The article says that the carry on spaces are always over booked due to people bringing a lot of access luggage. American Airline thinks by allowing only a small baggage like a purse that can be places under the seat is the way to do and people can check in everything else.

 

They are trying to do quality control for the time of luggage delays. Even though it only eliminates 2 minutes of the delay time, they think it will add up in the long run. In addition, there are cost savings because the luggage industry has created revenue in billions. I do not think this is a good strategy. The airline prices are continuously increasing due to the gas price and they are taking out amenities. I know when I travel I like doing it on Southwest because it’s cheap and allows luggage, other airlines  are more expensive and we have to pay additional for baggage. Even though it will eliminate some time in the flight, but that can be made up in other ways, such as boarding early. I think many people only carry a small luggage for a small distance and retrieving it in the luggage area would increase the traveler’s time. Also the issue to luggage getting lost is a big deal people have their carry on as their safety net and taking that away is a big deal.

 

Before American Airline makes this huge transition and purchasing, new aircraft they should construct many surveys to determine is this is worth it. Travelers want to get from point A to point B in as little hassle as possible and I believe this is just creating an unnecessary hassle. The airline will need to employ more people to put the baggage away and there is a change of loss baggage just to eliminate a 2 minute deplays. They should invest in creating a flow chart and figuring out where the problem is and eliminating or supplementing that feature. Quality control is improving quality overall not just making one area better and adding on problems in other areas.

 

What do you think are eliminating carry on luggage a good thing for American Airline to have? What would you prefer as a traveler?

 

http://www.businessweek.com/articles/2013-05-17/american-airlines-doesnt-want-your-bags-in-the-cabin#r=hpt-lst

 

The Lighter the Better, Says American Airlines.

Do you ever find yourself incredibly frustrated when boarding an airplane? Travelers tend to find themselves wondering about the order in which everyone boards the aircraft. Recently, American Airlines decided to adopt a new method to allow passengers to board quicker. This new method saves about two minutes on average per flight. Although the new method does not necessarily make a large difference for passengers, it does cut about 6,000 minutes a day for the airline company. American Airlines longs to improve their on-time performance.

The airline’s previous method was arranged by groups. Each passenger was assigned either group 1, group 2, or group 3, starting with group 1 at the front of the plane. The new method permits passengers with only a carry-on item on the aircraft second. This carry-on item, however, must be small enough to only fit under the seat in front of them. Passengers who buy business class or first class tickets do however, board first. This new method benefits passengers because those that do not have large pieces of luggage enter the aircraft and immediately take their seats.  Additionally, more passengers were willing to check their bags in at the gate because in return, they got to avoid baggage fees and were allowed to board early. Once those passengers are seated, those with luggage pieces have an easier time boarding since all the overhead bins are empty. Do you think this new method makes more sense? Personally, I have always thought the best way would be to board those in the back of the airplane second, then the middle of the airplane third. Business class would still board first, however.

Virgin America has tried this boarding process about two years ago and decided it wouldn’t work for their company. The problems they encountered included debates between customers and employees about sizes of bags that would/would not fit under the seat in front of the passenger. Additionally, sometimes those passengers that boarded first used the overhead bins anyway. An airline consultant, Robert Mann, said this new boarding method can however, cut down American’s revenues from baggage fees.

I got to experience this new boarding method when I took a flight to/from Fort Lauderdale. I decided to check my bag in as I printed my boarding pass because I did not feel like lifting my bag and creating a line once I boarded the airplane. I was especially annoyed when I got to my gate and realized that the airline was allowing passengers to check-in their bags free of charge. I spent around $50 checking my bags in only to realize the airline was doing it for free. When I asked if I could get a refund I was told it was non-refundable. Although the new method makes complete sense and I support it, I do not think it is fair to trick loyal customers into spending unnecessary money on baggage fees. At the end of the day though, I am happy companies are trying to new methods to make traveling easier for customers.

 

 

Photo:http://l.yimg.com/bt/api/res/1.2/2bP5nJdDKrEtP4NxjC37FA–/YXBwaWQ9eW5ld3M7cT04NTt3PTYwMA–/http://media.zenfs.com/en_us/News/Reuters/2013-04-27T171531Z_1_CBRE93Q1BY500_RTROPTP_2_USA-AVIATION-DELAYS.JPG

http://www.forbes.com/sites/tedreed/2013/05/18/will-americans-new-boarding-process-work-it-failed-at-virgin-america/

 

Mercedes’ Management pulling in Wealthy Chinese again

After Daimler’s CEO Dieter Zetsche sat in the Mercedes S-Class, he realized it would not recline as far as a seat in an airplane did, and therefore not give the same amount of comfort that the wealthy individuals that would buy this car are accustomed to. This was especially an issue in China where the car-owner sits in the back a lot of the time as they have chauffeurs. Zetsche had his designers recline to 43.5 degrees to make it more comfortable and luxurious and therefore more appealing to the wealthy Chinese. When the backseat reclines, the front seat automatically moves forward a bit to give more legroom, and the seats even have a massage feature for ultimate comfort.

Mercedes Revamps the S-Class to Lure China's Wealthy Buyers

To be able to realize that this is necessary is very impressive forecasting while also looking at the past sales and realizing that something is wrong. For the CEO to go out and try the features of the Mercedes S-Class and help come up with solutions shows the dedication he has to the company, and shows good management as well. It is rare that you hear that a chief executive officer figures out the issue a company has and makes it a point to fix it.

Chinese buyers account for more than half of all the sales of the S-Class, which makes improving the sales even more important. With Mercedes operating profit margin down in comparison to BMW and Audi, it is important that the sales of the S-Class are improving again because the profit margin is 25% for these cars. Zetsche was also smart

in realizing that innovating and improving this car is important to the bottom line of making more money, as it is the most profitable.

China is a huge market as the sales of luxury cars are projected to go up 12 percent annually up through the year 2020. Clearly the operations management of Mercedes is of highest quality, because being able to put together all of the factors I have talked about and realizing that perfecting the S-Class is essential is rather impressive.

A Mercedes S-Class can cost as much as 486,000 dollars in China due to very heavy import levies. Due to the halo effect, Mercedes is able to generally charge more for its other cars as well. Mercedes sold about 20,000 more of their luxury cars than BMW and a little over 40,000 more than Audi’s luxury car, so clearly Mercedes is the best at perceiving an image of luxury and highest of quality. With this fact in mind, Mercedes’ management needs to realize that they need to improve the sales of their other cars to become the most profitable company in overall again in comparison to their biggest rivals of BMW and Audi.

What do you think Mercedes can do to improve their sales and become the most profitable company again? Are you impressed by the improved S-Class moves?

Go Ahead, Drink on the Job!

Many companies would frown upon an employee enjoying a drink during the workday but The Life is Good Company would beg to differ. The Life is Good Company is a Boston-based apparel and accessories brand that aims to be unique and fresh. They have focused their efforts on improving employee productivity in a totally new way. No they didn’t try a cash incentive program, prizes, or extra vacation days, they thought having a tavern in the office would increase productivity.

The Life is Good Company is in the process of installing a tavern in the middle of their office. The tavern will include a stage, to host live music, shuffleboard, billiards, and a basketball hoop with enough space to hold at least 260 people.  They want to have a comfortable place where employees can “put their feet up and relax” while doing their work. Hungry? Grab a booth, food, and hold an informal meeting. The boss says it’s okay.

The Life is Good Company isn’t promoting people to be drunk, driving while drunk, or alcoholism. They just want their employees to be comfortable and productive at work. They would even say having a tavern is appropriate to their brand. Most of The Life is Good Company employees often grab a drink after work, so why not let them do it at the office?

An area The Life if Good Company is trying to improve might just the area that disappears. The book states that labor productivity will increase due to “healthier, better-educated, and better nourished labor force” and poor diets are a major downfall to productivity. Having a glass of red wine a few times a week is good for your diet but will these people really be drinking red wine? Beer and hard liquor are not conducive to a healthy diet. Having a tavern in the office will encourage people to drink. Many people are social drinkers. Having a bar will distract people from working and increase socialization. Product organization may suffer because it requires management and attention.

The operations management team is not being socially responsible or ethical. The workplace has the potential to be a harmful environment to co-workers and prospective business partners. The ability to measure productivity will be increasingly hard as more employees spend time in the tavern.

Another area that could see a decline in growth is quality management. The increase in alcohol could lead to a decrease in quality. The product could suffer because a questionable product could be produced. Many people who drink think certain ideas are better than others maybe that is why a tavern is being installed at The Life is Good Company.

Do you think having a tavern in the office will increase productivity? Is having a tavern in the office ethical and socially responsible? What possible management issues will the Life is Good Company run into because of having a tavern in the office? Can a tavern in the office have a positive influence on the company’s brand image?

Sources:

Why I’m Building An Tavern at the Office : http://blogs.wsj.com/atwork/2013/05/10/why-im-building-a-tavern-at-my-company/?mod=WSJ_Management_At_Work

Audio Innovations-Growth Stage

Rock-It 3.0 OrigAudio

We have learned in our Management 301 class that every product is subject to a life cycle. In its early stage, called introduction, the product is designed, developed with attention to quality, short production and limited models. The next stage is growth, where forecasting is critical, the product goes through competitive improvements, and distribution is enhanced. Then the product goes through maturity, in which standardization takes place. Finally, the product declines, where there is a lower product cost, differentiation decreases and capacity is reduced.

 
There are several products in the market that we can see going through the life cycle, but I have found an interesting article that makes reference to good examples of products on growth stage. They are the OrigAudio products, such as cardboard speakers, headphones and golf-ball-size amplifiers. According to the article in the Chicago Tribune by Ronald White, these OrigAudio products started being developed by Chicago entrepreneurs Jason Lucash and Mike Azymczk. These two marketers got their products in the market and successfully accomplished to be listed as one of the best inventions in 2009 by Times Magazine, just after a short period of time of their introduction (White, Ronald).
During the introduction stage the process design and development were critical, as well as they had short production run. The article mentions that since they are marketers, they don’t know about engineering, so they have been looking for people that can complete their team by helping them to bring their innovating ideas to life. Now, in the growth stage the entrepreneurs have been working on enhancing distribution. One of their most important decisions was moving to California. According to the article, by moving closer to the Pacific, great benefits were acquired by OrigAudio such as; decrease on transportation costs of inputs from China. But mostly, because the region with core surf and skate crowd represents a good market for them, to increase sales. In order to accomplish their goals they have been and will continue hiring more employees. Also they are working in more innovating designs for their speakers, headphones and amplifiers (White, Ronald). Finally, they are forecasting to have $5 million on sales this year, a totally different amount than in 2010, when they had just $700,000 in revenue (White, Ronald). But it makes sense since they had $3.5 million revenue in 2012 .
Some other OrigAudio products in the market, mentioned in Ronald’s article, are:

  • The Fold and Play speakers, which looks like a Chinese restaurant, take out box.
  • The Rock-It, which according to the article, includes a piece of the size of a marshmallow peep candy.

It looks like these entrepreneurs from Chicago are doing a good job in the growing stage of their products, since they are working on the competitive improvements and options.
Do you think they will be able to stretch their products’ life cycle enough for OrigAudio to earn and keep a good place in the market?
What would be your recommendations for these entrepreneurs to maintain their business growing?

Source:

http://www.chicagotribune.com/business/breaking/la-fi-socal-design-20130510,0,5421129.story

Wrong for Wrigley?

 

When you think of Chicago, some of the thoughts that come to mind are: great food, tourist sites, and sports. Whether you are visiting or living in the city, nearly everyone loves to go to the Chicago Cubs games, unless you are a Sox’s fan, but even then, the charm of Wrigley Field and the surrounding area is something undeniable. So when Tom Ricketts announced the possibility of moving the Cubs outside of Wrigleyville, you better believe he received backlash. The degree of disapproval of the move came from die-heart fans, rooftop owners, and other local businesses. When I first heard that Wrigley Field might be moving, I was heartbroken. All I could think about was the memories my family and I had from going to the games and making a day out of traveling to the city. Even more than contemplating the move, Ricketts is planning a $500 million renovation that will impact the city, fans, and surrounding businesses as a whole.

At first thought, some fans might say to leave Wrigley the way it is. The old nature and lack of high-technology is what makes the field so charming and historic. However, by looking at this situation through Theo Epstein’s mindset, President of Baseball Operations, I have come to see the more important managerial implications that come along with the $500 million renovation. Decisions of forecasting, location, and organizing are all factors in the Wrigley renovation. Theo has to think of the costs/revenues that will be generated by these renovations and compare that to how the location of each addition will impact the field and businesses that surround the ballpark.
For those of you who are not familiar with the renovation, the $500 million plan requires no city or country money. It will provide a video board in left field that will be 6,000 square feet, and a secondary sign in right field that will be 1,000 square feet. The plans also include a three-story addition that will contain new clubhouse, restrooms, restaurants, and potentially an upper-level deck. Furthermore, there have been talks of a proposed hotel on the McDonald’s lot, a two-story Captain Morgan Club, and open-air plaza on the west side of the park.

 There are many pros and cons of the renovation plan. Some thoughts that should be considered are the local businesses – will having more Wrigley restaurants and a hotel take away from local businesses? More importantly, how will the jumbotron affect the rooftops since they bring revenue to the owners and to the city as well?
My question to you is what do you think of the renovation and the managerial decisions that face the Wrigley organization? The location of the jumbotron, hotel, and restaurants are important decisions to consider in the overall effect of the renovation. How do you feel about the possibility of the hotel that will be built right by the ballpark – would you forecast that expenditure to be revenue raising or simply wrong for Wrigley?

Sources:

1. http://ballparkdigest.com/201305066246/major-league-baseball/news/cubs-submit-wrigley-field-renovation-plans-to-city

2. http://www.dnainfo.com/chicago/20130501/wrigleyville/wrigley-field-renovation-renderings-released-jumbotron-hotel-unveiled

Changing Customs?

The Chicago Department of Aviation announced that O’Hare International Airport will be implementing a new procedure in order to reduce the time that customers stand in the customs line. The new procedure is for U.S. passport holders who are returning to the United States on international flights, to improve their customer service experience with customs officials and decrease wait time in line. It is intended that by July 1st, in the midst of the travel season, customers will no longer fill out the paper customs declaration forms on the plane. Instead, after departing the plane, U.S. passport holders will be directed to a self-service kiosk. Once they are at the kiosk, the U.S. passport holder will scan his/her passport to start the claiming process, all before any interaction with a customs official.  The customer is then issued a receipt from the machine, with the answers to questions they have answered at the kiosk, to give to the customs official for verification.

This new customs process is an adaption to keep customers satisfied by keeping lines short. The new procedure also includes a few of the five service dimensions that we have learned in class. O’Hare is demonstrating the second service dimension, responsiveness. Implementing the self-service kiosks is in response to the additional four international airlines that will be servicing out of O’Hare this summer.  The Chicago Department of Aviation, allowing O’Hare to use the new self-service kiosk devices, is also showing empathy towards the customers. O’Hare and The Chicago Department of Aviation are considering and empathizing with customers by recognizing the stressfulness of standing in line for hours and waiting to complete the customs process upon re-entry into the county. The tangible service dimension is also considered in the new and, what is expected to be improved, paperless customs process. The whole process of communicating with the customs officials is being altered with this new equipment.

The system has been tested with the Canada Border Services Agency and has proved to be useful at the Vancouver International Airport over the past year. The successful trial in Vancouver encouraged The Chicago Department of Aviation to put the new self-service kiosk into action at O’Hare International Airport. This new technology is a breakthrough improvement. There has been little to no change to improve and expedite the re-entry in to the U.S. customs process in the recent past.  This new change is much needed.

Personally, after first hand experiences of standing in the customs control line for hours, I am excited for the self-service kiosks to be put into action. For frequent fliers, once they learn the new technology, they will be flying through the line.

How do you feel about the self-service kiosks for the purpose of speeding up the process of re-entry into the United States? Do you think this will be helpful/beneficial to both travelers and customs officials? Do you foresee any problems that may arise from this change?

 

http://www.chicagobusiness.com/article/20130507/NEWS02/130509815/ohare-customs-goes-paperless-to-shave-wait-times

http://www.chicagotribune.com/news/local/breaking/chi-feds-passport-kiosk-chi-20130507,0,4807141.story?track=rss

Open Season Ending For Social Media Hackers

Twitter Hoax Causes Market Decline–Washington Post

 

Following a recent slew of high profile Twitter accounts being hacked, the popular social media outlet is beefing up its security efforts.  If the company were to allow for the same security measures to remain in place, it would not only be damaging its own reputation, but it’s very operations would be ignoring a major ethical concern surrounding people’s right to privacy.

People are posting more and more of their personal information on the internet and social media outlets for various reasons and in varying capacities every day.  Naturally, such a movement has led to a simultaneous leap in presence of hackers.  The danger of social media hacking does lie solely in loss of personal data, however.

Individuals are now relying on social media as a primary source of news.  Inaccuracies in what is posted by seemingly reputable sources then has the potential to make for major overreactions and misunderstandings.  This is evidenced in the recent Twitter hackings of members of the Associated Press (AP) that led to several different incidents of false information being spread via the social media site.

Recently, false posts from a hacked AP account contributed to a stock market decline.  A hacker (following the tragic events of the Boston Marathon bombings) posted untrue information regarding an explosion at the White House.  He even went so far as to say that President Obama was hurt in the explosion.  Reactions to the news led to the aforementioned drop in the S&P 500 that saw a $136 billion dollar decline in market value.  This news is especially threatening to Twitter considering it was only a few months ago that the sharing of market-sensitive data was made legal on the social media site.

These sort of issues directly speak to the need for greater security measures to be taken by Twitter to ensure that private information and accounts are not compromised.  In response to the recent account hackings, Twitter has begun to take proactive steps to ensure that these sorts of issues do not continue.  New security measures are to include a multi-step authentication process that may even include identification codes being sent to account owner’s cell phones that must be utilized in order to be granted access to one’s Twitter account.

The increase in security measures is a great move, but it would appear that such a step is long overdue.  As we learned in class, proper planning steps could have addressed the potential for these ethical issues originally and saved the hassle now.  Individuals and companies entrust Twitter with personal information with the assumption that they will be protected from hackers and the like.  If Twitter or any other site is unable to live up to such assumptions, a very serious ethical issue could cause the reliability and credibility it has attained to be lost.

What other steps can Twitter take?  Do reports of these sorts of issues make you wary of the credibility of Twitter sources?