Background and context of organization
Modern Foods is in the business of manufacturing bakery products including frozen vegetables, game pies, specialty flour, bread and cakes, chip” and battery farmed chicken ranges, etc., and operates under the Modern Bakeries brand. The main retail outlets are M&S, Waitrose, Harrods Food halls, and even mass-market retailers such as ASDA and Iceland. The company also exports products to France, Holland, and other countries. External market forces have increased pressure on the margins and are forcing MFL to modify its systems and processes. The next sections will examine all the issues to identify the key problem areas and then offer some recommendations. The issues are not only related to employee relations but also related to strategic management and optimizing operations along with supply chain management and logistics.
An examination of the case has produced certain findings that are grouped under past external influence, future possible external influences, and the internal situation. The findings for these headings are given in the next sections.
Past External Influences
According to the case, the market for bakery products and food items produced has transformed the customer base. There are also changes in the form of increased transportation costs due to increased sales, union activity though still less collective bargaining by the unions, and delayed schedules due to transpiration costs. MFL operates through 7 different sites across the UK from Derbyshire, across to Lincolnshire down to Devon.
There are 5000 employees and a turnover of just 3 million GBP, giving a productive rate of just 600 GBP per employee and such a financial ratio will only mean that the external forces would soon squeeze the company to bankruptcy. The company has operated from a legacy of overstaffing and has spread its operations over a wide area and this was mainly due to the earlier external influence of opening units all over the UK so that smaller local markets could be reached. The company had also operated with a large number of truckers who belong to different unions. Though the unions have tried to enter the organization, they have not been very successful since the company was very generous with its wage settlement.
Therefore the external past influences are an overstaffed organization filled with inefficiency and an external labor influence of union workers.
Future External Influences
The market in which MFL operates is highly competitive and has been taken over by retail chains such as ASDA and even Wal-Mart and Tesco. These retailers while providing large orders, expect deliveries to be streamlined in such a manner that the inventory is kept to a minimum. Since MFL makes bakery products, they have to be transported in refrigerated trucks and these products also have a short shelf life and this means that fresh stocks are constantly required, unsold stocks if any have to be taken back and disposed of.
There is also a move to computerize all systems and very soon the retailers would expect MFL to develop and deploy enterprise planning systems that would be used for computerized ordering. The company has manufacturing operations in seven locations and the costs of transporting goods from point A to point B and then again halfway to point A would severely impact the transportation costs, increase the logistics costs, warehouse and inventory management, and other supply chain elements.
As stated in the case, the equipment and infrastructure in the factory have become old and this would increase downtime and associated maintenance costs. There is a need to modernize the operations and equipment so that processes become more efficient. Thus there would be an increased pressure from the external buyers to develop smaller and faster systems that allow optimum batch sizes to be produced. With increasing fixed and variable costs at various sites particularly in terms of rising fuel and energy costs, there is pressure to reduce the operating costs.
In due course of time, it is expected that the company, already seeing a reduction in margins by 5% would not have enough money to give competitive wages to the employees. Once workers find that they are getting lesser pay, then the unions will gain entry into the ranks and then the atmosphere in the company would deteriorate. As of now, only a few disputes have been reported but things could get worse due to the activities of the unions.
The internal situation can be grouped as per several issues and explained as below:
Multiple Locations and Logistics Problems
MFL has seven manufacturing centers spread across the UK. These centers manufacture different types of products that have to be transported across the country. The company runs a large fleet of refrigerated lorries as well as a smaller number of refrigerated “transit type” vans. Each division has a set of storage facilities and a small transport section. However, bulk storage is at a large warehouse facility just outside Luton where the majority of the fleet of vehicles operate delivering goods from there right across the UK and into France and Holland. Goods are transferred from the production sites to the central warehouse facility by the site-based transport and then stored and moved out in response to customer requirements from the Luton site.
This sometimes means that products arrive in Luton from for example from the two Turkey and Cured Pork Products Divisions in Norfolk one day, and are shipped back along the A14 to Felixstowe and onto Holland the next. The operations of the different locations are under question and it is not clear of the parentage of capacity utilization. Another issue is the huge transportation costs incurred in operating and maintaining the fleet of company-owned trucks. There is room for efficiency, rationalizing operations, and reducing the variable costs due to power, fuel, and other overheads including salary and wages.
Excess Staff and low Productivity
As stated in the case, the employee strength is 5000 and the turnover is 3 million GBP. The ratio of income per employee is about 600 GBP and it is doubtful whether the company is making any profit. While there are a large number of workers, bakers, master bakers, and so on, many of these employees have worked with MFL for many years and would be drawing considerable salaries, which is not commensurate with the output.
There are dangers that the workforce would soon be unionized and this danger means that the cordial relations with the staff and management would soon be spoilt. A large number of site locations means that there is quite a lot of inter-site travel for the Head Office staff, in addition at some Divisions the equipment is becoming old and in need of refurbishment, along with buildings requiring improvements and enlargement. With increasing fixed and variable costs at various sites particularly in terms of rising fuel and energy costs, the MD has turned to the senior management team to devise ways in which the company can remain competitive in the current economic climate.
The high-end food products are still selling well, and orders from the stockists such as Harrods and Waitrose are holding their own. However, at the mass market end, the big supermarkets have been driving down prices for some time, and are using “discounted” ranges as a way to keep their profits and turnover up in this more difficult trading period, which has seen wholesale prices remaining very tight and the profit margin reduced by about 5% over the last 6 months in the mass market as a result of increasing costs.
Management Methods and HR policies
All these years, MFL management was meeting the target output and IVECO, the holding company that bought the majority shares did not exert too much influence or attempt to be involved in everyday operations. The management style of the top management team is autocratic as to the overall direction of the group but leaves the day-to-day management to their middle divisional management teams.
Terms and conditions of work are generally relatively competitive as compared to the industry as a whole but vary from site to site and across the different grades of employees. Many employees have worked for the organization for several years, especially at the Lincolnshire site. The management at each of the sites has been given a free rein, in terms of how they manage; each site has specific budgets and output targets set by the senior management team.
So long as these targets are met then the senior management team tends to use a “light touch” in terms of steering the group management teams. This has resulted in a variety of “management” approaches across the whole group. There are few consistent group-wide personnel policies apart from a basic outline of what the senior management deems an acceptable “collective agreement” and a group-wide Disciplinary and Grievance procedure put in place in 2004 as a result of the Statutory procedures coming into effect at that time.
All the sites now have two monthly Staff Consultative Committees at each site as a result of the Information and Consultation of Employees Regulations 2004. The majority of the topics of discussion are largely local division based issues, although every 6 months the senior management team put together a briefing paper on overall company profits and losses and information on any new changes in the business such as new products and other major changes, which is presented to each site at the next Consultation Committee meeting which is described as an “expanded” meeting.
Employees are invited to put any feedback to the senior management individually in writing within two weeks of these expanded meetings. Membership of the Consultative Meetings is equally half management and half workforce, with Trade Union Representatives being able to stand for election alongside volunteer employee representatives. There is one representative from each of the levels of employees – therefore this usually relates to one person from each of any production shifts, one from stores, one from the offices/administration, and one from any other groupings that are particularly key, such as the Master Bakers at the Derbyshire Bakeries division.
These consultative committees are the main route through which management communicates to the workforce as a whole apart from the TU/management meetings at the site level. The HR department has recently carried out a “communications survey” and this indicates that the majority of the staff feel “under” informed and indeed at some sites, question the effectiveness of the Consultative Committees.
The technology, equipment, and infrastructure has become aged and need to be improved and upgraded. This would require a sizeable investment and it would be difficult to obtain budget approvals before improvements are put into place. There is an increased urgency to first improve the process and then obtain approval for the budget.
Lack of full computerization
Full computerization with a common central system has not been done yet. Computerization has been done for some departments and only some departments have been linked. The HR systems are not linked between sites but the Finance sections are completely computerized and linked to the Head Office in Lincolnshire. Production areas at all sites have a computerized product flow control and recording; which link into the main warehousing facility at Luton, which is fully computerized with bar-coded pallet, as well as loading and unloading all controlled by a central computer-based system.
Only the most recently purchased lorries have SatNav; although all lorries were at one time linked by CB radios, now all drivers have a mobile phone for communication and this further adds to the communication costs.
Some of the workforces is unionized and almost at all locations, the factory floor workers are unionized, and a variety of unions are recognized across the different divisions depending on the history of the site. The Luton Warehouse and Transport workers are in the TGWU. However, the offices, administration, and management levels are not unionized. The numbers in the Union at each site vary again, depending on the history of the particular site itself, with an average of 45% union density.
However, the original site of Modern Foods Limited in Lincolnshire is not unionized, although occasionally over the years a few employees have put forward a request for unionization, the company in Lincolnshire has always managed to “get around” the workforce, and no union has gained a foothold. However, unions elsewhere are fairly active, and although there is no strategic policy on either specifically working with unions, or not doing so, relations in the Divisions have kept on an even keel with few disputes of any note, although occasionally the relations have been tense from time to time.
Pay rates are negotiated where trade unions are recognized, but as the company policy across the board has been to be “competitive” these negotiations have generally been constructive and the outcomes have been accepted by both sides as meeting their needs.
The analysis reveals that: the disparate and widespread locations are having high operation costs; there is some extent of workers unions; unions do not fully communicate with the workforce at large; there are increasing pressures to reduce the cost of operations and to reduce the transportation costs; there is excess staff and efficiency is low. Also, there is no organization-wide computerization of key processes, and that the technology has become obsolete and machines have to be upgraded.
Based on the discussion done in the previous section, the following recommendations are made:
David (2005) points out that when firms that unction from multiple locations want to optimize their operations, they should consider shutting down some plants and moving them to a single location or even a lesser number of locations. This method can be used to cut down operational costs. A study has to be undertaken to verify the products being made at each location, the operation costs, feasibility, and impact on moving and merging one unit with another. Such a move would help in reducing overheads, reducing manpower and logistic costs, and also help to control the operations effectively.
David (2005) shows how transportation and logistics can be controlled and managed by planning routes to see that trucks do not travel more than once on the same route. The author also suggests that at times it is more feasible to outsource the transportation to a contractor. It is recommended that a study be undertaken on the number of trips each truck makes, understand how much load each truck carries, and if possible, the company-owned trucks can be leased to contractors on a contract basis. Such a move would reduce logistics costs.
Excess Staff and low Productivity
Robbins (2002) comments that it is the organizational culture that provokes workers to work less and demand more wages. It is recommended that the management should sit down with the worker’s unions and place the facts before them and explain the need to increase productivity, else MFL would close. The firm should also consider offering voluntary retirement schemes to willing employees and tell them that this is the best way out else the plant will close.
Management Methods and HR policies
Rollinson (1993) speaks of having uniform policies for employees, based on the work they perform, the role they have, and design a system of payment that does justice to their experience and skills. It is recommended that a skills and roles analysis be performed and various grades are created for employees and a uniform wage policy is assigned to each grade.
Rollinson (1993) notes that union workers can turn aggressive without notice when they perceive that their interests and jobs are not being protected. In certain cases, unions turn militant and resort to strikes and work closures, a prospect the MFL cannot afford. Before commencing the previous exercises, the management should chalk out a detailed strategy showing where the company is now, what economic problems and dangers are present and what help is required from the union. Issues of job losses, wage reduction should be spelled out. If the union persists in striking work, then this has to be weathered by the management.
Technology upgrade is sometimes forced by market conditions. Old equipment tends to break down more often, consumes more power, and is often unreliable. The market forces show that technology upgrades are required to bring inefficient production. A feasibility study is recommended that would show the status, machines that have to be replaced, cost, and time schedules.
While computerization of the system would help to bring in transparency and MIS reporting, David (2005) argues that the only thing worst than no computerization is computerizing an inefficient system. It is recommended that the improvement methods mentioned above should be first implemented, internal processes refined, and only then can there be enterprise-wide computerization.
MFL has a large fleet of refrigerated trucks and these are the lifeline of the whole system since raw materials and finished goods are transported between locations. Consequently, unionized truckers have high bargaining power and can cripple the movement of goods. It is suggested that the system of contracting out the work be initiated and closed quickly, behind closed doors so that truckers have little time to organize themselves. This is bound to create a backlash but it cannot be avoided.
It is expected that there would be some initial high costs when these initiatives and launched and implemented. However, the payback period would be shorter and the benefits would be long-lasting. The ultimate goal would be to have a single plant with a central cold storage warehouse. This would reduce variable costs, fuel costs, and power costs.
The paper has discussed the MFL case, identified the past and current problems, and also discussed future problems that may arise. Several recommendations have also been made to handle these issues. The organization had some historic influences such as a legacy management system that was weak on discipline and efficiency. MFL has seven units operating from different regions of the UK and products had to be brought in from these locations to a central warehouse and despatched. The operation has become inefficient and there is a chance of unions entering the firm. Profit margins have been squeezed and the firm barely makes profits.
In addition, there are problems with logistics and transport. Recommendations include merging a few locations so that the number of units is reduced; outsourcing the transport operations; offering VRS schemes to employees so that the employee strength comes down, negotiating with workers to ask them to let go of extra workforce and accept wage cuts, and these actions would help to control costs and for bringing in uniform HRm policies by creating grades of employees based on their skills and experience. The case is not restricted to only HR issues but also includes strategy and logistics management and the recommendations have included all these issues.
David, Fred. 2005. Strategic Management : Concepts and Cases , 12th Edition. Prentice hall.
Mathis, Robert, L. 2007. Human Resource Management, 12 Edition. South-Western College Publication.
Robbins, Stephen, P. 2002. Organizational Behaviour (10th Edition). Prentice Hall.
Rollinson, D. 1993. Understanding Employee Relations: A Behavioural Approach. Addison-Wesley, Wokingham.