Declining profits compelled the management of the Manteo Corporation to approach employees to work for production economy and increased productivity. Production managers were promised a monetary incentive based on cost reductions.
The production managers responded with (1) an increased rate of production; (2) a higher rejection rate for quantities of raw materials and parts received from the storeroom; (3) a postponement of repairs and maintenance work; and (4) a reliance on quick emergency repairs to avoid breakdowns.
The repair and maintenance policy is causing serious conflicts. The maintenance supervisor argues that the postponement of certain repairs in the short run and the use of emergency repair techniques will result in increased costs later and, in some instances, could reduce the life of machines as well as machine safety.
Even more serious is the growing bitterness caused by pressures placed on the maintenance managers by individual production managers to obtain service. Also, in several instances, some production departments, whose production has been halted due to machine breakdown, have had to wait while another production department, with an aggressive manager, has received repair service on machines not needed in the current production run. Furthermore, the demand for immediate service sometimes results in substandard repair work.
The production departments are charged with the actual cost of the repairs. A record of the repair work conducted in individual production departments is prepared by the maintenance managers. This record, when completed in the Accounting Department, shows the repair hours, the hourly rate of the maintenance worker, the maintenance overhead charge, and the cost of any parts. The record serves as the basis for the charges to production departments. Production managers have complained about the charging system, claiming that charges depend on which maintenance worker does the work (hourly rate and efficiency), when the work is done (the production department is charged for the overtime premium), and how careful the worker is in recording the time on the job.
Required:
(1) Identify and briefly explain the motivational factors that can cause friction between the production and maintenance managers.
(2) Develop a plan that revises the system employed to charge production departments for repair costs, so that the production departments' complaints are eliminated or reduced.