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MERIDIAN WATER PUMPSJohn Lopez, president of Meridian Water Pumps (a small water pump producer), washolding a meeting with his department managers. They were in the process of planningproduction of medium-sized pumps for the next 6 months. Mr. Lopez tolerated some ofthe arguing before he felt it necessary to stop the discussion as it was going so that hecould direct it toward a solution. A summary of some of the arguments follows:Mary Welch, Marketing and Sales Manager—“My sales people are very good, but getvery frustrated at times. Several times last year the sales people spent lots of their timetrying to calm down frustrated customers. As they are supposed to do, the sales peoplesold as many of these pumps as they could, yet at times the production could not keepup with the orders. Production knows that we have some cyclicality in the demand, butwe have plenty of machine capacity. They should be able to hire people so that we canmeet the demand that we sell. Why can’t they get their area to work correctly?”Frank Jackson, Production Manager—“Come on, Mary, we know the sales are cyclical,but we never know exactly when the cycles happen. Even if we did, the HumanResource (HR) people always take too long to get us the people we need. By the timewe get the new people hired and trained, the sales seem to drop again. What am Isupposed to do? If we keep them and allow them to keep producing pumps, ourinventory climbs and the finance people start yelling. I can’t just let those new people sitaround doing nothing. The only other alternative is to lay them off, but then the HRpeople get really angry.”Elizabeth Conrad, Human Resource Manager—“You bet we get angry. The productionpeople will occasionally start pushing us to hurry and hire more people, yet get veryimpatient. It takes time to go through the interview process and get people hired andoriented to our business. Then we no sooner get them on site and working whenproduction asks us to lay them off. That is a real problem for two reasons. First, thereare costs involved. It takes an average of $100 to get a person hired, and another $100to lay them off. Secondly, those people that we hire and then quickly lay off tend to notreturn. I can’t blame them, since from their perspective it looks like we have no idea howto run our business. In addition, as those people complain to other people about ourtreatment of them, our reputation is getting to look bad, and that makes it increasinglydifficult to find good people to hire.”Joseph Western, Finance Manager—“Frank is correct that I get upset when theinventory climbs. It costs us about $5 to keep one of these pumps in our inventory for amonth. That cost comes right out of our profit. Since my job is to maximize profitability, Ican’t sit by and let those inventory dollars shrink that profitability. The same goes for allthat hiring and layoffs. That money also hurts profitability. Can’t we do better?”
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