Page 185 - DCOM102_DMGT101_PRINCIPLES_AND_PRACTICES_OF_MANAGEMENT

Unit 10: Staffing and Coordination

Notes
economies of scope help Wendt in starting the manufacturing process even before the
actual order is received from the client. Once the order is received, Wendt runs the final
customized processes to get the product as per customer specifications. Secondly, the
commonalities in the production processes also help in minimizing the risk that entails
transaction-specific investment.

Wendt's clients usually specify the geometric dimensions of the tool required. Using these
output specifications, the Production Manager decides on the material and the design
required for the product. He then chooses one out of the seven standard processes used for
production and subsequently allocates resources in the manufacturing unit. The USP of
this process is the ability of the industry to leverage the knowledge systems of Wendt and
thereby help the production engineers create value for the company.
The actual blue-collared workforce of the company is machine-skilled. This is significant
because Wendt does not enjoy economies of scale. To meet the customer specifications for
each product, the workers will have to perform slightly differentiated tasks, and be able to
operate their machines accordingly. Although overall volumes are substantial, they do
not encourage division of labour due to the customization of products which calls for
product-specific reconfiguration of the process.
Wendt minimizes its market-based transactions (outsourcing) due to time constraint,
with the only exception of routine lathe jobs that can be completed overnight. An interesting
feature is that Wendt does not employ contract outsourcing which is common in
manufacturing units. Instead it directly accesses the market, which gives it the advantage
of time and control with the tradeoff being marginally higher costs.
Client Relationships

Wendt India has more than 150 competitors, but none who supply the entire range of
products that Wendt manufactures. Competition is based more on precision than on price,
because the product is custom-made. Here, Wendt has an advantage over its competitors
as it has always been a leader in the quality of manufactures produced.
Involving the principles of game theory, we see that the only hold Wendt has over its
customers is through the quality of goods it produces. If there is any decrease in the
quality of the products supplied, there will be a considerable decrease in the volume of
business, as customers will switch over to competitors who provide better prices for the
compromised quality.

It is also a fact that the clients perceive a need to maintain their reputation capital as well.
Clients are outsourcing the production of a very critical component in their assembly line
to Wendt, and if they renege on their agreement towards the end of the production cycle
when Wendt has invested in the specific transaction, Wendt will be less inclined to accept
orders from that particular client from then on, who thus loses out on the quality of
products offered by Wendt.
It is thus interesting to observe a multiple-period game in which both parties stand to lose
valuable reputation capital if they do not fulfil their sides of an unwritten agreement.
Relationships in such an industry, therefore, are trust-based. Indeed, one of the
responsibilities of the CEO is to manage relationships with clients.
Uncertainty: How is it dealt with?
The uncertainty in the environment is kept in check largely by the territorial Heads of
Sales and the Product Manager. They effectively do the role of boundary spanning by
passing on the required information.
Contd...

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