Jewish Case

Mr. Gillinov was surprised and a bit disappointed at the cost increases shown. The only area which seemed to have improved was indirect labor. He immediately requested an in-depth investigation. This investigation produced the following information.

The blood-testing facility performs two types of laboratory tests, a basic CBC test (complete blood count), and a more extensive CMP(comprehensive metabolic panel). These tests require different amounts of testing materials, where testing materials are purchased from suppliers as a bundled test kit. A CMP requires more testing material since it is more extensive, The supervisor for the lab explained that CMP tests use two test kits whereas the CBC test used only one test kit, when the lab operated at normal efficiency. An investigation of the records indicated that 145,000 kits had been used in the lab in 2010, and 136,000 kits in 2011. The price of testing kits has gone up due to the use of petroleum byproducts in its manufacture. In 2010, one testing kit cost about $.20; the cost in 2011 was $.25.

The amount of direct labor required to perform a CMP is twice as much as that required for a CBC test. The supervisor allowed that, under normal conditions, the lab could perform four CBC tests per labor hour. Since the skill level required to conduct these tests is the same, the work force was regularly rotated between the two tasks, reducing boredom and promoting better labor relations. Union pressure has resulted in steadily rising wage rates. In 2010, the hourly rate averaged $16.00; in 2011 it rose 25%. Poor work scheduling and the unpredictable nature of testing demand the last few years sometimes required the use of a night shift, which received a 10% premium. It is the company’s policy to avoid night-shift work whenever possible. A payroll investigation showed that 28,000 hours were paid in 2010, and 30,400 were paid in 2011.

This case ( suggested by a similar exercise written by Professor Robert Jaedicke of the Stanford Business School) was written by Professor Jeff Schatzberg of the Eller College of Management