Critical Factors

The major players in this case are George, Paul, and the company management. The case reveals three critical issues, two of them are organizational issues and the third one is related to human character and integrity. The critical issues are as follows: a) the company had lack of quality control system, b) the company had lack of inventory control and management system, and c) Paul showed unethical behavior and influenced George to follow the same. Detailed analyses of each of the critical issues are discussed below with appropriate references.

Quality Control The company did not seem to have an effective quality control system in place. The night shift employees were asked to complete the job without putting any emphasis on the quality of the product. The management was happy as long as the assigned job was completed within the period of night shift. The company provided no training to the employees (as evidenced by the instant hiring and putting George at work immediately with no training) on how to establish, monitor, and assure the quality of the product that they produced. The night-shift employees had no idea about the harmful effects of the polluted product on the consumers and the possible consequences the company would have to face for it. Not to mention that if the consumers get sick due to their poor milk product, the company could be sued and might even go bankrupt. The night shift employees could not see the big picture and were worried to lose only 500 gallons of milk. If the quality control system were in place Paul would not be thinking about removing the filters that could have resulted in producing a polluted milk product. Obviously, Paul’s ethics is tied to this wrongful thought process and will be discussed later in this analysis. The authors Chaudhry, Tamimi, & Betton (1997), studied the role of quality control and management practices in the food processing industry and provided quality practitioners with useful insights into how quality was measured and monitored in the food industry. The focus of this paper was to provide a better understanding of the quality control procedures that were employed in the milk processing industry. A total of 255 dairy plant managers of Wisconsin were contacted and data was collected regarding the degree of implementation of various quality control practices in their own plants. The survey instrument was developed to assess managers' perceptions regarding the extent to which various quality management procedures such as, management style, employee training, and the influence of organizational structure on the quality of the product. The authors defined total quality management (TQM), “as a philosophy that emphasizes the attainment of customer satisfaction through an integrated system of tools, techniques, and training”. The food industry recognizes the fact that better quality leads to higher product reputation, increased market share, and higher profits and as a result TQM is well adapted in the food processing industry. Several interesting and effective quality control methods came out of this study and those are as follows: training employees in the biological and chemical sciences related to the specific product of interest, continuous quality monitoring of the raw materials and the feedback control system before it is processed, performing somatic cell count to test how healthy the cow was in order to ensure the prevention of passing on harmful diseases to consumers, performing bacterial tests to measure how clean the milk was (free from foreign elements such as dirt or straw), performing the chemical testing of the finished product, and finally, tasting of the final product.

Researchers Martin, Wiedmann, & Boor (2013), performed a study on possible causes of post-pasteurization contamination of fluid milk during processing and discusses the current approach to eliminate the possibility of contamination. The two major sources of milk contamination with spoilage bacterial are the farm and the processing plant itself. Spoilage organisms are abundant and ubiquitous in the dairy farm environment. They may enter the raw milk from soil, feed, manure, contaminated equipment, the cow, and farm workers etc. Although, pasteurization reduces the bacterial load significantly still some bacteria known as thermoduric bacteria can survive heat treatment and subsequently grow in refrigerated pasteurized milk. Additionally, Pseudomonas bacteria which produce a variety of flavor defects are common culprits of post-pasteurization contamination (PPC) in fluid milk processing environments. Some of the PPC bacteria form bio-films in processing equipment and protects both vegetative bacterial cells and spores from heat and chemical cleaning and sanitizing agents. The bio-film sometimes detaches and contaminates the final product. The authors Martin, Wiedmann, & Boor (2013), finally recommended a “Systems Approach” that requires research in the following areas: a) sporeformer control should include developing cleaning and sanitizing agents targeted toward destruction of sporeformers, b) improvement of materials used in processing facilities to retard the attachment and formation of bio-films, c) prevention of sporeformer entry into the fluid milk continuum through the understanding of transmission pathways on the farm and in the processing facility, d) and development of novel, rapid methods for detecting low levels of sporeformers in various dairy products.
The authors believed that the recommendations from this new systems approach to control psychrotolerant spore-formers in the fluid milk would be the benchmark in the dairy industry.

Many studies have been performed towards the total quality management (TQM) practices in the food industry and one of those studies was done by Psomas & Fotopoulos (2010). The two major goals of their research were to analyze the TQM practices and the results obtained from implementing those practices in the food industry, and to determine the means by which the quality management results were optimized. The research was done on 92 ISO 9000:2000 certified food companies and the method of data collection was done by a customized questionnaire. Exploratory and confirmatory factor analyses were applied to refine the latent constructs/factors (unobserved variables) of the TQM practices and the respective results and to assess the measurement model reliability and validity. The relationships between the latent constructs/factors of the TQM practices and the respective results were examined through multiple linear regression analyses. Three multiple regression equations were developed with each one having one dependent variable from the three latent constructs/factors: quality improvement (F3), customer satisfaction (F2), and market benefits (F1). The 1st regression model studied the influence of 4 independent variables on quality improvement and the independent variables were process and data quality management (Z1), employee involvement (Z2), customer focus (Z3) and quality practices of the top management (Z4 ). The 2nd regression model studied the influence of another 4 independent variables and one dependent variable on customer satisfaction and the variables were process and data quality management (Z1), employee involvement (Z2), customer focus (Z3), quality practices of the top management (Z4) and quality improvement (F3). The 3rd regression model studied the influence of 2 variables and the variables were customer satisfaction (F2) and quality improvement (F3). The results showed that in the overall model fit the 1st regression is statistically significant with p = 0.000 and adjusted R2 = 0.297. When estimating the regression model it is found that quality improvement (F3) was equally affected by the two independent variables, e.g. process and data quality, and quality practices of the top management. The results showed that the 2nd regression model was also statistically significant with p = 0.000 and adjusted R2 = 0.523. When estimating the regression model it is found that customer satisfaction (F2) was mostly affected by one independent variable, e.g. quality improvement. Finally, the results showed that the 3rd regression model was also statistically significant with p = 0.000 and adjusted R2 = 0.346. When estimating the regression model it is found that the market benefits (F1) was mostly affected by the independent variable, customer satisfaction (F2). So, the conclusion that was drawn from this study was that by implementing TQM practice, the food companies could improve their product quality which would help them gain market share through customer satisfaction.
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Inventory Control and Management System The company did not have an effective inventory control and management system. Due to the foul play by the night shift employees the company used to lose 10 to 40 gallons of milk every night and that did not seem to bother them. The company did not even know about this undesired loses due to the lack of inventory control system. The company did not have any safety and quality control management system for the raw materials before they were used in production. Sometimes maggots used to enter into the bags of the raw materials in the warehouse and they used to show up in the production mix. The company did not have a night shift supervisor or manager to guide the employees to the right direction. This was another component of the total problem that was observed in this case study.

Loar (1992) studied the inventory management system used by 4 different industries including the food industry and described how the inventory management practices were used as a strategic tool by the companies. According to the author Loar (1992), money was cheap before 1970s so the companies used to carry excessive inventory to compensate for the defects that they produced or the variances in procurement, manufacturing, and distribution but after 1970s borrowing money started to get expensive and financial investment in inventories became a major issue in cost for production. The companies started to focus on technology which became available and affordable to track down the problems associated with uncertainty and variances. In order to perform the study the author formulated a set of questionnaire that were focused to answer questions on inventory level trend over the last two decades, inventory levels dependency on company size, correlation of profitability and inventory level, and the effectiveness of inventory level as a strategic management tool. The study was performed on fortune 500 companies listed in 1985. The data was compiled to find the annual sales, inventory levels, and inventories as a percentage of sales. For the food industry, the average inventory dropped from 14.4% in 1970 to 11.1% in 1987, for a 22.9% decline and the correlation coefficient for this industry was -0.725. For the effect of company size on inventory levels, the food industry did not show a conclusive pattern. For the effect of inventory levels on profitability, it was found that for the food industry, the more profitable companies maintained a higher level of inventory compared to the less profitable companies. As the inventory level dropped during the period for all four industries, the author concluded that management had successfully turned inventory control into a strategic tool.

Aghazadeh (2003) studied the dependency of company profitability on using effective inventory control system and found that there was a positive correlation between the two. Material requirement planning (MRP) is a popular and widely used inventory control system across industries. MRP is currently being challenged and enhanced by new supply chain management techniques and enterprise resource planning (ERP) systems. To be successful in the global market place, information plays a vital role in decision making. The information provided by MRP systems, in particular ERP systems is very useful for decision making. There are five major components of MRP and the components are as follows: a) Master Production Scheduling (MPS) - it defines the timeline and the amount of product to be produced in that timeline. Other factors that are considered to generate the MPS are financial plans, customer demands, engineering capabilities, labor availability, inventory fluctuations, and supplier performance. b) Bill of Materials (BOM) – it includes all components of an item: newly purchased raw materials, intermediate items, subassemblies, and the end items. c) Accurate (99% accuracy) amount of available inventory level. d) Accurate amount of outstanding purchasing order. e) and finally, accurate estimate of the lead time. Lead time measures the time required to purchase, produce or assemble an item. The advantages of implementing MRP are three folds. First, it provides a statistical forecast for components with “lumpy” demand. MRP uses production schedule of their parent components to forecast an accurate demand for these “lumpy” items. Second, MRP provides more information than ever before. Using MRPs production schedules and material purchases can be transformed into capacity requirements and dollar amounts and these then can be translated to the periods in which they will be used in production. Also, the order and the completion time can be accurately predicted to maintain an optimum inventory level and minimize capacity shortages and delivery delays. Finally, MRP can update the demand for the dependent items based on the demand changes of their parent items and warns the production personnel when a change in production level is needed. The author Aghazadeh (2003) concluded the paper by emphasizing the importance of business information that MRP provided to the mangers in order to be successful in the global economy. He also mentioned that because of the use of TQM, JIT, e-commerce, and supply chain management, many companies found that it was absolutely necessary to have an integrated control system that would coordinate all these functions and MRP was the one who could do this very efficiently.

Asaolu, Agorzie, & Unam (2012) studied the role of material management in manufacturing and processing industries and its effect on the profitability of the companies. Raw materials are the heart and soul of the manufacturing companies. According to RamaKrishna (2005), on an average raw material costs represent 50% of the annual sales of a manufacturing company. The profitability of a company can be improved by increasing the revenue (by increasing the product price or by increasing sales volume) or by reducing the product cost. Due to the intense competition in the global market place increasing the product price is not an option anymore. So, companies are looking for ways to reduce the raw material cost and production cost to increase their profit. So, material management plays a vital role for increasing company profit. According to RamaKrishna (2005), an integrated approach to material management refers to the “function responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide a predetermined service to the customer at a minimum cost.” In order to satisfy this, quality materials need to be purchased at the cheapest price and they need to be present at the right place at the right time and at the right quantity in order to produce the exact amount to fulfill customer order. The authors Asaolu, Agorzie, & Unam (2012), performed this research by sending out a set of structured questionnaires to the plant managers, interviewing the key personnel in the companies, and reviewing the relevant literature. The research questions were analyzed using simple percentages and weighted mean, while the hypothesis of the study was tested using Chi-square test statistic. According to the collected data, 66% of the managers agreed that inventory management was the key to the efficiency improvement of the materials management. Also, Chi-square statistic confirmed that efficient materials management has contributed positively to the growth (increased profit) of the company. The results also showed that the other factors that contributed to the efficient management of materials were inter-departmental coordination among materials related departments, inventory management, good relationship with vendors, and state-of-the-art facilities/ICT, and professionalism.

Ethics

One of the major issues that were found in this case study was the dilemma faced by George when he was asked by Paul to remove all the filters and let the maggots flow through the systems. This incident raised ethical questions since Paul should have thought about the possible consequences due to his act on the health of the consumers of the product, not to mention that majority of the consumers of this product were children. Apparently, George was going to follow Paul’s suggestion since he was considering not drinking any more milk shakes for a while until this lot of milk shake was exhausted from the market. A person with a strong ethics would have raised the flag and refused to follow Paul’s suggestion in that situation although it meant inconvenience to all the night shift employees including him and possible resistance from others. But in the long run this action would have been appreciated by the management. Clearly, ethical training would have helped the employees to make the right decision in that scenario.

Graham (2009) studied the influence of business ethics training program on employees’ behavior and morale. He used a set of survey questionnaire designed to answer four research hypotheses. One of the four hypotheses was to find out if there was a significant influence of ethical training program on employee morale. Statistical analysis was performed using t-tests, chi tests and F-tests to find the significance of these hypotheses. The author mentioned that the unethical behavior of the top executives in the big corporations influenced him to do this research. There were some big scandals about the corporate America during the last decade that was due to the unethical behaviors performed by the high level executives of the large and profitable corporations such as, Enron, MCI, WorldCom, etc. Since then the corporate America has been putting more emphasis on the ethical training programs within the companies. During the period of 2003 to 2007 the number of companies that adopted ethical training programs increased to 75%, an increase of 19% within a 4 year period. According to Kavathatzopoulos (2003), training program alone is not enough to fight against the unethical acts by the employees. The employees also need to possess the ability to apply the learned values in the real life situations. The author Graham (2009) mentioned that the problem of the ethical training program by the corporation was not what to teach in the training program but how to measure the impact of the training programs. According to Salopek (1999), the three most critical factors to the success of ethics programs were identified as consistency of policies and actions, the rewarding of ethical behavior, and executive leadership. He also mentioned that the ethical programs can sometimes be harmful if the employees perceived that the program existed only to protect the top executives. Now back to the research performed by Graham (2009), the questionnaire that Graham used had 6 sections; the 1st section was designed to collect the demographic of the respondents, such as, gender, age, position, and the length of the service. Section 2 was designed to quantify whether the employees believed the frequency and duration of the ethics training program influenced the employee behavior. Section three was designed to measure the self-purported influence of ethics training on the participant’s behavioral actions. Section four was designed to find the extent to which the participants believed that ethics training influenced the morale of the employees at work. Section five was designed to measure the rank the factors that were important in ethical decision making. Finally, section six was designed to receive any additional comments or suggestions on how to improve the ethical training program from the respondents. Microsoft Excel and SPSS software were used to analyze the results, and a significance level of 0.05 was used to test the hypothesis. To maintain the relevancy of the “Milk Shake” case study with this wide research performed by Graham (2009), only relevant finding from his research will be discussed here. The research tested the hypothesis to check if there was no significant influence from ethics training on employee ethical morale with regards to fair treatment as an employee. The result rejected this null hypothesis with a two-tailed p-value equaled 0.001. The research also tested the hypothesis to test if there was no significant influence from ethics training on employee ethical morale with respect to balance of work and family life. The result rejected this hypothesis as well with a two-tailed p-value of 0.003. Overall, there were 9 questions regarding the influence of ethical training on employee morale and out of them 5 of them showed that there was significant influence of ethical training (with a p-value < 0.5 ) on employee morale. This was the conclusion of the research performed by Graham (2009). Holme (2009) studied the importance and advantages of ethical behavior in companies and how ethical behavior could be used to achieve strategic advantage. The paper provided examples against and for the business ethics and showed how the companies with strong business ethics were more successful compared to the counterparts. The author provided many examples of the unethical business practices by the corporate world and tried to put up a strong case of ethical importance in achieving success in the business world. Few of the examples he mentioned in his research were WorldCom, Enron, Michael Bright (the CEO of an independent insurance), Conrad Black (a media tycoon), and BBC and ITV for fraudulent phone-in-programs. He argued that in this global economy there was an abundance of competition on any product or service and clients surely don’t want to do business with the companies that don’t have good ethical and moral values. The globalization surely demands more ethical business behavior than ever before. The author referenced the work from Daivid Maister who advocated that employee satisfaction was a causal factor in improving the financial results of the company. Employee satisfaction arises from the fair management treatment. The fair treatment generally means meeting the legal requirements. The author reiterated that just meeting the legal requirement was not enough to be considered as ethical. Managers needed to go above and beyond the legal requirements to motivate and satisfy the employees which in turn would bring positive financial results for the company. The author stated that trust is an important element of ethics and it is extremely important in doing business. A company must trust its’ supplier and the supplier must trust its’ client to do any business. This trust is built based on the ethical behavior from both sides. Investors tend to invest in companies that have good reputation in the market. No one wants to do business or invest in companies who have a bad reputation in the market place.
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Gross-Schaefer et al. (2000) performed a research on how to reduce theft in workplace. In their research, theft at workplace was defined as taking embezzling cash, taking supplies and equipment, destroying supplies and equipment, making personal photocopies, making personal phone calls, as well as taking extended lunch breaks or personal time. In our case study, the night shift employees used to waste 10 to 40 gallons of milk every night just for fun. Destroying company property willingly for fun can be considered as theft according to the definition of theft by Gross-Schaefer et al. (2000). In their research, the authors discussed the root causes of theft, the financial impact of theft on the company, current approaches to theft prevention, and finally, how a proactive approach and training on personal ethics could help to reduce theft. According to U.S. Chamber of commerce the employee theft costs businesses $40 billion annually and as a rule of thumb a company can expect to lose 1% to 3% of its annual sales to worker pilfering. Currently, there are three approaches that companies use to deal with theft, keep the potential thieves out of the company, prevention and detection of a crime within current employees, and deal with the employee when caught stealing. Now-a-days most companies use pre-screening procedure when hiring new employees. The pre-screening procedure may include reference and credit checks, personal interviews, pencil and paper honesty tests, and polygraph tests in states where it is legal. Nordstorm claims that it removes the potential theft by using the pre-screening methods just mentioned. To prevent theft among current employees, the companies use hidden surveillance cameras, informer drop box, anonymous toll free numbers, financial controls, employee whistle blowing etc. Many companies use random internal audit for preventing employee theft. Mobil Corporation uses dual employee authorization for major financial transactions, mandatory receipts for pay-outs, and automated inventory control system. Dealing with the employee when caught on stealing is quite tricky. Management must pass the correct message to the employees which this occurs. The type of crime should be taken into consideration when dealing with theft. Making a personal phone call should be treated differently than stealing millions of dollars. Regardless of the methods companies follow, the authors argued that none of the above approaches addressed the root cause of theft and so a proactive approach was necessary to reduce employee theft. There are many theories that try to explain the reasons of employee theft. But due to the complexity of human characteristics some of the reasons are still unknown and probably will never be discovered. Some of the common theories explaining employee theft are, wage and benefit inequality, employee greed, employee misconception of what is considered a theft, managerial misconception, employee upbringing, employee background culture and financial condition etc. The most common explanation of theft is that many individuals have an uncontrollable psychological disposition to attain personal material wealth and wealth is the symbol of status in the society. Another rationale for theft is that lower earning employees often feel that it is unfair to have such a disparity in income in the society and this justifies them to steal. Also, it is found that lack of job security and lack of opportunity for advancement sometimes pushes people to steal. The authors’ research advocates an affirmative approach to address this issue and the authors believe that their three step approach would be more effective in dealing with employee theft. According to Gross-Schaefer et al. (2000), the three step approaches are as follows: 1. Creation of an ethical environment: It should start from top and focus on fairness and ethics. Management must take the initiative to establish this by their actions not just on paper. This will set up an ethical culture within the company that will last for long time. 2. Development of a company mission statement: The process of development should include everyone in the company. This allows a group focus and agreement as to the ethical goals of the business. 3. Implementation of a personal ethics training program: This program will help individuals to strengthen their ethical values and also this will send a message to everyone that individual actions are important and they need to conform to ethical standards.
The authors believed that all three above actions would set up a positive environment within the company where ethical behavior would be the norm and thus the employee theft would be reduced.

Recommendations

As mentioned above, the company Eastern Dairy did not have any effective quality control, quality management, and quality assurance system. So, the company needs to adapt a Total Quality Management (TQM) System in place, such as, ISO 9001. As discussed above, according to the authors Chaudhry, Tamimi, & Betton (1997), this accreditation will give the company a quality system that will provide the foundation to better customer satisfaction, employee motivation, product quality, and the motivation for continuous improvement of the manufacturing processes. The quality of food products is a prime importance for the safety of public health. The company needs to establish ISO 22000 for food safety management. This system will help the company to identify and control food safety hazards for their product. This will help the employees to identify maggots as a hazard and won’t let it run through the system and contaminate the product.

The company also needs to establish an effective inventory control system. In this regard, the company could adapt an integrated MRP system, specifically an ERP system. As discussed above, according to the author Aghazadeh (2003), an ERP system will help the company to maintain an optimum level of inventory, to track the raw materials accurately, to minimize capacity shortages, and to reduce delivery delays. With this system in place, the night shift crews won’t be able to waste raw materials as they always used to do. With the implementation of ISO 9001, ISO 22000, and an integrated MRP system Eastern Dairy will be able to produce hazard free quality product in a cost-effective way. The cost of implementing these programs may seem to be an overburden for the company in the short term but in the long run the company will be benefitted by lowering production cost, lowering the risk of litigation, broadening the customer base, and producing quality product.

The company needs to establish basic training program for all employees. The training must include company vision, company rules and regulations, product details, product safety, and ethics. Special training on ISO 9001 or ISO 22000 should be arranged for the selected employees. As discussed above, from the research of Graham (2009), it was found that there was a significant positive influence of ethics training on employee ethical morale and employee behavior. With the training program in place, the employees would know what to expect from them, employees will make rational decisions at work place and they will likely stay away from the unethical acts of foul play at night, wasting raw materials, and removing filters from the system.

References
Aghazadeh, S. M. (2003). MRP contributes to a company's profitability. Assembly Automation 23.3, 257-65.
Chaudhry, S. S., Tamimi, N. A., & Betton, J. (1997). The management and control of quality in a process industry. The International Journal of Quality & Reliability Management, 14.6, 575-81.
Gross-Schaefer, J. D., Trigilio, J., & Negus, J. (2000). Ethics education in the workplace: An effective tool to combat employee theft. Journal of Business Ethics, 26, 89-100.
Graham, M. L. (2009). An analysis of a company’s training program influence on employee behavior and morale. (Doctoral dissertation). Retrieved from ProQuest. (3355620 ).
Holme, C. (2008). Business ethics - Part One: Does it matter?. Industrial and Commercial Training, 40.5, 248-252.
Loar, T (1992). Patterns of Inventory Management and Policy: A study of four industries. Journal of Business Logistics, 13.2, 69-97.
Malar, S. M. S. (2008). The Ethics of being profit focused. Social Responsibility Journal, 4.1, 136-42.
Martin, Nicole, Wiedmann, M. & Kathryn, J. B. (2013). Eliminate post-pasteurization contamination of fluid milk. Dairy Foods, 114.8, 32-34.
Primeaux, P. (1997). Business ethics in theory and practice: Diagnostic notes. B. A prescription for profit maximization. Journal of Business Ethics, 16.3, 315-22.
Psomas, Evangelos, L., & Fotopoulos, C. V. (2010). Total quality management [ractices and results in food companies. International Journal of Productivity and Performance Management 59.7, 668-87.
Taiwo, Asaolu, O., Claudius, J. A., & James, M. U. (2012). Materials management: An effective tool for optimizing profitability in the Nigerian food and beverage manufacturing industry. Journal of Emerging Trends in Economics and Management Science, 3.1, 25-30.