Operations management principles and practices

Operations Management: Balancing Ethics With the Bottom Line

Description of the aspects of the case under investigation

Comparison and conclusion

Corporations are invariably mired in a state of tension between the need for short-term profitability and the demand for environmental sustainability and fair labor practices. Corporations live in a world affected by environmental disasters and degradation. They sell to human beings, who will often take into consideration labor practices and other ethical questions when making decisions to buy or sell a product. Some operations managers are being called upon use ethical rubrics when making decisions for their company. However, given today's recessionary economy, there is an equally vociferous demand for creating a leaner cost structure. This has caused many companies such as Mattel to make use of cheaper venues in which to manufacture its products, but in some instances the public relations fall-out may not justify the supposed, initial savings. "Different perspectives on corporate social responsibility (CSR) exist, each with their own agenda. Some emphasize management responsibilities towards stakeholders, others argue that companies should actively contribute to social goals, and yet others reject a social responsibility of business beyond legal compliance. In addition, CSR initiatives relate to different issues, such as labor standards and corruption" that may come into conflict -- environmental questions may dominate with one product line or in one region, while labor practices may be of greater concern in another industry (Weyzig 2009, p.414)

Literature Review

According to Dale Neef (2005) of Ethical Corporation magazine, operations, supply chain and logistics activities, including "purchasing, transportation, manufacturing, assembly, storage, and product disposal" are some of the most environmentally wasteful processes within industry. They generate pollution, cause forests to be cut down, and waste non-renewable resources. Thus it is an ethical imperative for all companies to take into consideration the waste they generate, not just by their own actions, but by the actions of those companies with whom their activities are linked. It is "the sheer volume of these everyday, mostly mundane, logistics, purchasing and manufacturing activities in the aggregate, that account for much of the world's energy use, and create virtually all of the problems associated with natural resource extraction, pollution, or exploitation of workers" (Neef 2005). While some prosperous companies as part of their defined social mission (and to generate revenue through positive PR) do engage in charitable actions, "from a stakeholder perspective, business initiatives serving broader goals" of society like poverty alleviation through donations are often less threatening than taking a potentially more difficult and expensive path of reforming operations and making them more ethically sound (Weyzig, 2009, p.417). Using more expensive but regulated American labor, using renewable energy -- these shifts cut at the heart of the rational, black box profitability model.

Neef does not see ethical actions as incompatible with profits: by analyzing and improving "freight transport and distribution operations: the types of delivery methods or vehicles used, routing and scheduling" and using "better distribution center locations," while reducing the amount of fuel and extraneous products in production, a company can actually save money as well as lighten its carbon footprint (Neef 2005). For example, "better planning to maximize the capacity of delivery trucks alone can reduce a typical company's fuel consumption and emissions by 20-30%," thus enhancing value and savings as well as improving environmental policies. "Even simple efforts to recycle or reuse packaging can make a significant difference. A decade ago…Nike decided to reduce the number of different box styles it had from eighteen to two; reducing their use of raw material fiber by 8000 tons per year" (Neef 2005).

Nike had been much-criticized in the media for its unethical practices towards the developing world's employees that manufactured its expensive (some might say overpriced) sneakers. However, it has made considerable and notable efforts to reform its operations. However, why did this box style reduction draw such little press? The problem, Neef says, is that ethical actions, particularly in the realm of operations management are not very 'sexy,' "Reorganizing a distribution hub so that a company's delivery trucks drive fewer miles, initiating a waste water recycling policy, or creating better transportation and storage techniques for hazardous materials in developing countries are not stories that sell papers -- or make marketable studies for consultancy white papers" (Neef 2009). Environmental sustainability requires smaller, systematic actions, rather than sweeping gestures. Still, "in short, given the size and output of developed-world companies, improving sloppy logistics and supply chain practices in western multinationals alone could greatly improve the health and safety of workers globally, and vastly reduce the current level of damage to the environment. Even better, if these same best practices were applied to overseas and contract operation" measurable improvements might be generated in the near future (Neef 2005).

Neef argues that a company can essentially 'have it both ways' -- be ethical and be profitable in its operations, although he does not believe public outrage has enough of an impact upon corporate actions. According to the analysis of Weyzig, Neef's analysis satisfies so-called stakeholder theory. The relations between a company and its stakeholders are central to how ethics should function within operations design. "Stakeholders are commonly defined as all actors that have an interest in the operations of a company & #8230;From this point-of-view; only the responsible behavior of a company in its normal business operations qualifies as CSR. Support for external social projects" such as improving life in the developing world or environmentalism does not (Weyzig 2009, p.419). "A company is supposed to have a certain responsibility towards each type of stakeholder & #8230; CSR is largely defined in negative terms, emphasizing what a company should not do" (Weyzig 2009, p.419). Weyzig says his theory of the incompatibility of ethics and lean operations, because it is held by so many firms, is why it is essential that companies are bound by law to act ethically, and cannot be trusted to do so independently. Additionally, "Operational concerns, such as transparency, complaints mechanisms, and supply chain management, have a different character and cut across perceived areas of responsibility" which often makes it even more difficult to arrive at a coherent ethical policy for an organization (Weyzig 2009, p.419). In short, external and external political and social restraints also affect the roles ethics and economics play in decision-making

"CSR initiatives regarding environmental norms, labor standards, and community care beyond the legal minimum do not form part of the boundary conditions following from the implicit social contract," between businesses and where they operate, "these initiatives fall in the grey area where the political and economic arguments converge" (Weyzig 2009, p.424). E. Picavet adds: "ethical research is not necessarily congenial to the methodology of operational research (OR) and the management sciences (MS). While the OR/MS field has amply demonstrated its concern for plural evaluative criteria and its permeability to contextual social demands, the classical norm in OR/MS is widely felt to be efficiency, not ethical adequacy, although there has been a marked move in the discipline in recent years toward defining the goodness of results and processes in terms of overall optimality, which normally involves ethical tests" (Picavet 2009, p.1121).

Integrating ethics as part of the 'test' applied by a corporation when evaluating its optimization requires changing the paradigm of how value is perceived (Picavet 2009, p.1121). Ethics must not be viewed as antithetical to profitability by definition, which is often the perception (if not the fact). Through "its open-ended character, ethical discussion and analyses harbor interesting social processes which are often (and rightly) perceived as opportunities to bring into the picture of rational evaluation or optimal planning the long-term interests, as well as the viability and sustainability considerations, which are so often forgotten in more technical, small-world approaches" (Picavet 2009, p.1121). Open dialogue about ethics must be infused into operations decision-making, and Picavet advocates both qualitative and quantitative discussions of ethics within every organization.

John Brocklesby adds that 'ethics vs. profits' dichotomies of do not take into consideration real-world political struggles within organizations. Even if ethics can add obviously value through sustainability and waste reduction, there may be an irrational attachment to current processes and the idea of not being concerned with such matters: "though notions of independence and objectivity might assist our understanding the natural and physical world, it is ill-suited to the social and organizational context where most OR activity occurs" (Brocklesby 2007, p.1073). Operations happen within chaotic and imperfect decision-making systems, but this only further underlines need for non-quantitative assessments of value. After all, buyers are also frequently illogical, and perceptions of a company's poor behavior can affect profits and stock prices. "Since what counts as 'improvement' is often a matter of debate and sometimes hotly contested, ethical considerations arise as a logical necessity. Moreover if the agent's involvement extends beyond analysis into problem framing and/or implementation, then there will almost certainly be a requirement to engage with wider social and political circumstances. For these sorts of reasons, 'ethics within OR models' deems it to be a denial of responsibility not to attempt to include subjectivity and ethical values within the formal process of inquiry" (Brocklesby 2007, p.1073).

Brocklesby advocates 'Soft OR' approaches such as Multi-Criteria Decision Analysis, Data Envelope Analysis, Cognitive Mapping, Soft Systems Methodology and the Theory of Constraints to allow for "conflicting objectives and multiple subjectivities" (Brocklesby 2007, p.1073). For example, the Theory of Constraints (TOC) deploys the TOC Thinking Processes to map social, material, and personal consequences of collective decisions. A TOC Current Reality Tree, searches for root causes of problems. A representation of TOC 'evaporating clouds' represent conflicting views, rather than assume that a decision leads to a linear and defined result. Future reality trees determine possible future outcomes, but side effects, prerequisites, required actions and constraints must all be considered (Davies et al. l 2005, p.306).

TOC 'trees' that acknowledge a multiplicity of influences impact decisions. They also underline the falseness of the rational actor/profitability model. Every decision has a human element. The question is: what are the organization's priorities? Constraints must be managed, otherwise they will 'manage you.' "The constraints will determine the output of the system whether they are acknowledged and managed or not" (Willett 2009)

Overview: case study

The question of whether ethics should have a role in organizational management is raised in the case study of the Mattel Toy Company. Mattel is the world's largest toymaker, until recently, one of the most trusted names in toys. It manufactures some of the most beloved childhood icons of America, including Barbie, Hot Wheels, and Polly Pocket. However, the company's name was tarnished when Mattel had to issue an expanded product recall, "involving vehicles based on the hit movie Cars that had lead paint on them, as well as Barbie, Polly Pocket, and Batman toys that had small, powerful magnets that could harm children if swallowed" (Palmeri 2007, p.1). All of these products had been manufactured by a subcontracted Chinese firm, with minimal oversight from Mattel.

Description of the aspects of the case under investigation

Mattel is not simply the world's largest toy company -- it is also a toy company known for selling inexpensive toys. To keep costs low, it has made ample use of its ability to outsource labor costs. It has made use of the developing world's cheaper labor, land and capital and passed cost savings onto consumers. The result was wild profitability -- until things started to go wrong. Children's and adolescent's tastes began to change. Instead of must-have low tech toys, children's buying habits shifted to video games, iPods, and the Wii. To remain profitable, Mattel had to drive its costs even lower, to reap a profit for shareholders. According to the rational actor model of profitability, this should be Mattel's main purpose, not the question of the ethics of doing business in China, a country with a shaky record on its human rights and environmental policies.

The problem is that it is almost impossible to police subcontractors in China. Thus one of the 'costs' of doing labor in China is not merely a company's ethics, but also, quite often, quality control. Any company that uses low-cost Chinese suppliers, no matter how they "try to ensure that the companies it does business with operate properly and ethically, even subjecting them to outside audits," it is almost impossible "to keep tabs on all sorts of suppliers around the globe. The company has had at least 15 product recalls in the past five years, from jewelry at its American Girl doll business that contained lead to a Batmobile with dangerously pointy tail wings" (Palmeri 2007, p.1).