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Ethical Issues faced in operations management

Managerial Mischief: It includes “ illegal, unethical, or questionable practices of individual managers or organizations, as well as the causes of such behaviours and remedies to eradicate them.

Moral Mazes of management: It includes “ ethical problems that managers must deal with on a daily basis, such as potential conflict of interest, wrongful use of resources, mismanagement of contracts and agreements ets.

IMPORTANCE OF BUSINESS ETHICS:

To retain the public image of the business.

To take business operations seriously and direct towards missions.

To reduce leadership and decision making dilemmas.

To inculcate the fundamental and moral change.

Business ethics, generally defined in terms of the social, communal and environmental responsibilities of business professionals, requires managers to think beyond the bottomline when making business related decisions. Corporations and businesses have developed a lot of systems and codes of conduct to incorporate ethical issues into their decision making process.

One of the area that is most crucial to decision making is OPERATIONS MANAGEMENT. Operations management is an activity in which resources flowing within a defined system are transformed and combined in a controlled manner to add value in accordance with the policies given by the management. Operations manager utilizes the materials, capacity, and knowledge available in the production facility.

Role of the Operation Manager can be defined as follows:

Making efficient use of materials, capacity, and knowledge available to achieve an output of the desired quality and quantity.

To achieve these, he has to follow certain specified codes to achieve the desired output levels.

Main task is the management of human, technology and system resources.

Managing these resources would involve planning, organizing. directing, staffing, and controlling.

There can be two roles of an operation manager which can be classified under two models:

Model 1 Production

The job responsibilities of the Model 1(Production) manager include

Receiving raw materials

Storing them in a safe and secure environment

Supervising the movement of material in the whole plant

Ensuring that the employees produce the right quality

Scheduling orders

Maintaining the established quality standards

Negotiating with suppliers and the customers

Packaging the product

Distributing the products

Ensuring proper health and safety for the workers in the work environment

Assessing the standard time values used in the manufacturing process

Initiating employee suggestion schemes

Taking decisions on operational and quality issues

Operations involve efficient handling of men and women. The main aim of an operation manager is to motivate the staff and set high work performance. Motivation is essential for encouraging the employees to manufacture very good quality products. Manager’s success in accomplishing operations management objectives can be measured by his productivity, efficiency and effectiveness.

Model 2 Service

The job specifications of Model 2 manager includes:

Receiving incoming calls and mails

Storing the documents of relevance

Prioritizing of the jobs according to their performance

Motivating quality performers among staff and giving direction to the staff

Negotiating with the suppliers

Dealing with enquiries

Taking decisions on the policies that have to be implemented

Ensuring the health and safety of the workers

Maintaining computers and office equipment

Taking decisions regarding operational issues

Ensuring quality management

Services are different from manufacturing as there are no back ups or inventory. Customer involvement is always there while providing a service. In a service, production and consumption take place directly. The customer is directly involved in the operations. Any mistake in the service that are provided will result in a loss of trust and loyalty of the customers. Hence, the operations manager of the service sector has numerous responsibilities to bring in trust and loyalty among customers.

Other activities include:

Total Quality Management TQM: It is concerned with the principles that drive an organization to offer products that are of high quality.

Forecasting: It involves predicting the future demand.

ETHICAL ISSUES AT WORKPLACE

Safety of Operations: Workers sometimes consume alcohol or drugs in the workplace which often can hamper the work process or their judgements in the workplace. Eg: The Alcohol and Drug use Policy of Exxon Mobil is a critical component of a Company’s commitment to safety.

The International Council of Toy Industries, an association committed to the operation of toy factories in a lawful, safe and healthy manner. It upholds the principle that no underage, forced or prison labour should be employed, that no one is denied a job because of gender, ethnic origin, religion, affiliation or association, and that factories comply with laws protecting the environment.

The other ethical issues that are confronted by managers are the problem of theft by the employees and loss of important information. To avoid this, there is a need to introduce sophisticated controls and budgetary control procedures.

In the service sector the manager is faced with ethical dilemma of solving problems related to technical field. The worst scenario is in the case of computer fraud where companies lose millions of dollars due to employees’ theft. To counter this, companies have to spend considerable amount of money and time, to prevent such thefts. Loss can be due to asset misappropriation, corruption, false statements, petty thefts and pilferage, use of company property for personal benefit.

Analytical Framework for ethical issues in Operations Management

Everyday an operations manager is faced with the dilemma of being ethical in decision making.

Six factors are involved in ethical decision making. Ethical intensity is described as the degree of importance given to an ethical issue. The factors involved in decision making are:

Magnitude of consequence: This refers to the magnitude of impact that a decision can have on the employees. In such a scenario a manager takes a decision that is comparatively less harmful.

Probability of the effect: This is an ethical dilemma in which an operation manager has decided upon a less harmful product for a consumer.

Social Agreement: It is a degree of social acceptance that exists in defining something as good or bad. It reflects the cultural awareness of an individual during the process of decision making.

Time Interval: It refers to the time gap between the introduction of the product and the time when the product impact on the consumer begins to be felt.

Proximity: While solving ethical dilemmas a manager may adopt that decision that is beneficial to him or those affected socially, culturally, psychologically or physically by the decision.

Concentration of Effect: Decision that affect a large no. of people require greater attention.

ETHICAL CASES

ENVIRONMENTALLY PC

Paul Baum, Founder of Rumarson Technology Inc(RTI) based in NJ, has made the recycling of computers a mission of his company. RTI specializes in acquiring, refurbishing, and distributing computer equipment from trade in and inventory buyout programs.RTI buys old computers, refurbishes them and sells them to resellers as “nused” computer equipment. The resellers then sell the nused computers with a 25-40% warrantee. If however RTI cant sell computers then it dontes to charity. If the equipment cant be salvaged its broken down into recyclable parts and used in items such as jewellery and flower pots.

RTI believes that there are more toxins in a PC than in an oil spill. Home users are the biggest markets for RTI.

SANYO RECALLING ITS BATTERIES FOR REPLACEMENT

Sanyo Electric Corporation of Japan, on 2 March shouldered with China’s Lenovo Group the cost of recalling 205,000 Sanyo-made laptop battery packs that can overheat.

The ThinkPad battery recall, which caused Sanyo shares to slip around 4.3%, comes during an investigation of loss-making Sanyo by Japan’s securities watchdog the Securities Exchange and Surveillance Commission (SESC).

The news also made a comparison by analysts with a recall of batteries by Sony Corp in 2006, which estimated to cost the company around 51 billion yen (Rs.1,914 crores).

The lithium-ion extended-life battery packs, jointly designed by Lenovo and Sanyo and tested by Lenovo alone, might overheat and spark if it is dropped hard on to the ground, said by the two companies.

This hits the one bright spot in Sanyo’s business, just when it tries to turn itself around. The company was more worried about the SESC investigation and about Sanyo’s mobile phone business, but this recall certainly could not help Sanyo’s image.

Sanyo shares closed down 2.7% at 184 yen, compared with the benchmark Nikkei average which fell 1.35%. Lenovo shares declined 5.7% to HK$2.86, compared with the broader Hang Seng Index’s 0.48% gain.

Lenovo said it had received 5 reports of accidents from overheated batteries damaging laptops, with 1 customer reporting minor eye irritation from the smoke and sparks from the laptop.

The financial position of the company started depriving. The company posted a loss for the year ending March 31 for a third straight year due to sluggish digital camera sales and heavy restructuring costs incurred by the company. These were the conditions that forced Sanyo to issue 300 billion yen worth of preferred shares to Goldman Sachs and two other banks at a deep discount last year.

In the month of September, Lenovo and IBM recalled more than 0.5 million laptop batteries made by Sony after a computer caught fire at Los Angeles(LA) International Airport.

That recall was part of over 9 million recalls that involved laptops from Dell Inc., Apple Inc. and Toshiba Corp.

Both Sanyo and Lenovo said that the defect is in the design of battery packs, which were jointly designed by both the companies and tested for impact-resistance by Lenovo, and not in the internal battery cell which was designed by Sanyo alone.

IMPLICATIONS OF THE CASE

Sanyo’s share slipped around 4.3% comes during an investigation of loss-making.

Sanyo would be investigated Japan’s securities watchdog the Securities Exchange and Surveillance Commission (SESC).

Reputation loss

Cost the company around 51 billion yen (Rs.1,914 crores).

Lenovo shares declined 5.7% to HK$2.86, compared with the broader Hang Seng Index’s 0.48% gain.

JOHNSON AND JOHNSON TYLENOL CONROVERSY

J&J has established itself as a leading player in the healthcare industry. The company introduced revolutionary surgical dressings, acquired established companies, and expanded internationally. In 1956, Tylenol became a part of J&J, when the company acquired McNeil Laboratories. Tylenol was sold as an over-the-counter (OTC) drug.

During 1960’s J&J aggressively stated promoting Tylenol as an effective pain reliever drug to chemists and pharmists. The medicine Tylenol claims to reduce pains by electronic means and was considered to be very effective against headaches, and backaches.

Tylenol received a major setback in 1992 when it was found out that Tylenol tablets had been laced with Cyanide. The publicity about the nationwide capsule caused a nationwide panic.

Impact

J&J suffered a loss of $1.24 billion due to the depreciation of the company's brand value.

Tylenol's share fell from 37% of the US analgesics market in early 1982 to just 7% by late 1982.

Costly legal settlements

Bad publicity

A quick recall on the part of the company was made and it was discovered that the capsules had been opened and filled with 65gms of Cyanide. J&J had been praised by a lot of people for its quick action and sincere efforts as it was the question of people’s life.

Few years later J&J again faced a similar issue of tampering where a woman in New York died after taking a cyanide laced extra strength capsule of the drug. The company then promised to offer Tylenol only in tablets or caplets form. J&J faced another issue when there were several deaths due to liver damages all attributed to Tylenol’s main ingredient- acetaminophen. This occurred due to overdosage of the drug.

But despite bad publicity and goodwill being at stake Tylenol dint stop from warning its customers. The company immediately alerted the users of this medicine in U.S. via media and asked them not to consume any type of Tylenol products. The police drove through the city announcing warnings over loudspeakers on the happening of the event.

Making the Public Aware of Risks

In September 1997, the FDA's OTC drug advisory committee had recommended additional changes in the labeling for acetaminophen used in painkillers. The FDA wanted manufacturers to explain the correct dosages for children under two years, instead of simply directing parents to consult a doctor before using the medication as a treatment.

In October 1997, J&J announced that it would inform parents about Tylenol's side effects on children through proper labeling on tablets and advertisements. The new labels cautioned consumers against overdose. J&J later also released magazine and TV ads informing parents about the correct dosages of Tylenol recommended by the doctors.

UNETHICAL ISSUES

MC Donalds Beef Fries Controversy

Mc Donalds was started as a drive in restaurant in US in the year 1937. The restaurant got a breakthrough by its new self service technology, low prices, speed, service and cleanliness. As they started gaining success people started giving offers for buying franchisees. However, this system failed as the Mc Donald brothers observed very transparent business practices which were neglected by these franchisee holders. The same standards for cleanliness, customer service and product uniformity was not maintained by them.

However in the 90’s Mc Donalds started facing problems due to change in customer tastes and preferences. It also started facing competition from other competitors who stated working on the same grounds as Mc. Donalds. Customers were becoming extremely health conscious and they wanted to avoid red meat and fried foods. They also started eating more healthy foods and turning to competitors who offered discounts.

With a majority of people abroad being Non vegetarians products offered abroad often contain hidden animal-based ingredients. There have been incidents of vegetarians finding non-vegetarian food items in their food abound throughout the world and Mc Donalds was one of them. Whether a person has chosen to be a vegetarian for religious, ethical or philosophical reasons, it is not easy for vegetarian people to get food in pulic restaurants.

In may 2001 a lawsuit was filed against Mc Donalds in Seattle. The case claimed that the company had deceived its customers who are vegetarians by using beef extracts in their products. The controversy began when a newspaper article was published saying that Mc Donalds used beef products in their French fries. The customer service departments at Mc Donalds was questioned immediately. The reply that was given was that Mc Donalds French fry suppliers use a minuscule amount of beef flavouring as an ingredient in the raw material. The beef is not listed as an ingredient in the French fries as Mc Donalds voluntarily follows the code of federal regulations for labeling its products.

The beef French fry controversy gained greater importance in India as 85% of the country’s population in India is purely vegetarian. admitting to using beef flavoring in the fries. The matter seemed to be settling down, when to McDonald's horror, some of its restaurants in India were vandalized. Activists of Hindu fundamentalist groups - the Shiv Sena, the Vishwa Hindu Parishad (VHP) and the Bajrang Dal, staged a demonstration in front of the McDonald's head office in Delhi protesting the alleged use of beef flavouring. They submitted a memorandum to the Prime Minister, demanding the closure of all McDonald's outlets in the country.Mc Donalds in India announced that the vegetarian products that were served in India did not have any beef contents. However despite this reassurance wave against Mc Donalds refused to die down.

The case was finally settled in 2002 when Mc Donalds agreed to pay a large sum of money to the vegetarians and religious groups. This amounted to $ 11 million. Further it also issued an aplogy in various newspapers an also issued an apology on the company’s corporate website. Each individual involved in the settlement received a detailed apology.

IMPACT

Affected the religious and health sentiments of the people

Affected Mc Donalds reputation in the food industry.

Sales of its products declined drastically

Customer Loyalty was affected.

Caused political unrest in countries like India where it greatly affected religious sentiments of people.

Due to this now, the company is following a strict regime and has come up with different ingredients for its vegetarian customers, has a full menu displaying all its ingredients, and has issued a revised social responsibility statement describing its commitment to maintain strict quality standards for its products.


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