Operations Strategy Case Study of Factory

Operations Strategy Case Study of Factory Consultants Report |  An Operational Review  of  Ã¢â‚¬Å"The Factory† Contents (Jump to) 1. Executive Summary 2. Introduction 3. Strategic Review 4. Operational Issues 4.1 Processes 4.2 Plant/Equipment 4.3 Customers 4.4 Contractors/Supply Chain 4.5 Personnel 4.6 Environmental 4.7 Market/Competitors 5. Recommendations 6. Further Recommendations 7. Conclusion 8. Bibliography 9. Appendices 1.  Executive Summary This Report has identified the Pea Factory (the Factory)’s operations strategy as focusing on producing quality products, on time and satisfying the bespoke requirements of its customers. It achieves this through its quality controlled operational processes and procedures. Unfortunately these processes and procedures are not without problems, which are categorised under the following headings; processes, personnel, environmental, plant/machinery and market/competition. Problems encountered with quality issues can be addressed by carrying out a review of the whole process using qualitative and quantitative methods, applying benchmarking techniques and reviewing the whole system and applying total quality management methodology. The introduction of computerisation into the administrative process would eliminate human error and remove communication problems within the control room. It may also provide the opportunity of reducing costs (over a period), with the removal of personnel. The supply chain is a fundamental area for focus, as this is crucial for the survival of the business. Ensuring the supply chain is running smoothly is not only an extremely difficult thing to achieve and it can also be extremely costly. The management team need to focus on maintaining good relations with all suppliers, contractors and subcontractors. Many of the issues, such as lack of capacity, the requirement for additional equipment, increased market share etc could easily be improved with the acquisition of a competitor. This needs serious consideration, although it obviously requires investment by the parent company. In the meantime however, by implementing the recommendations in this report, the Factory can and will move closer to achieving sustainable competitive advantage and improving productivity, whilst reducing costs. 2.  Introduction This Report has been commissioned to provide an operational review of â€Å"The Pea Factory† (the Factory). The operations strategy will be identified together with an analytical review being carried out on the operational problems facing the Factory. Areas such as; how the entire process is controlled, the use and maintenance of the equipment, the focus on the customers’ needs and the use of quality control amongst other areas. The Report will also make recommendations for improvements to the operation, which will eliminate many of the problems highlighted. For instance, the introduction of a computerisation into the control room to monitor the process from start to finish would remove many of the timing and communication issues experienced. In undertaking the research for this report there were a number of other aspects of the operation that were identified, which would benefit from improvement and they are also contained within this report. 3.  Strategic Review In order to complete a strategic review of the Factory, it is necessary to first understand what is meant by the term operations strategy. According to Slack et al1], it is; â€Å"the total pattern of decisions and actions which set the role, objectives and activities of the operation so that they contribute to and support the organisation’s business strategy.† In order to develop an operations strategy, the operations manager has to consider a number of factors such as the needs of customers, as well as what the competition are doing. According to Porter(2); â€Å"an organisation should aim to achieve sustainable competitive advantage† The Factory achieves this by focusing on their customer requirements and by producing a quality product, in a timely fashion and at a reasonable cost. The ability to adapt and be flexible in its approach to its customer’s demands is an important feature in the organisation’s strategy. The Factory concentrates on its core competencies (that of the production of frozen vegetables) rather than diversifying into other products such as pizzas, pies and other products. Specialisation is key to the strategy. Whilst sufficient information is known about the Factory’s operations strategy, little is known about the Group’s strategy, and how the Factory’s operations strategy fits with it, other than to say that they are specialist food producers. 4.  Operational Issues A review of the processes and procedures of the Factory using a SWOT (strengths, weaknesses, opportunities, threats) analysis was undertaken (see Appendix 1 attached). This identified several operational problem areas, which have been grouped under the following headings; processes, plant/equipment, customers, contractors/supply chain, personnel, environmental and market/competitors. 4.1  Processes The operation’s process is coordinated from the control room. Unfortunately the control systems used are manual ones, with any change in process being amended on â€Å"the board†, this manual process could lead to errors, miscommunication and time delays. With the limited daily processing capacity, even if there was greater demand, the organisation would not be able to cope. Further, there is little room for error with the tight time line from picking to blanching. Quality issues with stock held in quarantine, and bulk peas needing to be run though the Sortex colour sorter, several times, results in wasted time and cost. 4.2  Plant/Equipment The extensive use of expensive machinery means that the organisation’s overheads are high with costly down time through failure (particularly unplanned). This has a detrimental effect of the Factory’s ability to achieve its targets and to fulfil orders, costing the organisation both time and money. 4.3  Customers Tailor made packaging for its customers may have a negative effect on the cost base. Satisfying the customer’s needs is an important aspect of the organisations strategy, but the question needs to be asked, as what cost? In order to answer this question, detailed financial information would be required for analysis. 4.4  Contractors/Supply Chain The use of so many contractors in various parts of the process does lead to problems such as communication, control and quality. Differing yields and size containers results in identification and storage difficulties. Using multiple storage contractors could result in missing stock and lack of quality control. This could result in down time and ultimately affect the quality of the product. 4.5  Personnel Fluctuating staff levels at different times of the year causes particular problems for the organisation. The need to train and re-train new staff results in delays and errors. Lack of communication causes costly delays. Such seasonal work may not be entirely satisfying thereby creating problems with lack of job satisfaction, and therefore lack of attention to detail. 4.6  Environmental Environmental issues are a major headache. The weather clearly impacts on the production of the pea crop. The varying weather patterns create uncertainty and scheduling issues. The crop rotation cycle also restricts the level of produce provided in any given region at any given time. This limiting factor can result in not enough of the product being available. 4.7  Market/Competitors An analysis of the competitive environment reveals that there is at least one privately owned competitor who is using aggressive pricing in the market. There is also the issue of the major retailers controlling the market. If one of the retailers decides to stop using the Factory then this will negatively impact the level of profitability and sustainability of the business. All of these issues need to be addressed immediately and the recommendations for doing so are highlighted in the next section. 5. Recommendations All operation managers experience difficulties and this is certainly the case at the Factory. In order to achieve operational effectiveness, Slack et al (3), agrees that there should be; â€Å"Smooth customer flow, a clean, well-designed environment, sufficient goods to satisfy demand, sufficient staff to serve customers, appropriate quality of service, a continuous stream of ideas to improve its operations†. What better way to measure a smooth customer flow than to introduce a computerised system which will track the stock, deliveries and all the processes from start to finish. This would require significant investment, but would have the benefit of eliminating human error and reducing overhead (by reducing the number of staff required to fulfil the function). Whilst this would affect staff morale, a programme of empowerment should be implemented combined with a reward scheme or performance measurement which would motivate the staff to achieve their individual and the organisation’s goals. A Total Quality Management (TQM) process should be implemented, the characteristics of which are; â€Å"meeting the needs and expectations of customers, covering all parts of the organisation, including every person in the organisation, examining all costs which are elated to quality, especially failure costs, getting things right first time, developing systems and procedures which support quality and improvement, developing a continuous process of improvement†.4] Using a process flow chart (similar to that shown in Appendix 2) would help to clearly identify what happens during the operations process and therefore show up the problem areas. Input-output analysis could be undertaken. Further analysis could be carried out using scatter diagrams, cause-effect diagrams and Pareto5] diagrams. The issue of the limited daily processing capacity could be improved with the purchase of additional equipment. Additional quality checks should be introduced into the process in order to eliminate time wasting through re-sorting the product, and the down time of equipment. This could be done through benchmarking or other continuous improvement mechanisms. According to Deming the PDCA6] (plan, do, check, act) cycle should be used, alternatively business process re-engineering which has been very popular recently. That is: â€Å"the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in the critical, contemporary measures of performance, such as cost, quality, service and speed.†7] Although this has been criticised as being the latest fad, as well as being an excuse for removing personnel and it could ultimately result in the loss of essential experience from the Factory. Additional preventative maintenance should be scheduled which would help resolve part of the issue of the unplanned downtime. The employment of an additional maintenance person would also speed up the process. The issue of bespoke packaging of the product for the customer should be debated within [2]the management team. If uniform packaging is introduced, this could result in a reduction in costs. However this needs to be [3]carefully weighed up against the customer needs and ultimately deciding not to purchase from the Factory. A customer quality survey could be conducted in order to ascertain the possible effect of this suggestion. The supply chain is also a critical area for the Factory to keep tight control on. According to Waller8]; â€Å"The supply chain is a complex network of suppliers, manufacturers and distributors whose ultimate objective is to provide goods and services to the client in a timely manner. The reliability of this supply chain depends on all the people in the network, plus the reliability of all the equipment employed including transportation vehicles, sophisticated machines and computer based information systems.† The use of contractors is a major issue that needs to be addressed. Formal contracts should be drawn up setting out the conditions of the relationship (if it has not already been done); with penalties for missing certain key targets being made. Consideration should be given to the Factory acquiring its own transportation, storage and packaging facilities. By focusing on the JIT (just-in-time) approach within the operation, it may further improve and simplify matters, as, according to Slack et al9]; â€Å"JIT is a disciplined approach to improving overall productivity and eliminating waste. It provides for the cost effective production and delivery of only the necessary quantity of parts at the right quality, at the right time and place, while using a minimum amount of facilities, equipment, materials and human resources. JIT is dependent on the balance between the supplier’s flexibility and the user’s flexibility.† The need to keep a close eye on inventory is essential for the Factory, and to keep it as low as possible, thereby freeing up essential funds for other areas of the business. The Factory needs to address all of these issues as a matter of urgency. Some of the recommendations identified here would involve capital investment. Therefore, further analysis would need to be undertaken once the necessary financial information is available, in order to present a robust business case to the parent company. The Factory needs to; â€Å"secure essential increases in productivity (which) requires the combined efforts of all functions. The increased use of technology has resulted in maintenance making a major contribution to the effective efforts in most business†1]0) In addition to the problem areas identified above, there are other areas that could be improved in the future, and these are mentioned in the following section. 6.  Further Recommendations Purchasing is an area that is significant to the business, as Slack et al1]1)suggests: â€Å"purchasing at the right time and in the right quantity can impact on the operations performance in terms of delivery, speed, delivery reliability and flexibility.† A separate review of the purchasing process and department should be initiated at some stage. Undertaking a financial review may also identify further improvements or reductions within the business (environmental, taxes, transportation and fuel costs). Using forecasting tools such as qualitative and quantitative methods to more accurately predict risks, time horizons, and economic indicators could also identify further areas to improve. Other problem areas that may be addressed include the environmental influences on the Factory. It should be possible to produce product all year using the poly-urethane tunnels that are seen in the countryside. The use of such tunnels would extend the growing period and lifecycle and allow pea production to take place all year, without the peaks and troughs that are currently happening. Further, if the organisation wanted full control of its entire process, then perhaps it should consider the acquisition of land to produce the product itself. Finally, in terms of the competition, we already know that one competitor is privately owned. In order to achieve transformational growth, rather than organic growth and consequently achieve many of the objectives identified above, the organisation should acquire this competitor. There would, of course, be issues with the merger of another organisation into its current business, but the increase in market share, the ability to produce more products and the access to additional equipment that this would bring, would seem to be an obvious answer to many of the problems. A thorough business case would have to be submitted to the parent company to qualify and quantify this proposal. 7.  Conclusion The operations strategy of the Factory is aimed at producing quality goods, on time and to their customer’s exacting requirements. This is achieved at the Factory, but at what cost? A thorough review of the Factory has revealed a number of areas that can be improved. Areas such as by identifying the process through the use of flow charts, then any weaknesses can be readily identified. The three quality checks that are currently undertaken is insufficient to prevent quality issues occurring, therefore additional checks should be implemented. Computerising the operations process would eliminate communication problems and speed up the process together with reducing costs. Focusing on JIT and TQM would enhance the process further. Not forgetting staff morale. Their input is critical in ensuring the process runs smoothly, whether it is the manual or computerised method. Including reward schemes and introducing empowerment is a means of involving the staff in the process and in achieving the goals and objectives of the organisation. If the parent company is willing to invest further, then transformational growth can be achieved by acquiring a competitor, land, a haulage company and by producing its own packaging. In order for the parent company to consider this, a business case would need to be produced, justifying the recommendation. The Factory has a great number of strengths, not least of which is its; location, quality product and specialist knowledge, however, by addressing its operational weaknesses and threats, it is possible to achieve sustainable competitive advantage and to continue to achieve its operational strategy, goals and objectives. 8.  Bibliography Cheng TCE, Podolsky S (1993) Just in Time Manufacturing, Chapman Hall (Pages 21 – 175) Fitzsimmons JA, Sullivan RS (1982) Service Operations Management: McGraw Hill (Pages 7 – 25) Hill, Terry. (2002) Operations Management Strategic Context and Analysis, Basingstoke: Palgrave (pages 184-547) Johnston, R. Clark, G. (2001) Service Operations Management, Harlow: FT/Prentice Hall (pages 25 73) Johnston R, Chambers S, Harland C, Hanson A, Slack N (1997) Cases in Operations Management: Financial Times, Pitman Publishing 2nd Ed (Pages 5 – 503) Lowson, R. (2002) Strategic Operations Management The New Competitive Advantage: London, Routledge (Pages 5 158) Muhlemann, A. Oakland, J Lockyer, K. (1992) Production and Operations Management, 6th Ed, Harlow: FT/Prentice Hall (Pages 63-150) Slack, N. Chambers, S. Johnston, R. (2004) Operations Management, Ed 4, Harlow, Pearson Education (pages 5 798) Sutherland, J. Canwell, D. (2004) Key Concepts in Operations Management, Basingstoke: Palgrave (Pages 19 117) Taylor, D. Brunt, D. (2001) Manufacturing Operations and Supply Chain Management, London: Thomson Learning (Pages 5 37) Waller, D.L. (2003), Operations Management: a supply chain approach, London, Thomson Learning (pages 88 595) Wild, R (2002) Operations Management, London: Continuum (Pages 17 187) www.cips.org [emailprotected] Appendices Appendix 1 – SWOT Analysis Appendix 2 – Flow Chart of the Factory Pea Production Process [1]Slack N, Chambers S, Johnston R (2004) Operations Management Ed 4, Harlow Pearson Education p77 Michael Porter from Lowson R (2002) Strategic Operations Management The New Competitive Advantage, London, Routledge, page 29 [4]4,5, 6, 7 From Slack et al p695-696 [5] [6] [7] [2] [3] [8] Deming from Wild, Operations Management p 636 [9] Slack et al p548 [1]10 Hill T, (2002) operations Management – Strategic Context and Analysis, Basingstoke, Palgrave p184 [1]11 Slack et al p478