Planning Growth at Lancaster Motor Group - Case Study Example

Title: Planning growth at Lancaster motor group Student name: Student ID: Institution: Date: 08/05/2013 Table of contents Table of contents 2 Executive summary 3 Introduction 5 Operations competitive priorities 7 Supply chain management 8 Facilities in a supply chain 8 Participants in a supply chain 10 Forecasting 10 Inventory control management 11 Just-In-Time concept 12 Significance of Just-In-Time 14 Recommendations 14 Conclusion 15 References 17 Executive summary Operations management is the activity of managing the resources which produce and deliver goods and services. Supply chain management involves coordination of production, inventory, location and transportation to attain high responsiveness and efficiency. Just-in-time, virtual inventory, outsourcing, capacity and time, among other concepts have been developed in order to enhance the performance of the supply chain. The main objective of looking into the operations management is to fulfill customer orders in time, reduce inventories and waste time and establish schedules for work that will ensure the optimum utilization of materials, workers, and machines. Forecasting in the Lancaster motor group will include the forecasting of the raw materials, components, assemblies and sub-assemblies, the forecasting of the personnel necessary to make the supply chain operate effectively and the forecasting of where the motor vehicles should be stored based on demand forecasts. The strategic plan of the Lancaster motor group company has to include some form of forecasting in order to plan where the company needs to be in the future and what capacity the company will have to have in order to meet these forecasts. Just-in-time is a philosophy used in inventory control and management which originated from the Japanese auto maker Toyota where the Toyota production system was developed. Lancaster motor group should implement the Just-In-Time control system to improve the incoming materials from their suppliers, the delivery of the materials and the cost of the materials. This will lead to high quality of their finished goods and delivery to their customers at the right time and at reasonable prices. Introduction Operation is the part of a business organization, besides marketing and finance, which is responsible for producing good/services. Operations management, therefore, is the activity of managing the resources which produce and deliver goods and services (Slack, Chambers & Johnston 2010). These operations include: production, purchasing, supply and inventory among other functions within the organization. The operation function is involved in all department s in the company hence has a major impact on its competition position. Both operations and production management have been considered as important factors of economic growth in the company and the country at large. Production is referred to as the conversion of one form of material into another form through mechanical or chemical processes to enhance or create the utility of the product to the user (Porter 2011). Production management therefore is the process of planning, organizing, directing and controlling the production activities through transforming resources into value added products according to the company’s policies. There is increasing customer demand and preferences due to stiff competition, fluctuating market and increase in customer requirements (Ambe & Berdenhorst-Weiss 2010). The critical role played by the supply chain management cannot be ignored due to the many structural changes in the motor industry. In the light of this, several practices have been developed toward a leaner approach in order to increase the supply chain efficiency. Just-in-time, virtual inventory, outsourcing, capacity and time, among other concepts have been developed in order to enhance the performance of the supply chain. The scope of operations in different companies varies depending on the products/services offered. The operations management involves the people involved in product design, selection of the process & technology, location, facilities and quality improvement. The main idea of operations management in this business will be to match supply with demand of the motor vehicles. Having too much supply means too costly and having very low supply can lead to the customers being dissatisfied. Sales and marketing functions will be on the demand side while the operations and supply chain on the supply side1. The main objective of looking into the operations management is to fulfill customer orders in time, reduce inventories and waste time and establish schedules for work that will ensure the optimum utilization of materials, workers, and machines. A number of constraints are encountered in this kind of business especially in the manufacturing process such as operation time and production capacity hence the planner has to consider the system dynamics in terms of time delays and handling process. There is a lot of uncertainty in the planning process as there could be production losses due to delivery problems and delays by suppliers. Operations competitive priorities Lancaster motor group company is weak in the areas of cost of their products being higher than the competitors; there is also slow movement of materials from the suppliers to the company and the finished products (motor vehicles) to the customers; Lancaster motor group company is also not flexible as far as adjusting to changes in the customer needs. Competitive priorities are the specific capabilities that operations at the Lancaster motor group company will focus on to give it a competitive edge. These specific capabilities can be termed in measures of cost, time, quality and flexibility (Porter, 2011). According to Porter (2011), if the company is competing on price then it has to keep the cost base lower than the competitors. Cost will be an important strategy for the Lancaster motor group so as to provide a market niche which the competitors will not be able to provide. This will maximize profits and prevent the competitors from entering the market. The greatest scope for reducing cost will be to reduce the cost of materials. Time is an important factor for Lancaster motor group company to consider in its operations competitive priorities. In terms of speed as a factor, it is important to the customer as it determines the choice of the seller or the company to buy the products from. Delay of time will be measured by the time difference from the time of order by the customer to the point the product will be delivered. Speed in this case will be used to reduce cost and also reduce delivery time (Porter 2011). Flexibility is the ability to act quickly in response to changing customer needs (Porter 2011). The company will consider quality in two ways i.e. the quality of the products as well as the quality of the process that the company will use to deliver the products to the customers. Lancaster motor group company also needs to consider flexibility in their business. This will help the company adapt to changing needs of their customers and also cope with low supply. Supply chain management A supply chain is the sequence in an organization involved in production and delivery of a product/service. Supply chain management therefore involves the coordination of the processes of production, inventory, location and transportation among all the participants in the supply chain to attain high responsiveness and efficiency (Slack et al 2010). The whole process of supply chain starts at the manufacturer includes warehouses and distribution of products up to the point where the products reach the customers. It also involves sharing of information between the interested parties who are suppliers, distributors and customers. Supply chain fluctuations can occur due to failure of synchronization among the supply chain members. Other factors include delays in delivery of products and batch size orders. Facilities in a supply chain There are different facilities that operate within a supply chain. These include production, inventory, transportation, location and information. The capacity of a supply chain to make and store products is production whose facilities include warehouses and factories (Afsharipour, Afshari & Sahaf 2007). Afsharipour et al (2007) further adds that, manufacturers face challenges in making decisions between responding to customers demand and being efficient in their production. Facilities with full capacity might not be able to respond to fluctuations in customers’ demand while at the same time too big facilities with idle space leads to more costs since no revenue is generated from that. There are two approaches in which the company can use in production: product focus and functional focus. A product approach develops expertise on a set of products at the expense of any function while a functional approach develops in expertise about the function instead of the particular product. The company should therefore come up with the best approach to use or the best mix of the two approaches in which they respond best to customers’ demands (Afsharipour et al 2007). Inventory in a supply chain includes everything from the raw materials to the processing to the finished product (Pires & Cardoza 2007). According to Pires & Cardoza (2007), a large inventory helps the company to be highly responsive to changes in customer demands. However this means that the company will have to incur the cost of holding products which must be kept as low as possible to achieve efficiency. Types of inventories include cycle inventory, safety inventory and seasonal inventory. Cycle inventory is the type that is needed to satisfy demand of the product at a given period of time taking advantage of economies of scale; safe inventory is that which is held as a buffer due to uncertainty of increased demand in the future; seasonal inventory is built up with the anticipation of future increase in demand in a specific season and can be predicted. Location is the geographical placing of the supply chain facilities as well as the decisions on activities to take place at the facilities. The cost of the facilities, cost of labor, proximity to suppliers and customers, infrastructure and skills available are some of the major factors to consider when determining the location. Transportation is the movement of different facilities in a supply chain. Means of transport include rail, airplane, ship and electronic. Information forms the basis for the other facilities in the supply chain2. Participants in a supply chain There are various participants in the supply chain. These include: producers/manufacturers, distributors/wholesalers, retailers and consumers. Producers, also called manufacturers are the companies that make the product. This can be raw materials of the finished product. Distributors are the companies that get the products in bulk from the producers and sell them to retailers in large quantities. They do much of the sales work by finding and servicing customers. Other functions of the distributor are warehouse operations, inventory management and customer services. They are also referred to as wholesalers. Retailers stock the products and then sell in small quantities to the customers. Consumers buy the products for their use or make another product which they sell to other consumers3. Forecasting Forecasting is the prediction of a future occurrence. In this context, forecasting will be the prediction of the amount of inventory at the end of the season or business period or the ability to meet the needs of the customers (Zhang & Chen 2006). Zhang & Chen (2006) further states that forecasts are in most cases wrong and several errors are encountered with it. The nearer the event, the more accurate the forecast will be and vice versa. Accurate forecasts impact on the profitability of the company and its stock. Besides, the ability to improve forecasting for customer demand and sharing the information downstream the company management allows efficient inventory management and operations in the entire operations chain. Of importance to note is that, forecasting is not free! There are costs associated with it. These include the cost of lost revenues as a result of forecasting and the cost incurred as a result of fluctuations in resources in the course of forecasting (Zhang & Chen 2006). Forecasting in the Lancaster motor group has not been effective towards improving their business. This can partially be associated to the fact that forecasting is not always right and sometimes errors can be made. The company does forecasting of the raw materials, components, assemblies and sub-assemblies, the forecasting of the personnel necessary to make the supply chain operate effectively and the forecasting of where the motor vehicles should be stored based on demand forecasts. Inventory control management Several models have been used in inventory control and management theories. Among these models is Just-In-Time (JIT), also called the lean purchasing model. Just-In-Time concept Just-in-time is a philosophy which originated from the Japanese auto maker Toyota where the Toyota production system was developed. The idea behind this philosophy is to produce only what is needed and when it is needed (Porter 2011). JIT is also referred to as lean production. Its purpose is to manage the flow of materials, components and purchase-associated information. Use of this philosophy improves the company’s profits and return on investment by reducing inventory levels and costs and improving the quality of the product. It is therefore a powerful tool that can determine success of failure of manufacturing companies (Womack, Jones & Roos 1990). Fig 1: JIT conceptual framework Source: Author Failure of JIT system can occur due to cultural differences, geographical dispersion, supplier power or if there are different management style. In this case study of Lancaster motor group, the JIT system can only fail as a result of changes in management styles since the company is located within the city and the geographical dispersion as well as cultural differences cannot be a factor. Lancaster motor group company has been viewed as a lean production system because it uses less of every resource as compared to the other mass production systems (Womack, Jones & Roos 1990). Significance of Just-In-Time The cost of raw materials had in the past been a serious concern for the top management of the company (Benton 2013) with the cost of materials comprising the greater proportion of the total cost of production. The role of purchasing function in the company has become very significant; JIT production control system focuses on reduction of raw materials as well as the work-in-process inventories; the lean purchasing control system also requires that materials are provided to the work places at the right time and at reasonable prices. The purchasing is also done in small lot sizes (Benton, 2013). Implementation of the JIT system will improve the quality of the materials which are incoming, improve the supplier delivery and also reduce the cost of the materials. However, implementing the system will face some challenges such as: lack of cooperation from suppliers; lack of support from the top management of the company; employees working in the company might not be ready to adopt; the quality of products might go down due to supply of low quality materials from the suppliers; lack of support from the carriers (Benton 2013). Recommendations Forecasting has to meet the production and distribution needs and also the demand of customers. Besides, it has to be strong enough to ensure smooth and interrupted flow of the finished goods to customers. The strategic plan of the Lancaster motor group company has to include some form of forecasting in order to plan where the company needs to be in the future and what capacity the company will have to have in order to meet these forecasts. Lancaster motor group should implement the Just-In-Time control system to improve the incoming materials from their suppliers, the delivery of the materials and the cost of the materials. This will lead to high quality of their finished goods and delivery to their customers at the right time and at reasonable prices. Conclusion A Qualitative forecast will be necessary for the Lancaster motor group for marketing, production or purchasing decisions as opposed to quantitative forecasting which is currently being used. The problem with this forecasting which is opinion based is that it is very critical to have a well experienced person making the forecast. Anyone can make a forecast based on an opinion but if the opinion is not based on experience in this particular area, the forecast may not be of any value. The management of the company should also bear in mind that forecasting can impact either positively or negatively the success or failure of the company. Although forecasts are almost always wrong and a good forecast should have a margin of error, forecasting remains critical to smoothing production, getting the right product on the shelf in the right quantities to meet the customers’ needs. The production planning process in car manufacturing is very complex and proper planning will be needed in order to satisfy customer demands and tastes. Traditional methods of planning in supply chain and inventory management are not applicable anymore thus new methods are needed. References Afsharipour, A, Afshari, A & Sahaf, L 2007, E-procurement in the automobile supply chain of Iran. Master’s Thesis, Lulea University of Technology, Available from: http://epubl.ltu.se/1653-0187/2006/08/LTU-PB-EX-0608-SE.pdf. Accessed 08/05/2013. Ambe, I M & Berdenhorst-Weiss, J A 2010, Strategic supply chain frame work for the automotive industry. American journal of business management, vol. 4 (10) pp2110-2120, 18 August 2010. Benton, W C 2013, Purchasing and Supply Chain Management: Chapter Six Just-in-Time (Lean) Purchasing. Retrieved from http://www.slideshare.net/myzamri01/just-intime-lean-purchasing, on 08/05/2013. Chapter 1: Basic concepts of supply chain management. Retrieved from http://catalogimages.wiley.com/images/db/pdf/R0471235172.01.pdf, on 07/05/2013. Chapter 1: Introduction to operations management. Retrieved from http://highered.mcgrawbill.com/sites/dl/free/0073525251/886181/stevenson11_sample_ch01.pdf, on 07/05/2013. Pires, S & Cardoza, G 2007, A study of new supply chain management practices in the Brazilian and Spanish auto industries. International Journal of Automotive Technology and Management. 7(1):72-87 Porter, A 2011, Operations management. Retrieved from, http://www.zums.ac.ir/files/research/site/ebooks/management-organisation/operations-management.pdf, on 07/05/2013. Slack, N, Chambers, S & Johnston, R 2010, Operations Management, 6th edn, Pearson Education Limited, Harlow. Womack, J P, Jones, D T & Roos, D 1990, The Machine that Changed the World - The story of lean production. Harper Collins Publishers, NY. Zhang, X & Chen, R 2006, Forecast-driven or customer-order-driven? An empirical analysis of the Chinese automotive industry. International Journal of Operations and Production Management. 26(6):668-88. Read More