Operational Analysis and Effectiveness - Case Study Example

Klassy Kitchens Pty Ltd Name Course Name and Code Instructor’s Name Date Operations management is a branch of management that is dedicated towards overseeing, designing and controlling production processes while at the same time redesigning business operations in the production of goods and services. This type of management demands for the responsibility of ensuring that the business operations are efficient about using few resources as required and effective in terms of meeting customer demands. Similarly, it is concerned with essential management of processes and activities that are critical in converting inputs like raw materials, labour, and energy into the desired outcomes or goods and services. With regard to the US Department of Education, operations management is “is the field concerned with managing and directing the physical and/or technical functions of a firm or organization, particularly those related to development, production, and manufacturing” (US Department of Education Institute of education Science, 2008) Klassy Kitchens is a company that designs and manufactures custom-built kitchen cabinetry. Since its inception in 2008, the company has experienced greater exploits and thus making substantial profits. However, after the company accepted the ‘spec’ builder’s deal to produce high quality standardized kitchen cabinetry, the company has experienced massive operational problems. This paper is an argumentative essay that critically analyses the operational and strategic issues facing Klassy Kitchens Pty Ltd. In this regard, the paper will analyse the current systems and processes of the company, the effects that the new builder’s line has on Klassy Kitchens operations. Accordingly, the paper will discuss the operational decision the company has to make under the current operating conditions to maintain effective productions; and the effects of the move to produce builder’s kitchens is having on the company’s financial structure. Operations management has four basic elements of production including; equipments, machinery, methods and processes (Murithi, 2012). Production companies that are positioned to have an efficient and economical production is obliged to take into consideration a series of processes such as purchasing, receiving, quality control, shipping, research and development, maintenance and inventory management (Murithi, 2012). Purchasing is also referred to as procurement and it involves all aspects for acquiring the elements required for the successful production process. In this regard, after purchasing all these requirements on time they must be properly managed as inventory. Quality control on the other hand is an aspect of operations management that ensures that the products that are produced meet or exceeds customer requirements (Murithi, 2012). Quality assurance covers all phases of production starting with designing, development, productions and installation, servicing and documentation. In order to obtain a quality product, standards must be upheld starting from the materials used, production techniques used, and the quality of the final product (Murithi, 2012). It is significantly important to note that optimal operations management is important to eliminating if not minimizing the conventional manufacturing wastages (Murithi, 2012). Elimination of wastages in production integrates the final product quality, reduces production time, and reduction of the overall production costs. As already mentioned above, efficient and effective operations management techniques influences best inventory management (Murithi, 2012). Waste in any manufacturing company is something that does not add value to the customer and is extremely costly to the company as it results into inefficiencies that constantly and continuously eat into the company’s profits (EMS Consulting Group, 2013). Processes have been established to either add value or waste to the production of goods and services. Klassy Kitchens, although making strides in increasing their customer based together with profitability, the current production operations are overwhelming. In order to recognize this overwhelming situation at Klassy Kitchens processing plant, it is vitally important to understand what waste is and where it exists. The company is experiencing a lot of waste including: overproduction, waiting, transporting, inappropriate processing, unnecessary inventory, unnecessary and excessive motion, and defects. Overproduction is referred to as manufacturing an item without an order to manufacture it. It is regarded as a recipe of production inefficiencies as the smooth flow of materials within the production line is altered which then results into degraded product quality and company productivity (EMS Consulting Group, 2013). Similarly, this menace develops into unexpected costs such as storage costs, excessive lead times, and it make it hard for the company to detect defects in the final products. Overproduction is one of the prevalent wastes at Klassy Kitchens, for instance, the Company Accountant Anh Chu complains of extra costs that the company is incurring in accommodating the increased volume of raw materials and finished products. Many company finances are tied up in raw materials together with unfinished as well as finished products. This is eating into company revenues, for instance, the company accountant laments of the cost of renting an expensive public warehouse space in order to store extra raw materials and finished products. In the same line of argument, the case of Klassy Kitchens Pty ltd displays a situation of increased lead times that culminate into prolonged delivery times. The company production operations are pushed beyond limits thus straining the company production resources including the labour force; same machines, equipments, and same craftspeople working on both custom-made and standard kitchen cabinetries at the same time. In addition, operating space; the two lines of company productions are produced using one production plant; time; both custom-made and standard kitchen cabinetries compete for production time and space. Due to overproduction at Klassy Kitchens, the company operations are overwhelmed and constrained. Waiting becomes a waste when products are being processed or not moving. It has been established that 99% of product’s life in the traditional batch and queue manufacture wait to be processed (EMS Consulting Group, 2013). Following this understanding, most of the products lead-time is tied up in waiting for the coming or next operation; this usually results from poor material flow, longer production runs, and greater or longer distance between work centres. According to Goldratt theory of constrains argues that many times that one hour lost in a bottleneck process is one hour lost in the entire factories output that can never and will never be recovered. At Klassy Kitchens the waiting issue is like a norm; due to ever increasing orders for both custom-made and standard kitchen cabinetries, and given the fact the custom-made cabinetries are given priority over standard cabinetries, most of the standard cabinetries are attended to halfway. Given this fact, there is a lot of work in process particularly for standard kitchen cabinetries. Moving products between the processes add unbudgeted costs that have no value to the product. Similarly, excessive movement and handling results into damages that can compromise the quality of the product. Accordingly, material handlers are in most cases used by the company to move the materials, which add extra unforeseen cost to the company, while nod integrating value to the customer. Transportation is a waste that is difficult to reduce due to the perceived cost of moving machines and equipments closer together. Further, it is extremely difficult to determine which process should be next to the other. Klassy Kitchens working space was initially designed to handle the production of custom-made kitchen cabinetries only, however, when the company signed a contract to produce standard kitchen cabinetries the operating space was disrupted. For instance, the company had enough space for production, currently; there is limited space with increased movement of unfinished products and materials to pave way for production of other perceived important kitchen cabinetries. The company only operates one manufacturing facility where both custom-made and standard kitchen cabinetries are made using the same equipments, machines, and same craftspeople. The company operating space layout was initially designed at allow flexibility in the production of custom-made kitchen cabinetries where machines and equipments were grouped together, cutting tables and saws were also grouped together in another location, shapers and routers are in another section, lathes together with other less frequently machines are placed in a location away from the work area. Above all, assembly areas are located strategically throughout the company. This display a picture where craftspeople are tasked with moving materials or parts from one location to the other before the final product is produced. Inappropriate processing occurs when the organization use expensive high precision machines and equipments notwithstanding the fact the simpler tools can perform the same work more efficiently and sufficiently (EMS Consulting Group, 2013). Inappropriate processing is a direct recipe for poor plant layout, since preceding and/or subsequent operation processes are located far from each other. Consequently, it results into over-utilization of assets including overproduction with minimal changeovers (OH, 2010). Klassy Kitchens Company experiences inappropriate processing wastages in its current operations (Mahadevan, 2009). The operation space layout is designed in a manner that encourages unnecessary movements of the labour force, machines are overused; the same machines and equipments are used for the production of both the custom-made and standard kitchen cabinets. There are greater distances between the operating centres. For instance, we are told that the less frequently used machines and equipments are located far from the working area. Overproduction and waiting directly culminates into a lot of work in progress (WIP) which is an unnecessary inventory. Too much inventory raises the opportunities for hiding product defects on the plant floor that must be identified and resolved in order to improve the quality of the product and customer value (EMS Consulting Group, 2013). This wastage also gives an opportune for increasing product lead times, it also consumes production floor space, and it inhibits communication. At Klassy Kitchens, there is no seamless flow between work centres due to unnecessary inventory on the production floor. With regard to the case, we find that because the custom-made kitchen cabinetries are given priority due to the high profits earned from their production, standard built cabinetries are relegated and in most cases, they are left unattended to. Standard cabinet components are usually left unattended to and are left sitting around the plant in various stages of completion (Greasley, 2007). Work in progress volume is continually increasing and is transforming thy company’s spacious manufacturing area into a factory filled with incomplete work. Unnecessary and/or excess motion is a waste that is associated to ergonomics and is observed in instances like bending, stretching, lifting, walking and reaching. Health and safety issues have become a very important thing to the society in the today’s world; however, it is a problem to many organizations (Greasley, 2007). Motion within a manufacturing firm can result into unnecessary coalitions, poor communication, and sometimes it can lead to accidents. The operational demands at Klassy Kitchens are very high, producing two lines of products using same machines and manpower has resulted into extensive movements within the company. Consequently, moving parts and materials from one working station to another is completely strenuous. Overworking of the labour force is another health hazard that the company is likely to face. Product defects have a direct impact the company’s overall productivity (OH, 2010). The defects usually result from handling too much inventory, moving products from one place to another, and having unmanageable work in progress (Greasley, 2007). These defects lead unnecessary costs including, inventory storage costs, re-inspecting costs, rescheduling costs, and capacity costs. Klassy Kitchens working area has been taken up by works in progress or unfinished products. Similarly, the company has excess inventory that they have decided to higher an expensive public warehouse space to store both materials and finished products (Greasley, 2007). The movement of products from the factory to the warehouse has a greater probability of causing defects on the finished products together with the materials. Builder’s kitchen line has immense influence on Klassy Kitchens operations, growth, and profitability. It said that even if the current company’s performance is exceptional, it is significantly important to keep looking for ways to further develop and grow (Sweeney, et al, 2010). In order to have competitive advantage in the marketplace, the company is required to have a wide line of production thus being able to reach a wide customer base (Mertins, et al, 2008). Builder’s kitchens have provided Klassy Kitchens a growth opportunity that is continuously increasing the company’s turnover, integrating its market share, constantly improving the company profitability, and above all increasing the company sales. From the above establishment, builder’s kitchen line has provided Klassy Kitchens an opportunity to diversify its products. The standard kitchen cabinetry is a product line that the company had not thought of as viable business. However, despite the immense growth prospective that the standardized kitchen cabinetry came with there are various operational issues that they added to the company. For instance, from the above technical analysis of the Klassy Kitchens operations, there is much wastage that the company is experiencing currently. Initially, Klassy Kitchens was a company with sound operations where, products were manufactured only when they were needed and with regard to customer specifications (Mertins, et al, 2008). After signing a contract with builder’s kitchens, the company started experiencing operational pressures. The company only has a single manufacturing plant with machines and equipments designed for one line of product production; the storage space was never an issue; for materials ware procured when there was an order for the finished product. However, after signing this contract, the company is overwhelmed with its production operations, there is overproduction, waiting times have been increased, transporting, inappropriate processing, excess motion, unnecessary inventory, and product defects have become a common thing to the company (Mertins, et al, 2008). Since the inception of the builder’s line at Klassy Kitchens, the sales for both standard and custom-made kitchen cabinets have been on the rise that has resulted into more scheduling of their production (Mahadevan, 2009). Regardless of this, the production of standard kitchen cabinets is costly with little profitability. These cabinets are expensive to produce with stringent delivery requirements; this is constantly increases the company’s cost of production thus reducing the overall profitability The company’s workforce has been working under pressure after the company the standard kitchen cabinets production contract. From the case, we are told same people are used for the production of the two lines of products (Takeda, 2006). Similarly, there is no where that we have been told the company hired new staff to supplement the current staff (Wild, 2002). On the same line of argument, the operating environment is highly stuffed with unfinished products thus affecting the coordination of operational activities within the company (Sweeney, et al, 2010). More importantly to mention, the working environment has been turned from a healthy environment to a worst one and hence can result into a health hazard (Takeda, 2006). After signing for the production of the standard kitchen cabinets, the company space has also been under pressure to accommodate the company’s production operations. There is too much than the space can handle (Sweeney, et al, 2010). For instance, the company has opted for an expensive public warehouse space to be able to store its inventory. This is continuously eating into the company profits. Similarly, transport costs have been increased because the inventory has to be moved from the company production site to the warehouse (Takeda, 2006). Operational decisions are very vital in making sure that the company’s daily operations are successful. The daily interactions that take place within the company are as a result of operational decisions (Chiarini, 2012). These decisions are vital and hence if they are not correctly and consistently made they can bog down the organization making it ineffective (Piat, 2013). For operational decisions to be effective, they must be consistent with the organizations strategic decisions. Similarly, effective operational decisions always culminate into measurable results including higher sales, increased profits, increased productivity coupled with customer satisfaction. At Klassy Kitchens, the operational manager is the strategic person in making sure that the confusion currently being experienced within the company operations are minimized. It is therefore imperative for Chinh to make the following decisions in order to ensure that the bag log at the company is reduced while at the same restoring the company’s effectiveness. Primarily, he should ensure that overproduction is completely abolished if not reduced. He should decide only to produce those products that will be shipped or sold immediately (Piat, 2013). This will ensure that there is improved machine changeover together with setup capabilities. He should decide to turn off the tap; all productions must be scheduled and the schedule should and must be followed to the later. This will ensure that there is no too much work in progress together with inventory. Accordingly, another key decision that the operations manager of Klassy Kitchens must make is that all processes should be linked together in that one processes feeds directly into the next process (Piat, 2013). This will ensure that standard and custom-made cabinets are completed on time without waiting. The lead time for producing a product will immensely be improved. Similarly, Chinh must decide to map the product flow within the company. The workplace should be redesigned to make sure that product parts are moved from one stage to the next with ease and within short distances (OH, 2010). Equally important, the operation manager should decide to make two manufacturing cells where each will be dedicated towards producing one product line. Additionally, each cell must comprise of a combination of all steps for producing the product line it is dedicated to produce (Piat, 2013). Furthermore, he should ensure that he hires enough manpower to run these cells concurrently (Chiarini, 2012). Consequently, he should decide to reduce unnecessary inventory. For instance, he should decide that the company achieves a seamless flow between work centres. Using the two manufacturing cells discussed above, the company will be able to work and deliver products on time. Operational performance of any organization is wholly tied to its capital budgeting; this includes forecasting sales together with the related expenses (Piat, 2013). The operational issues discussed above that Klassy Kitchens is experiencing are detrimental to its financial performance. From the case, we are told that the cost for producing standard kitchen cabinets is high as compared to the custom made cabinets this means that the company has to spend more in producing standard cabinets. This has the effect of increasing the company’s overall cost of production. In addition, the standard kitchen cabinets sales are very minimal and not matching the cost of investment. The wastes discussed above including: overproduction, unnecessary inventories, and work in progress have a direct impact on the company’s finances. For instance, there are increased lead-times in product productions, high unnecessary storage costs, and transportation costs are issues that directly eat into the company’s finances (Piat, 2013). The profitability of the company currently is not the way it should be given the fact that the amount invested or the cost of production is not matching the profits that are being earned. In fact, the company accountant acknowledged that the costs of producing standard builder’s kitchen cabinets were constantly rising. Similarly, most of these cabinets were left incomplete due to giving the custom made kitchens priority over them (Takeda, 2006). This resulted into a substantial amount of working capital being tied up in raw materials inventory, work in process and finished products, and while at the same time both the debtors and creditors ledgers were on the rise (Piat, 2013). The ever growing inventory prompted the company to hire an expensive public warehouse space for storing the excess inventory. As already observed these added unnecessary costs to the company’s operations (Wild, 2002). The builder’s line of products, although has provided the company with an opportunity to expand and diversify its operations, it is not being handled as it should be and hence causing the company to incur extra financial costs. In this regard, the company financial structure has been affected immensely. In conclusion, operations management is defined as the field concerned with managing and directing the physical and/or technical functions of a firm or organization, particularly those related to development, production, and manufacturing. Operations management is a significant management entity that will ensure either the growth of the company or it can be detrimental thus leading to the collapse of the company (Chiarini, 2012). Klassy Kitchens is a company that is faced with a myriad of operational problems that are significantly compromising its profitability and smooth running. After the company introduced a new line of products, the company has been experiencing numerous operational problems. The company operational issues include overproduction; waiting, unnecessary inventory, inappropriate processes, transportation, excess motion, and defects. These wastes have direct impact on the company profitability and thus the operation manager must come up with new operational strategies that will ensure the company performance return to its normalcy. Bibliography Chiarini, A. 2012. Lean Organization: from the tools of the Toyota production systems to lean office. Bologna: Springer EMS Consulting Group. 2013. The 7 Manufacturing Wastes. Retrieved on 18/08/2013, from; http://www.emsstrategies.com/dm090203article2.html Greasley, A. 2007. Operations Management. London: Sage Mahadevan, B. 2009. Operation Management: Theory and Practice. Jakarta: Pearson Education India Mertins, K., Ruggaber, R. and Popplewell, K. 2008. Enterprise interoperability III: New Challenges and Industrial Approaches. New York: Springer. 17- 19 Murith. S. 2012. For Entrepreneurs. Resources when starting a business. Operations management issues in a small business. Retrieved on 19/08/2013, from; http://www.gaebler.com/Operations-Management-Issues-In-A-Small-Business.htm OH, S. 2010. Optimal Stopping Problems in Operations management. Stanford: Stanford University Piat J. 2013. Five Keys to effective operational problem solving. Retrieved on 19/08/2013, from; http://www.industryweek.com/lean-six-sigma/five-keys-effective-operational-problem-solving Sweeney, D. J., Williams, T. A, and Camm, J. D. 2010. 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