Operations Management - Eastern Gear Inc

Introduction

“Operations management is about developing and managing value-adding processes, and supporting these through various tools, techniques and methods.”^[1] This report focuses on Eastern Gear Inc. – an American company which manufactures gears however it is time for the company to revise its current operations management and therefore the aims of this report are to:

1. Define operations management and describe its application within manufacturing.
2. Explain the role of operations management strategy in the company’s overall competitive strategy.
3. Explain why small inventories are preferred by most organisations.
4. Identify the competitive advantage and value-added contributions that the operations function makes to the organisation.
5. Analyse the operations environment for relevant trends, especially major changes in technology.

Issues and Problems

The main problem affecting the current operations at Eastern Gear is its facility layout and logistics. Presently the factory is laid out in a production or job-shop layout style and as highlighted by current observation this causes bottlenecks in production as highlighted by the statistics that 90% of each product’s time is spent waiting for a machine. According to Daft (2000)^[2] this type of facility layout is best suited to an organisation that produces huge volumes of identical products – this would explain why there seemed to be an apparent failure of the current layout since the company manufactured customised gears for customers based on the customers’ blueprints. Another problem to consider, although small, is the availability of warehouse stocks; currently it seems as though the organisation does not keep any stock of raw materials in inventory. Theoretically and practically warehousing creates an expense however it is important to always compare benefits and costs and in this case it seems as though the benefits of keeping an inventory will by far out weigh its costs e.g. The one to two weeks currently lost waiting on raw materials can be converted into lead time. Last but not least another major problem is that of wastage; when customers change their order design in the middle of production it means that a design must be created from scratch. The current implications of this is lost time and material. Therefore in the following section the researcher will attempt to provide viable solutions.

Analysis and Action Planning

The issues and their implications facing the organisation have been highlighted above and it is now necessary to create viable solutions that will lead to; activity-based costing, equipment selection, and flexible manufacturing systems. This is known as functional thinking since it is a way to practice innovation which might lead to new insights versus what is known in process analysis, added value and method study.

The first area under examination was the factory layout therefore process redesign was applied since it could change not only the actual waiting time but also have significant impact on perceived waiting time. How process changes affect customer perceptions on waiting and customer satisfaction was also studied. The following issues were analysed in totality via a comparative analysis between Toyota and Eastern Gears.

Many companies go out of business because of changes in technology in other words there has been a discontinuity in technology. Therefore scholars such as Schroeder, teach that it is important to develop a strategy to follow in the event that there is a discontinuity – as the issue emerges, this is referred to as the emergent approach rather than the prescriptive approach. In the past companies such as Toyota have used the emergent approach with resounding success. For instance the Kanban system which was developed by Toyota; originally started as a system of coloured cards which were used to prioritise stock replenishment i.e. whether to ,increase stocks or keep it low. Company layout was also considered, and it was found that a cellular layout versus a linear layout proved to be more productive as employees were more flexible and operated in teams – it became possible to operate a number of machines. Finally the Toyota company not only founded the J.I.T. System but it also mastered it. This method of operations management required an accurate tracking system and common sense; an inventory of stocks were kept and updated on the company’s computer, and when essential stock became too low more was reordered just-in-time for production.

Similarly, Eastern Gears Incorporated can adopt Toyota’s strategies such as mentioned above. It is important to note that they do have their very own emergent strategy in the form of Matt Williams’ variation on the Kanban process. However there are additional techniques that can be applied such as Lean Thinking production which can pull from customers through the supply chain so that there is very little wastage, in other words when the cutomer calls for a product to be re-engineered the manufacturer can apply the order to another customer instead. Basically a TQM (total quality management) approach is undertaken. TQM is defined as managing the entire organization so that it excels on all dimensions of products and services that are important to the customer.

According to Lynch (2003)^[3] “The operations function has seen itself as using machines to undertake tasks as efficiently as possible as possible. Professionally, it has an engineering and science background and has viewed its tasks as essentially oriented towards the same goal.”

According to Schroeder (2003)^[4] there are four main driving forces in Operations Management:

1. The environmental forces;
2. The contribution of operations to value and sustainable competitive advantage;
3. Operations strategy and corporate strategy; and
4. The application of operations concepts to the service industry

The operations value chain

————–Insert Value Chain Here——————–

Research, Reflection and Conclusion

There are some essential criteria to consider when formulating a manufacturing strategy; they are: (1) the organisation’s objectives – the impact that the manufacturing strategy is likely to have on it and the importance of the strategy; (2) Added value – does or will this strategy add great value; (3) Questions – it is important to ask what would happen if things were to change and to consider and assess the affect this may have on objectives e.g. what if Eastern Gear were able to reduce production time by 3-4 weeks, would this help to make much of a difference? (4) The key factors for success – for instance there are four basic factors of production to be considered; land, labour, capital and machinery. Therefore given that the manufacturing or operations strategy for Eastern Gear may be to reduce the its delivery and production time then it is necessary that it consider factors above when designing its operations strategy e.g. the human resource structure may subject to change as working practices, responsibilities and reporting relationships may change or simply put, the organisational chart.^[5] How companies in the process industries can improve return on capital employed and cash flow by better managing working capital (inventory, receivables, and payables).^[6]

As stated before in the introduction, “Operations management is about developing and managing value-adding processes, and supporting these through various tools, techniques and methods.”^[7] This report has focused on Eastern Gear Inc. – an American company which manufactures gears however the company has had to revise its current operations management and therefore the aims of this report were to:

Define operations management and describe its application within manufacturing.

Explain the role of operations management strategy in the company’s overall competitive strategy.

Explain why small inventories are preferred by most organisations.

Identify the competitive advantage and value-added contributions that the operations function makes to the organisation.

Analyse the operations environment for relevant trends, especially major changes in technology.

It is important to note that value added and after sales customer service is an important part of quality management and the production process. However by aligning operations strategies with corporate strategies a cohesive operations strategy is more likely to be designed so as not to adversely affect quality or production.

^[1]http://www.sussex.ac.uk/Users/dt31/TOMI/whatisom.html

4/08/06

^[2]Daft R.L. (2000 p. 708) Management, 5th Edition, Harcourt

^[3]Lynch R., (2003 p. 323) Corporate Strategy, 3rd Edition, Financial Times Prentice Hall

^[4] Schroeder R., (2003 p.14) Operations Management: Contemporary Concepts and Cases, (2Rev ed), McGraw Hill

^[5]Hill, T (1991) Production and Operations Management, 2nd Edition, Prentice Hall

^[6]http://www.themanager.org/Knowledgebase/Operations/Operations.htmOperations Management – Operations and Production Management 3/Aug/06

^[7]http://www.sussex.ac.uk/Users/dt31/TOMI/whatisom.html