Operations Management - Kulim Hi-Tech

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We chose Kulim Hi-Tech as a location to do our operation because this location offers an expanding and existing facility instead of having to move, maintaining current sites while adding another facility elsewhere and closing the existing facility and moving to another location.

Kulim hi-tech park, also known as ‘Science City of The Future’ High-tech Industrial Park is the first in Malaysia. Hi-Tech Industrial Park Kulim is located in North-South and East West in Kulim District, in the south of the State of Kedah Darul Aman. Hi-Tech Industrial Park is connected to the port of Penang which is approximately 25 km further east. This location is also connected to the Penang International Airport which is located next to the island about 40 km away.

  1. Labor Productivity

When deciding on a location, management may be tempted by an area’s low wage rates. Management must also consider productivity. Toplicious Sdn Bhd has a few options of low wages rates place to operate. There are few places that offer low wages rates like Shah Alam, Selangor and Seberang Prai, Penang. We had 3 potential placed which are Kulim Hi-Tech, Shah Alam and Seberang Prai. We expect the all three places can produce same unit production per day (1000 unit) but that differentiate these three areas are labor costs per days. Labor cost per day is RM 40 for Kulim Hi-Tech, RM 60 for Shah Alam and RM 50 for Seberang Prai.

Kulim Hi-Tech

Shah Alam

Seberang Perai

RM 40 = RM 0.04

1000

RM 60 = RM 0.06

1000

RM 50 = RM 0.05

1000

After doing the calculation, Kulim Hi-Tech is the most economical placed to produce chocolate compare with Shah Alam and Seberang Perai. So, Kedah is the site that Toplicious Sdn Bhd can build the factory. Besides, tax imposed by the government of this country is low compared to the two other states.

  1. The Factor-Rating Method

Factor-rating method is a location method that instills objectivity into the process of identifying hard-to evaluate costing. The factor-rating method is popular because a wide variety of factors, from education to reaction to labor skills, can be objectivity included. The factor-rating method has six steps:

  1. Develop a list of relevant factors called key success factors.
  2. Assign a weight to each factor to reflect its relative importance in the company’s objective.
  3. Develop a scale for each factor.
  4. Have management score each location for each factor, using the scale in step 3.
  5. Multiply the score by the weights for each factor and total the score for each location.
  6. Make a recommendation based on the maximum point score, considering the results of quantitative approaches as well.

Key Success Factor

Weight

Scores (out of 100)

Weighted Score

Kulim Hi-Tech

Shah Alam

Seberang Perai

Kulim Hi-Tech

Shah Alam

Seberang Perai

Technology

0.20

90

80

75

18

16

15

Labor availability and attitude

0.15

75

80

75

11.25

12

11.25

Political and legal aspects

0.15

80

75

75

12

11.25

11.25

Social and culture aspects

0.20

75

65

75

15

13

15

Environmental factors

0.30

85

70

75

25.5

21

22.5

Total

1.00

81.75

73.25

75.00

We can conclude that the highest score earned by Kulim Hi-Tech rather than Shah Alam and Seberang Perai. These factor ratings give strong reason why the organization decided to make their factory at Kulim Hi-Tech.

  1. Layout Decisions

Layout decisions will determine the long run efficiency of operation. Managers make layout decisions to achieve a fully utilization of space, equipment and people, improved information flow, improved employee and customer interaction and flexibility. There are three types of layouts which are the office layout, warehouse layout and workcell layout.

The office layout is essential for every company, because it is the canter of the movement of information, grouping of workers and their equipment and spaces to provide comfort and safety. First, examine electronic and conventional communication patterns, needed for separation and other conditions influencing employee effectiveness before making a decision regarding the layout strategy.

Toplicious Sdn Bhd needs to have an office that considers three physical and social aspects which are proximity, privacy and permission. Proximity is the fact that the spaces should naturally bring people together. People can control admittance to their conservation including the privacy aspect and the culture should signal, that non-work interactions are encouraged.

The staff of Toplicious Sdn Bhd that should be in the office is the CEO, COO and CFO, the secretary and all departments needed, such as a production department, accounting department, marketing department, sales department and so on. Moreover, central files, copy centre, pantry and all necessities need to be in the office building. The layout of the office is designed with taking consideration of the hierarchy of the company. The CEO and all chief departments are in one place but with different rooms. Moreover, the chief department is placed near the other staff in the department. Also we took consideration of the necessities of the department like e.g. the accounting department needs to be near the central file and copy centre and the secretary office and sales area. Examples of office layouts are below (taken from Cubicle.com):

http://www.cubicles.com/offices-images/Office-Layout-Plan/office-layout-plan-a25.jpg

Secondly, warehouse and storage layout decision which places that store the good before going to other phases. The objective is to find the optimum tradeoffs between handling costs and costs associated with warehouse space. Our warehouse is used to receive the ingredients like cocoa beans, milk, sugar (raw materials) and chocolates (finish goods).

Items stored in the warehouse are the following:

  1. Cocoa bean
  2. Milk, cocoa butter and sugar
  3. Popcorn
  4. Jelly
  5. Finish good

Toplicious Sdn Bhd uses cross docking warehouse and storage layout. That means that we're avoiding the placement of materials or supplies in the storage by processing them as soon as possible. The benefits of this approach are reduced product handling, inventory and factory costs. Toplicious can pursue a low cost strategy besides a differentiation strategy alone. This requires tight schedules and accurate inbound product identification.

Activities involved in this warehouse are receiving cocoa beans from the supplier and send them directly to the bean processing place. Then, milk, cocoa butter and sugar from a supplier, readily stored in the warehouse is used to produce the chocolate when needed. Popcorn and jelly are also stored in the warehouse and are used in the packaging process where the chocolate is filled with the jelly. For the raw materials from the supplier, Toplicious Sdn. Bhd. is using a JIT system so that we will receive the materials from supplier only when we need it.

The received material is then directly sent to the assembly line, as a reason the storage space will be reduced. Therefore, a tight schedule is required to handle the movement of this material and to ensure that it will run smoothly with no errors or delays. The last items in the warehouse are the finished goods after the packaging process is finished. The labelled chocolate will directly go to the distribution channel. Formal receiving, storing and order selection activities are avoided.

Lastly, the layout decision is the need to think about enhancing business operations with the work cell layout. Work cell layout reorganizes people and machines that would usually be distributed in various departments, into groups. Our company Toplicious Sdn Bhd chooses this layout in the production because of the advantage of reduced work in process inventory, decreased requirement of floor space, lower direct labour costs, increased employee participation and increased equipment and machinery utilization.

Toplicious Sdn Bhd products are popcorn with milk chocolate in a glass jar, popcorn with white chocolate in a glass jar and milk chocolate with jelly in a bar. We only focused on these three types of products so work cell is the best method to be applied in the operation. Different from Beryl’s factory that deem to be implemented process oriented layout because there are over 70 different types of chocolates under Beryl’s brand and they include flavours such as Almond, Butterscotch, Peanut Butter, Raisin, Dark Chocolate, Mint, Tiramisu, Strawberry, and a lot more.

In bean processing operations there are three activities such as husk separating, roasting nibs and grounding to liquid cocoa. These three activities are put together in a U shape layout. Due to that, workers have a better access to the operation. For the chocolate operation activities we are refining the cocoa to waferthin layers and conche the chocolate. These operations are also put in U shape layout. Same goes to other phases of operations and this U shape layout is shown below:

http://images.flatworldknowledge.com/collins_2.0/collins_2.0-fig11_005.jpg

In conclusion, layout decision is subject to substantial research effort thus it depends on what the company thinks is best for the company. For Toplicious Sdn Bhd's layout decision we are designing an office layout, warehouse and storage layout, using cross docking and work cell layout.

  1. Conclusion & Recommendations

In a nutshell, strategies such as Product Design, Process Design, Location Decisions and Layout Decisions in Operations Management are applied in the operations of chocolates by understanding the operations to make strategic operations management decisions. Products are differentiated to have a competitive advantage. However by constructing a house of quality we could detect a weakness which is the products’ distribution. We recommend increase space in retailers and more contracts in hypermarkets. The process design is highly automated which means that repetitive process of producing those three types of chocolates. A flowchart is further used to help understand, analyze and communicate the process. Our location decision is in Kulim Hi Tech as it was the most suitable and efficient place to manufacture based on calculation of labor productivity and factor-rating method that we applied. Certain key success factors that we found best fit and relevant to the operations are used in factor-rating method. Toplicious Sdn Bhd's layout decisions are by designing an office layout, warehouse and storage layout, using cross docking and work cell layout. We found that the layout that we used fully utilizes space, equipment and people, improved information flow, improved employee and customer interaction and flexibility. All these four operation management strategies that we learned are applied in order to make the best of the operations’ efficiency and effectiveness. We found these techniques valuable in turning inputs into outputs in the best way they could.

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