United biscuits merger of two scottish family businesses

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Introduction

Founded in 1948, United Biscuits was the merger of two Scottish family businesses - McVitie & Price and MacFarlane Lang. In 1960, United Biscuits acquired Crawford's Biscuits and MacDonald's Biscuits. In 2000 it was converted to a private company by its new buyer Final realm.

United Biscuits (UB) is one of the world's well known in the field of snacks businesses which produces some of the best known and loved sweet and savory snacks, with products ranging from biscuits and crackers to cakes and savory snacks. 

 UB seeks to drive sustainable performance in all it does. This includes delivering consistently on our promise to consumers, serving our customers, developing and engaging actively with our employees, delivering superior financial results to our owner's year in year out, minimizing our impact on the environment and interacting constructively with the communities in which we operate. We are investing in the future whilst delivering results today.

UB included food service, catering by purchasing two leading wholesalers named as TFC-Sorge. Its turnover at was £50m pa which came down to £35m pa within 6 months due to failure to integrate facilities, product range, system and processes, improper customer service, improper use ofr assets, inconsistrant management, poor communications, failure to leverage enhance buying power. It should be suggested that company should take care of the following to solve its problems.

As United Biscuits Frozen Foods failed to integrate the facilities, product range, systems and processes i.e. failed to maintain supply network, but company should adopt total supply network to streamline its operations. It should also take care of forward and backward integration.

Forward Integration

Forward integration means having control over its distributors or retailers i.e. franchising. United Biscuits should take care of the following : (David 2005)

Competitive advantage to those firms that integrate forward i.e. United Biscuits should give more benefits to those distributors who are giving much more business to the company.

Use the advantage of stable production, and increase the product ability of the demand using forward integration i.e. Company should take concentrate more on product ability one it should have stable production instead of volatility.

Reduce the margins of distributors/retailers by distributing its own products and pricing more competitively i.e. company should increase direct supply to customers and use the margins of the distributors to attract more customers by giving discounts.

Backward Integration

"It is a strategy of seeking ownership or increased control of a firm's suppliers." For backward integration, company should: (David 2005)

Adopt backward integration to reduce the risk from un-reliable and incapable suppliers to reduce the chances of quality i.e. company should never compromise with quality and must have a strict quality check over its raw material suppliers.

Utilise capital and human resources to manage the new business and to supply of raw materials. Company should utilise its financial resources as well as human resources to take care of un-interrupted supply of raw materials, un-interrupted production, and timely payment to its suppliers.

Acquire the needed resource quickly to meet the requirements of the customers means company should have the ability to acquire the required machinery, building or transportation for un-interrupted supply to customers.

1.3 Product Range

A limited resources company should cater to a few segments of customers and mostly their customers are rich people having high process products. But for a Biscuit Company like United Biscuits having several related segments with different kinds of customers but with same basic product having different specifications as per requirement say sweet, salty, chocolate biscuits etc. United Biscuit must identifies customer value differences and launch its products as per needs of that area on account of say age, population, ethnic groups etc. Company should provide greater customer value by reducing prices or increasing quality. United Biscuits present product range focuses on health and to provide quality snacks that consumers can enjoy within a balanced diet and healthy lifestyle and to remove or reduce the ingredients consumers may be concerned about, add more of the wholesome ingredients they would like to eat, for example, fruit and cereals, and clearly communicate the nutrition content of products on the packaging.  (Kotler et al, 2008)

1.4 Systems and Processes

No Organization exists without operations. The process of converting inputs into outputs for the use of customers is called operations and the system used for it called as operations system. There are four main approaches given below (Galloway, 1993):

Flexible specialization (Piore and Sabel, 1984) : using value-adding process and collaborate within networks to produce whole products.

Lean production (Womack et al., 1990) : which developed from the highly successful Toyota Production System. It mainly focuses to remove all forms of waste from a production system. (Womack et al)

Mass customization (Pine et al., 1993) : seeks to combine high volume, as in mass production, with adjusting products. Pine, B. J. II and Davis, S. (1993) Mass Customization, Harvard Business School Press.

Agile manufacturing (Kidd, 1994) which point out an organization to be able to switch frequently from one market-driven objective to another as per need. Kidd, P. T. (1994) Agile Manufacturing: Forging New Frontiers, Addison-Wesley.

The figure below describes three main components of the operations system and operational management involves the systematic direction and control of the processes that transforms inputs into finished goods (Shim and Shiegal, 1999).

The diagram clearly describes the operation system and process for a biscuit manufacturing company. In the initial stage, United Biscuits should have good check on its Suppliers who provide inputs i.e. wheat, flour, sugar, fat etc. Company should also have appropriate facility to store raw materials for in-interrupted production. In the second phase, transformation process, Company must have skilled workers who could operate the equipment well and use the raw material as per the required quantities without any wastage to produce the desired quality of biscuits without having any effect on production ultimately on cost. For the last phase i.e. output means Biscuits, Company should also have facilities like warehouses to store its Biscuits so that there will always be un-interrupted supply to customers. Company should also have good transport facilities to supply the Biscuits to its customers to cater the demand immediately. Most important, Company should have some feedback system so that it could not only cater the demand but should also have views of customers for its Biscuits to increase the quality as well as production in case of more demand of some range. Company should also take care of its own policies, resources, forecasts, goals constraints and also the legal, political, social and economic conditions within which it is operating.

1.5 Total Supply Network

"A supply network perspective means setting an operation in the context of all the other Operations with which it interacts, some of which are its suppliers and its customers. Materials, parts, other information, ideas and sometimes people all flow through the network of customer-supplier relationships formed by all these operations." (Slack et al, 2007).

The suppliers and customers who have direct contact with an operation are called its immediate supply network, whereas all the operations which form the network of suppliers' suppliers and customers' customers, etc. are called the total supply network.

Figure below, illustrates the total supply network of United Biscuits. On the supply side there are second tier suppliers who supply raw materials to first tier suppliers and who supplies the raw materials to the operations i.e. production unit of United Biscuits. But it is suggested company should have supplies direct from second tier suppliers reducing the time and cost. Similarly on its demand, it supplied Biscuits to First tier customers i.e. wholesalers/distributors who further supply to second tier customers. However, it also supplies some retailers directly with 'made-to-order' products. Along with the flow of goods in the network from suppliers to customers, each link in the network will feed back orders and information to its suppliers. When stocks run low, the retailers will place orders with the wholesaler or directly with the manufacturer. The wholesaler will likewise place orders with the manufacturer, which will in turn place orders with its suppliers, who will replenish their own stocks from their suppliers. It is a two-way process, with goods flowing one way and information flowing the other. Company should try to start direct supply to the second tier suppliers which will increase its profits and more important will have direct relations with customers and have a good feedback for its products.

2.0 "Businesses planned for service are apt to succeed; businesses planned for profit ate apt to fail," observed American educator Nicholas Murray Butler. "There are two ways to get a service reputation: One is to be the best at service; the other is to be the worst at service" (Kotler, 2003)

"Customer services are everything a business does that increases their customer's perception of value in the products and/or services they offer. Customers go where they get good value and where they are treated well" (Donald, Archer, 2005)

2.1 Objectives

The key to achieving a successful customer policy is to develop appropriate objectives through a proper framework that includes liaison with the customer then to measure, monitor and control the procedures that have been set up. The importance of good service is that it differentiates between the core products itself and the service elements related to the product. The core products concern the item itself; the technical content, the product feature, the ease of use, the style and the quality. The main service element can be called 'product surround' represent the availability of product, ease of ordering, speed of delivery and after sales support. These elements are very important in determining the final demand of a product. Thus, no matter how attractive the product may be it is essential that the customer service elements are satisfactory and logistic plays a crucial role and provide good customer services.

2.2 Role of Customer Service

Most customers do not complain and non-complaining customers hurt your business and the reason behind it is that they think it will do no good and when dissatisfied customers do niot complain, how it could be resolved. Customers today are not only interested in the product they are being offered but all the additional elements of service that they receive from the greeting they receive when they enter a retail outlet, to the refund and help that they receive when they have a complaint about a faulty product that they have paid for (Goodman, 2009).

Problems also result in list customers as some customers having problem instead of complaining prefers to change brand. Employees are not always the cause of customer dissatisfaction

2.3 Importance of Customer Service

The importance of customer service is that satisfying the customer is the key to achieving the competitive success. There are three main components of customer service which are (Christopher, 2005) :

Pre-transaction elements, which are customer service factors that arise prior to actual transaction take place and they include written customer service policy, accessibility of order personnel, single order contact point, organizational structure, method of ordering, order sixe constraints, system flexibility, .

Transaction elements, which are directly related to the physical transaction and are those that are most commonly concerned with distribution and logistics and they include order cycle time, order preparation, inventory availability, delivery alternatives, delivery time, delivery reliability, delivery of complete order, condition of goods, order status information,

Post transaction elements, which are those elements that occur after the delivery has taken place and they include availability of spares, call out time, invoicing procedures, invoicing accuracy, product tracing/warranty, returns policy, customer complaints and procedures and claims procedures.

2.4 What Customers Value - Benefits

What organisations offer and what has value to customers is really a bundle of benefits and these are divided into four categories (Zemke and Woods, 1998 )

Form Benefit

Product development is responsible for creating the form benefit. If a customer buys United Biscuits product and has questions what are the benefits and customer feel un-satisfied if product does not show the promised benefits and if the customer feel un-sure, he will not buy the product. Company should have clear instructions and benefits of its product.

Place Benefit

Customers prefers the service provider to be located in a convenient location i.e. they prefer the service provider near their home or available at phone.

Time Benefit

Product being available when customers demand it and one of the best valuable offers. United Biscuits should have proper network of distributors/transport for timely delivery of demands.

Possession Benefit

Benefit deals with warranties, credit terms and return of faulty goods and these are the benefits which customer value. Not so related with United Biscuit as there are less chances for this benefit.

2.5 Customer Service Goals

( Source : Dr.Z.M. Zachariah Notes)

The above figure illustrates the three main components of customer service goals.

Inventory Strategy

United Biscuits should have inventory strategy to take care of its inventory decisions by taking into account timely purchase of required quantity of raw materials, proper storage for raw materials timely supply of raw materials to its production unit, must use forecasting method to increase or decrease production as per requirement.

Location Strategy

For the location strategy component, united Biscuit select to have its production plant near some locality where there must be high demand for biscuits, having good approachable way for supply for raw materials to production plant as well as of finished goods to distributors/customers. Company should have enough space within the production plant for un-interrupted and timely supply of raw materials to production plant. United Biscuit should have ware house near to its production plant for storage of its finished goods.

Transport Strategy

Company should have a fleet of transport for supply of raw materials to its plant as well as finished goods to its customers as pore the demand. Otherwise it may result in delay of raw materials to plant and stoppage of production or late supply of finished goods to customer's means loss of customers.

3.0 Effects of Assets in Poor Condition

Operations are not only about the transformation of materials, but organizations that produce goods actually transform resources. The staff involved in the transformation process is described as labor and the facilities i.e. building, machinery, equipment are referred as capital. Operations are the mix of labor and capital.

As United Biscuits is having many poor assets, it should take care of them. The effect of these assets is given below:

Company should take care of its buildings as if they were not in good conditions, it will be difficult for the company to hire staff as no will try to work as such place. Moreover, company is making biscuits, it will have to be more careful to take care of hygienic conditions of its buildings so that good biscuits could be produced otherwise it will be the cause of the sickness of the people and will affect the company. Company should also take care of its plant and equipment as it will not only reduce the production will also stop the supply. If the plant and machinery of production plant will not be in good position, it will not work un-interrupted causing higher cost pun production as company will have to pay to the labor whether the plant obis working or not. Hence, company should always take care of its plant and machinery. Company should also take care of its transportation system which is the nervous system for a company and without good transport system no company can survive as it will affect the supply of raw materials as well as finished goods.

3.1 Effects of Improper Management

"HRM is based on a management and business-oriented philosophy. It is claimed to be a central senior management driven strategic activity that is developed owned and delivered by management as a whole to promote the interest of the of the organization they serve. As strategic HRM is concerned with the relationship between the human resource management and strategic management in the firm." (Armstrong, 2004)

3.2 Strategic HRM role is to achieve management's objectives using the human resources. It has four meanings (Armstrong, 2004)

The use of Planning

Manpower strategy and employment policy

Matching HRM activities and policies

Achievement of competitive advantage with the use of people.

All the planning, policies, objectives come from top management and if the management is inconsistent it will affect the working of United Biscuits. As all the decisions about key goals, major policies and allocation of resources are comes from the top management and if there are wrong decisions, then who can save the company. As United Biscuits was not utilizing its system and processes, improper customer service, failure to integrate fragilities, assets in poor condition and these all problems were due to the improper management and wrong decision. If the management of the company would have taken right decisions and have given proper policies, good working atmosphere there will be no problems for the company.

3.3 Inventory Management System (Chase et al, 2003)

Inventory is defined as the stock of any item or resource used in an organization. An inventory management system is the set of policies and controls that monitors level of inventory and determines (a) What level should be maintain, (b) when stock should be replenished and (c) how large orders should be.

Inventory can include raw materials such as humans, financial, equipment and physical items such as raw materials: outputs such as parts, components and finished goods; and interim stages of the process, such as partially finished goods or work-in-process (WIP). A manufacturing operation can have inventory of personnel, machines and working capital as well as raw materials and finished goods.

Inventory control is necessary to :

. Meet projected demand

. Smooth production requirements

. De-couple components of the production-distribution system

. Protect against stock outs

. Increase cash flow and profitability

United Biscuits should maintain its inventory up to the right level. If the company will have more inventories then you are investing more money in it and if company will have too little inventory, then there will be problem for running of your plant and consequently disappointing your customers.

3.4 Zero Inventory (Dr. Z.M. Mulenga Notes)

United Biscuits should try to maintain zero inventory by having delivery direct from suppliers, reducing the amount of work-in-process by using JIT and reducing the stock of finished goods by shipping to market as soon as possible.

Requirements for effective management

Some of the requirements for effective inventory management include:

. A system to keep track of the inventory on hand (raw

materials, work-in-progress, finished goods, spare parts, etc).

. A system to manage purchase orders

. A reliable forecast of demand that includes the possible

forecast error

. Knowledge of lead times and lead time variability

. Reasonable estimates of inventory holding costs, ordering

costs, and shortage costs

. A classification system for inventory items

Integrated Management Information Systems are critical to the successful

Inventory manager. The inventory management system must be integrated

with the financial, production, and customer service functions of the

Company.

The Bullwhip Effect

Demand variability increases as one move up the supply chain away from the retail customer, and small changes in consumer demand can result in large variations in orders placed upstream. Eventually, the network can oscillate in very large swings as each organization in the supply chain seeks to solve the problem from its own perspective. This phenomenon is known as the bullwhip effect and has been observed across most industries, resulting in increased cost and poorer service.

Causes

Overreaction to backlogs

Neglecting to order in an attempt to reduce inventory

No communication up and down the supply chain

No coordination up and down the supply chain

Delay times for information and material flow

Order batching - larger orders result in more variance. Order batching occurs in an effort to reduce ordering costs, to take advantage of transportation economics such as full truck load economies, and to benefit from sales incentives. Promotions often result in forward buying to benefit more from the lower prices.

Shortage gaming: customers order more than they need during a period of short supply, hoping that the partial shipments they receive will be sufficient.

Demand forecast inaccuracies: everybody in the chain adds a certain percentage to the demand estimates. The result is no visibility of true customer demand.

Free return policies

Countermeasures to the Bullwhip Effect

Countermeasures to order batching - High order cost is countered with Electronic Data Interchange (EDI) and computer aided ordering (CAO).

Countermeasures to shortage gaming - Proportional rationing schemes are countered by allocating units based on past sales.

Countermeasures to fluctuating prices - High-low pricing can be replaced with everyday low prices (EDLP).

Countermeasures to demand forecast inaccuracies - Lack of demand visibility can be addressed by providing access to point of sale (POS) data.

Free return policies are not addressed easily. Often, such policies simply must be prohibited or limited.

JIT Just-in-Time manufacturing

`Just-in-time' is a management philosophy and not a technique.

It originally referred to the production of goods to meet customer demand exactly, in time, quality and quantity, whether the `customer' is the final purchaser of the product or another process further along the production line.

It has now come to mean producing with minimum waste. "Waste" is taken in its most general sense and includes time and resources as well as materials. Elements of JIT include:

Continuous improvement.

Attacking fundamental problems - anything that does not add value to the product.

Devising systems to identify problems.

Striving for simplicity - simpler systems may be easier to understand, easier to manage and less likely to go wrong.

A product oriented layout - produces less time spent moving of materials and parts.

Quality control at source - each worker is responsible for the quality of their own output.

Poke-yoke - `foolproof' tools, methods, jigs etc. prevent mistakes

Preventative maintenance, Total productive maintenance - ensuring machinery and equipment functions perfectly when it is required, and continually improving it.

Eliminating waste. There are seven types of waste:

Waste from overproduction.

Waste of waiting time.

Transportation waste.

Processing waste.

Inventory waste.

Waste of motion.

Waste from product defects.

Good housekeeping - workplace cleanliness and organization.

Set-up time reduction - increases flexibility and allows smaller batches. Ideal batch size is 1item. Multi-process handling - a multi-skilled workforce has greater productivity, flexibility and job satisfaction.

Leveled / mixed production - to smooth the flow of products through the factory.

Kanbans - simple tools to `pull' products and components through the process.

Jidoka (Autonomation) - providing machines with the autonomous capability to use judgment, so workers can do more useful things than standing watching them work.

Andon (trouble lights) - to signal problems to initiate corrective action.

Five Operations Performance Objectives (Business Performance Measurement : unifying theories and integrating practice, Andy Neely)

Skinner (1969) originally proposed five operations performance objectives - quality, dependability, speed, cost and flexibility. These five objectives trade off with one another. United Biscuits should take care of these objectives as discussed below:

Quality

It measures the performance in terms of cost of quality and number of defects produced. Faigenbaun (1961) was the first to suggest that there are three types of quality cost :

a) Prevention Costs : Cost incurred on quality planning, supplier quality surveys and training programs as in the case of United Biscuits, prevention costs will be quality planning of biscuits, cost to check the quality of raw materials supplied by suppliers and costs incurred on training of its staff.

b) Appraisal Costs : Cost of inspection, test and checking control as appraisal costs for United Biscuits will be cost incurred on inspection of biscuits i.e. quality management, testing of materials as well as finished goods from lab etc.

c) Failure Costs : Costs increased due to discrepancies.

Speed

This performance objective means by doings things fast, to minimize the time between the order and the availability of the product and in case of United Biscuits speed objective will be time taken by company to deliver biscuits to the customer at the earliest and by taking care of supply network, company could increase its speed of production.

Dependability

This performance objective can be defined as doing things in time for customers to receive their goods when they are promised.

An other performance objective is speed, which means by doing things fast, to minimise the time between the order and the availability of the product or service that gives the customer e speed advantage.

The TMC's techniques are focussed operations that reduce complexity by using simple and small machines, which are robust and flexible. By rearranging layout and flow to enhance simplicity improves speed of production. On the coursework, statistics show that in the late 1980s, the output per worker was as much as two or three times higher than US or European plants.

Third performance objective is dependability that means doing things in time for customers to receive their gods or services when they are promised.

TMC includes 'Just-in-time' (JIT) production system with multi skilled worker that work as a team, and with 'kanban control' has allowed them to deliver products as promised. Improving efficiency and quality is a concern not only of managers and technical experts but also of all employees. So, by doing this, TMC gives a dependability advantage to its customers.

A clear result of responding to a dynamic environment is that organisation change their products and services and changes the way they do business. This performance objective is known as 'flexibility'.

(Peters, T., 1998) argues that we must learn to love change and develop flexible and responsive organizations to cope with the dynamic business environment.

In the TMC plant it means the ability to adopt its manufacturing resources so that it can launch new models. The coursework analyses that, Toyota was able to achieve high level of flexibility, producing relatively small batches of different models with little or no loss of productivity or quality. TMC during the years has provided a range of options that customers are able to choose.

One major operations objective, especially where companies compete with prices is 'cost'. Low price is a universal attractive objective to customers, which can be achieved by producing goods at lower costs. In order to 'do things cheaply', TMC seek to influence the cost of goods and services, so for the future TMC has planed to shift their production of multipurpose vehicles and pick-up trucks on different countries around the world (e.g. Argentina, South Africa). Also, internally, cost performance is helped by good performance in the other performance objectives that TMC has managed to produce high quality vehicles at a reasonable prices.

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