Dealing With The Vertical Integration Strategy Commerce Essay

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The case dealing vertical integration strategy of a frozen food retailer, its after effect and what are the steps taken by the company to overcome the draw backs. United Biscuits Frozen Foods vertically integrated with two leading wholesalers in the industry. After the integration as TFC-Sorge the company turnover has come down from 50m pa to 3m pa. The parent company assembled a new management team and appointed Mr. Stephen Graham-Weall as operations director to take necessary steps. They identified the major reasons for decline were failure to the facilities product range, systems and process, lack of customer services, poor condition of excess assets, unclear and inconsistent management structure, and poor external communication and poor buying power of raw materials. The operations director has the responsibility of all the changes to be done. Over the one year operations team achieved all the objectives of the firm to turn round the business. Along with the help of other team members company has come up to re launch the and transformed the company to a industry leading organization.

As a result the company achieved all the objectives while enhancing the customer service to achieve high business from the market. Re launched the business as Pullman Foods, which achieved the sales of 120 million pa within three years.

OBJECTIVES OF THE SUDY

This study specially designed to know how to make an operation and logistics system effectively to achieve higher growth there by to achieve overall objective of an organization. Apart from that the study taken into considers the following:

To know how to integrate the facilities of an organization and what are the benefits out of them.

To understand the importance of customer service.

To know how to manage and control inventory management system.

To understand what is the importance of an effective management structure.

To know what are the five operations performance objectives.

SCOPE OF THE STUDY

With increasing competition among the food manufacturing companies, the need to gain competitive advantage has become exceedingly imperative for their survival. From the customer's perspective, the recent developments like the mushrooming of large multinational companies and increased innovations in the field of food services have caused a great deal of indecisiveness in differentiating the products from each other in terms of their quality of service. This emerging scenario makes it necessary for the company to identify new ideas to satisfy their customers. This would facilitate the process of identifying new facilities to buy raw materials, enhanced manufacturing facilities by using machines and human resource effectively, good storage and distribution networks, and finally good customer service and after sales services.

SOURCES OF DATA

To understand the case and to propose possible solutions depth reading has been made by using available sources like inter net, books, magazines, periodicals, etc.

ANALYSIS AND INTERPRETATION

The case discussed about the vertical integration of a biscuit company and its impact. It is focused on the fact that what are the possible solutions which a food catering company has to take when it go for a vertical integration. The operations team of the company has identified the major reason for their decline in business. The major reasons for the failure were lack of proper integration of facilities, poor customer service, improper asset management, inconsistent management structure and lack of communication inside the organization and finally poor buying power of the purchase department. The company can overcome all the problems by the effective rectification of these problems. When we look into the following points we can understand the importance of integration of all facilities in operations logistics in detail.

Supply chain management

Supply network is a large umbrella, under which separate principles such as sales forecasting, purchasing, operations, information management, transportation and logistics and customer services are integrated for the greater good of the markets in which they operate. The supply chain encompasses every effort involved in producing and delivering a final product, from the supplier's supplier to customer's customer. A supply network consists of suppliers, manufacturers, distributors and retailers and finally customers whose combined efforts result in production, selling and delivery of products. By the proper working of these components will result a good performance of this biscuit company.

Importance of Customer Service

Poor in customer service is one of the main reasons for the failure in the market. Good customer service is the core of any business organization to achieve long term objectives of the organization. The company can make the customers more loyal to them by giving good customer service. So they should make a strong rapport with the customers by providing on time delivery of the products.

Good customer service is important as it's easier and cheaper to keep existing customers happy than to keep finding new ones. The staff also gets satisfied when they think that they are working with a organization which is valued by the customers.

Role of a Organizational Structure

An organization consists of a group of individual, working in coordination, at different levels of authority and different areas of specialization, for the purpose of achieving the goals and objectives of the organization. The individual need a well defined structure and system to synchronize and direct activities towards the organization's goals. There should be a clear cut management system. All the employees of the organization should know what his or her task to be done is and whom to be report. The management structure should strong enough to do the work and make others to do properly. The low level employees should know who his reporting person is. Likewise higher authority should know the people under him. According to Warren G. Bennis, the Foundig Chairman of the leadership Institute at the University of Southern California, "Failing organizations are usually over managed and under led." Even though an organization is bestowed with sufficient resources, in the absence of inconsistent and unclear management, it will not be able to function smoothly.

Healthy flow of communication is vital for effective functioning of an organization. In the absence of channels of communication, supervisors will not be able to give instructions and employees will not be able to what the management expects of them. The members should aware of all the available channels of communication. That channel must have access to all employees. Competent person in the company should be the communication center. So that he will communicate to all other employees. This will help higher involvement and interest of employees in the goal of the company.

Leveraging Buying Power

The purchase department is one of the key players in achieving the strategic objectives of a firm. It is responsible for activities like timely delivery of products of services, costs and quality of purchased items, and so on. Thus the purchasing manager must take great attention while undertakes the following activities: vendor development, selection of suppliers, value analysis. He should search for suppliers who are capable of supplying products that meets the firm's requirement, both quantitatively and qualitatively. To select a supplier from the list of vendors, a purchasing manager develops a list of satisfactory suppliers ask them for a quotation for materials. The selection is made after analyzing the ability of the vendor to deliver the items in the required quantity with the quality and promptness of the delivery.

Inventory Management System

Inventory refers to a stock of goods, commodities, or other economic resources that held by firms at a particular time for their future production requirements. Inventory management assists company in minimizing their inventory cost without compromising on their ability to respond quickly to the customer demand. Managing inventory can go a long way in improving the profitability of the company. Even though the company has too many assets they failed to exploit it. The top management should give complete attention on employees to make use of both the human power and machines. They can monitor the productivity of machines day by day. The old machines which are in poor condition should replace and maintenance of all assets should do regularly. By using the following methods the company can manage inventory better.

Computerization of records

Computerized system allows easy entry and retrieval of information, and few systems with advanced processing capabilities can help in the decision making process. Further the reduction in the cost of hardware and software systems has made it a viable alternative to a manual system.

Maintain records of inventory turnover

By maintaining proper records of inventory turnover the company can keep track of the amount of inventory being utilized in its operation. By comparing this amount with the industry standards, the organization can whether they need to change their inventory policies regarding fixing an order, cost of inventory, lead time, etc.

Balance data and educated guess work

Determination of the exact inventory requirement is not possible in many situations as the products like biscuit is completely depend on customer choice. Company may end up with too much or too little inventory. So the inventory requirement should be planned after taking to consideration both available statistical data and guess work based on the prevalent market situations.

Should have an ordering system in place

Proper inventory ordering system should be in place rather than just putting requisition when the inventory is finished. Person involved in orrdering should be competent and aware of alternative sources. Proper would allow firms in their purchasing so that they can take advantage of benefits offered by the vendors like discounts in bulk purchase. Moreover proper ordering system would ensure timely ordering and receipt of materials required in the production process.

Employees should be held accountable for inventory management

Employees should made accountable for tracking the inventory levels, accepting defective and substandard items, delays in receiving or ordering needed materials. The accountability on the employees makes them alerts while handling inventory matters.

Application of Five performance objectives of an operations system

While taken into consider the five performance objectives of an operation system in a biscuit company we can see that it has a vital role in the growth of the organization. The five performance objectives are: quality, speed, dependability, flexibility and cost.

Quality

A company which is dealing with food products like biscuit should place quality as first objective of the operations system. Quality in the sense providing conformity to the customers on what the company giving, it can be of product or service. Since it is a food product customers are more conscious about the quality aspects.

Another effect of good quality within operation ensures the customers who consume the products will have less or no complain about. And if they have no complaint about the product indicates they are happy with the products and more likely consume again. This brings in more revenues for the company and it finally resulted in the achievement long term objective.

If company able to assure quality this generally means that cost is saved, dependability increases and speed of response also increases. This is because, if an operation is continually doing mistakes, they will be in trouble to respond quickly to customers' request. So the quality should be monitor regularly the quality is not only in operations but also in all functional areas of the company, whether it is human resource aspects or after sales service.

Speed

Speed is important because it helps to respond quickly to the customers. The customers will take it as positively and they will again come to the company. It is easy to charge a relatively higher price when the service is fast. It will reduce inventory cost and avoid risk. The speed of operations makes the employees efficient and prompt.

Dependability

The core of dependability is giving products to the customers on time. Dependability is also having both external and internal effect. Externally the biscuit manufacturing company's immediate customers are business customers, on time delivery of the product will be an added advantage to cop up with a very competitive environment. So the dependability will increase the chances of customer returning with more business. When we taking into consider existents of dependability inside the organization there is a chance of reduction in cost by saving time and improving efficiency.

Flexibility

Flexibility is a crucial objective of an operations performance. Flexibility means ability to change an operations system when it required. Flexibility can be done by product/service flexibility, mix flexibility, volume flexibility and delivery flexibility.

Product/service flexibility helps the company to design their products according to the customer taste. It can be done by giving suggestions to the manufacturing firm. Suggestions can be in the form of to add new flavors to the biscuits, changing the type of packaging, shapes etc. Giving special gifts and offers to the customers will increase the sale of business. They can use retail outlets also as their customers to penetrate in the market. Providing additional attention to get attractive displays in the shops will also help the company to do their business profitably.

Since the company dealing with food catering services, the volume and delivery flexibility have a higher impact on the business. Volume and delivery flexibility helps the company to provide products according to the wants and needs of their customers. The company can make sure that the customers are getting their products when they want and where they want. So the customers' may feel that the company's products and services is more customer oriented. The customers also feel that they have get higher consideration from the company. Delivering the biscuits by understanding the customer needs will help the company to retain the existing customers as loyal and to attract new customers.

Cost

Along with the effective management of dependability, quality, flexibility and speed the company can take necessary steps to reduce their price. Reduction in cost will help the company to make product available to the customers at a lesser price.

SUGESTIONS

The company has to take the following actions to turn round the business and there by to re launch.

Integration of all components supply chain starting from identifying a good partner for producing their food products to selling will helps the company to increase the volume of business.

The Company should provide higher importance to the customer service. The customer service can be in the form of:

Make the customers loyal

Appoint a customer service team

On time delivery of Products

Word of mouth is a powerful method of marketing and a happy customer will most likely refer their friends and relatives to a company that they have had a good experience with. They will be loyal and keep coming back to the company. The research shows that the unhappy customers will tell at least to nine people about bad about the product. Spreading bad news in this way undermines a business and damages its reputation. The company can give special gifts and offers to the retailers to encourage their customers to but the product.

Appoint a customer service team

The company can appoint a customer services team who will be responsible for dealing with customer complaints and queries. However every member of staff needs to take ownership of customer care and be proactive when dealing with customers so that problems do not arise.

On time delivery of Products

Products should customer centric

Set a target to employees

Employees must also be considered when setting internal targets and key performance indicators (KPIs).

Giving regular Training to the Employees

Training is also very important. Every employee must be aware of their company's customer care values and be empowered with the knowledge, resources and skills to provide excellent customer care. There are many customer services courses available to help businesses train their staff. This can help give employees listening skills to understand what the customer wants as well as how to manage expectations and say 'no' when necessary.

Conduct customer service surveys

Conducting customer service will help the company to the taste and preferences of them. Surveys At the end of the day the customer is the only person that can tell you what they want and how well you are doing at providing that. This makes research perhaps the most fundamental thing in providing good customer care. Focus groups, surveys and testing panels are good ways to get to understand the customer and what it is that they need and expect.

All the employees should aware about all activities and overall objective of the organization. The management structure should clear and consistent.

The company can adopt Total Quality Management System to ensure quality in all aspects of their operations. The cost can be reducing by identifying new sources to transport their products at a cheaper price.

The company should give special assistants to newly bought wholesalers to buy their products at a cheaper rate while stick on to quality.

The purchasing manager can use yellow pages, websites, and news papers, business journals to identify new vendors. He can select vendors by using vendor rating. Vendor rating is a scientific ranking technique, under which purchasing manager's rate vendors according to their performance. to start with it the purchasing manager identifies the factors that are important for evaluating the vendors. Then each of the vendors is scored on a scale (usually 0-10), with reference the factors considered. Then the score of the each factor is multiplied with the appropriate weight to obtain the weighted score. The vendor score is calculated for the all vendors and the vendor who gets higher score is selected. Suppose the purchase manager of a biscuit firm can consider quality, delivery, cost, reliability of service, and production capacity as important factors to evaluate vendor's performance. The weights assigned are 8, 7, 5, 3 and 2 respectively. The score given to a particular vendor is (8*6) + (5*5) + (3*4) + (2*6) =153.All the vendors are given the score and vendor score is calculated for each vendor. Then the vendor whose score is highest is selected. To make the most economical purchase of products, and to establish a long term relationship with the vendor the negotiation should be effective regarding price, quality, technical specification, delivery schedule, freight payment , payment terms etc.

The company can make flexibility in products as well as services to attract more customers

CONCLUSION

The case discussing about a situation were one of a food service company named United Foods Frozen Foods has loosed its market share after vertical integration with two leading wholesalers in the industry. After the combined effort of all the members of the company they come up with re launch. They took Critical Action Plan to make the company as industry leading organization. In order to withstand the tough competition in the market a company should integrate all its facilities starting from sales forecasting, raw material procurement to the after sales services. The buying power of the company should be effective to get quality and cheaper products from the organization. The manufacturing system should be effective appointing skilled employees and giving proper training to them. The machines of the company should monitor regularly. The logistics and inventory must get extra care to increase the productivity of the organization. There should be a friendly relationship between the top management and lower level employees. The communication system inside the organization should be better. The company should treat customer as a king. The products and services offered by the company should be customer oriented. In order to stand long term the company should make customer loyal. An operations performance concentrates on quality, dependability, flexibility, cost and speed of all activities of the organization.

Bibiliography

Books

Adam, Everette E and Ronald J Ebert, Production and Operations Management: Concepts, Models and Behavior. Fifth Edition

Chopra, Sunil and Peter Meindl. Supply Chain Management: Strategy, Planning and Operations.

French, Wendell L. Human Resource Mnagenent. Third edition

Kotler, Philip. Marketing Mnagement. The millennium edition.

Lee, Sang M and Schniederjans Marc J. Operations Management

Sandagopan, S. ERP: A Managerial Perspective.

Schonbrger, Richard J and Edward M Knod, Jr. Operatins Management - customer focused principles

Articles

Baljiko, Jennifer, "Palm Gets a Grip on its Supply Chain." Ebnonline 18 Februaryn2003, CMP Media, 19 Feb 2009.

Brooame J Tol, Jr "The Benefits of Smart Inventory Management". http://www.findarticles.com/cf_o/m1154/6_8754695720/p1/article.jhtml?term=inventory management.

www.wikpedia.com

Marine Edward J, "Demand Planning And Sales Forecasting: A Supply Chain Essential." http://www.uwexceed.com/supplychain/pdf/Marien2.pdf

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