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I have been hired as a Consultant by Ogel Corporation to undertake a thorough analysis of its operations, identifications of any flaws in their operations and suggestion of Management, Planning and Controlling Tools and Techniques to improve the efficiency and effectiveness of their operations resulting in excellent business performance.
The Company manufactures two types of products differentiated in colours Red (R) and White (W). The finished products are assembled of raw material which is available in three shapes for each colour.
R4 (here four denotes four pips on each brick) and R8 Bars and W4 and W8 both available in five bricks each costing 1p per brick equalling 5p for each Bar.
R6 and W6 available in single brick with burr attached on top costing 1p.
The finished product in Red is made up of four bricks of R8 and one each of R6 and R4 and is sold at a price of 25p. Same raw material is used for White as well. Other costs include Factory overheads 30p per week. If a product is delivered one week late of its scheduled time, there is late delivery penalty of 4p per week.
1.2Ogel Operations and Management Team:
The company has following operations and managerial roles.
Sawing 1: Detaches R8 and W8 in to single bricks.
Sawing 2: Detaches R4 and W4 in to single bricks.
De-Burr: Detaches burr (Blue brick) from R6 and W6.
Welding 1: Assembled four brick on top of six to make upper half of the product (R Top and W Top).
Welding 2: Responsible for making lower half of the product by combining four isolated eight bricks (R8 and W8).
Customer Services Manager: Responsible for keeping note of every finished product delivered and informing the team of all the future demand scheduled to be delivered.
Purchasing Manager: Responsible for purchasing raw material.
Finance Manager: Liable for handling financial matters and credit receivables.
The team has to fulfil demand for continuous sixteen weeks, it has initial investment of 60p. Operational units cannot manufacture Red and White simultaneously except for Final assembly. Each time company changes colour of the product it has to miss a turn.
1.2.1 Push Control Manufacturing System:
"A term used in planning and control to indicate that work is being sent to workstations as soon as it is finished on previous workstation" (Slack N, Chambers S, Johnston R, 2007)
Activities in push system are processed according to centralized planning system. As soon as processing on product in one workstation is finished it is shifted to the next workstation regardless of the demand made. Push system of produces products on the basis of customer demand and forecasting of future demand. Company tries to produce to its fullest extent making using of all its resources which results in huge level of stocking. Push system follows the patterns of MRP Material Requirement Planning system which also works on planned schedules of orders and usage of centralized operational planning. Disadvantages associated with this traditional manufacturing system are waste of capital and resources, it is usually very difficult to match demand for such high level of production, high warehousing cost etc.
2.0 Analysis of Ogel's Operations:
By detailed analysis of Company's operations, following flaws have been observed in its operations.
2.1 Complicated Layout Structure:
. Ogel Corporation layout structure is very complicated, there are few delays in flow of material through different workstations. First there is one week delay when raw material moves to raw material store, second week's delay is due to existence of transit location between De-Burr and welding 1 workstation. Due to complexity of layout structure, effective planning ahead of time could not be executed resulting in unmatched semi finished products i.e R Base and W Tops in welding output queue area due to final assembly.
2.2 Workcentre with lowest output capacity (Bottleneck):
Bottleneck is a term used to denote to any processing unit or resources which is working at its lowest output capacity in compared with actual demand required of it, thus limiting overall company's capability to produce output. In order to avoid bottleneck situation, company should distribute its resources and tasks equally among different units.
Ogel Corporation is using push manufacturing system which allows workstations to produce output at their maximum capacity. Push system enables units to use all the resources available to convert in to output resulting in higher levels of work in process and depletion of financial resources available to the company. The goal of the company is meet demand of the customers for whole 16 weeks, where high amount of semi finished products in the workstations and lower cash flow would not help Ogel Corporation in achieving that goal.
2.3 Long setup time:
Setup time is defined as the time required in preparing an equipment of a process unit to produce a batch lot.
Ogel Corporation has very long setup time. It should realize that its welding 1 unit has the lowest output capacity so it should focus its attention, time and resources to this unit. Also operational units had to miss a turn in switching of colour of products resulting in delays, long setup time and also long lead time.
2.4 Variety in Raw Material sizes:
Variation in raw material size is making manufacturing at Ogel Corporation more complicated. For the smooth running of production it is ideal to have less variation in size and shape of raw material.
2.5 Problems of Bonus Schemes:
The bonus scheme introduced in Ogel Corporation is in complete contradiction with the goals of the company. Company is using push system of production which imposes no limitation on work in process level produced by each unit. This means if non-bottleneck workstations produce at maximum utilization capacity consequences will be high level of work in process resulting in poor cash flow, waste of resources and company ending up not meeting the customer demand.
3.0 Effects on Business Performance:
The problems associated with Ogel operation has following adverse effects on its business performance.
3.1 More Time Required for Planning:
The time allowed to Ogel management to plan a strategy was very short. Team members were not familiar with complexities of layout structure of the factory which made planning and controlling even more hard to digest. Along with complexity of layout there were other issues like variation in shape and sizes of raw material, delays in the form of faulty layout structure eg existence of transit location between De-Burr and Welding 1, familiarity with costing system and penalties associated with late delivery, lack of initiative on the part of team management on addressing important issues, lack of coordination and communication. All these issues need a thorough comprehension for which time was insufficient, which resulted in poor output rate ultimately leading to customer dissatisfaction
3.2 Lack of Communication and Coordination:
Due to complexity of layout structure as mentioned earlier, coordination between the team members was very poor. Layout design and selection plays a very important role in helping team cooperate with each other towards the achievement of organizational goal. It should be designed in such a way that execution of job tasks performed by each unit should be in harmonious order.
There should be synchronization of efforts between the team members towards the achievement of common goal, which is lacking in Ogel's operations which resulted in lower output rate and customer dissatisfaction. Plans should be mutually discussed in order to find solutions to problems. And there was no sense of control by team members as there was huge gap in team's actual and required performance.
Another important thing which is essence to success of any organization is effective communication between the team members. Communication is the comprehension and exchange of information by different modes (via voice, pictures, electronically). For a firm to achieve success it is very to important to use excellent communication channels both internally ie between the management and externally between employees and customers. If the communication system of the company is poor the consequences are very hazardous to success of the firm. Poor communication system leads to ambiguities between the team members, inadequacy of valuable data, reduction in employees' performance and overall decrease in company output rate.
The Ogel Corporation is suffering from same scenario ineffective communication between team member, unavailability of data, lower employee and company output rate.
4.0 Recommendations for Change:
Following are the recommendations for the improvement of Ogel corporation operations.
4.1 Need for Proper Planning and Controlling:
"Planning and control activities provide the systems, procedures and decisions which bring together different aspects of supply and demand" (Slack N, Chambers S, Johnston R, 2007)
It enables us to compare supply with demand and smooth running of operational activities to meet customer needs by providing them with high quality, low cost products and services. Planning is very important for any organization, it helps us by providing vision of the future activities and turning these activities in to customer needs by providing them products and services.
Planning alone does not always provide the desired results, because it is related to anticipation of future activities and there is fair amount of uncertainty associated with future planning. Circumstances change with the passage of time, demand of the customer change, production process failures, employee turnovers, financial crisis, external environment factors and so many other factors affect our planning. To make sure we do not deviate from the planned objectives, control helps us co-op with those changing circumstances.
For proper planning and control following activities are absolutely necessary for the success of an organization.
The amount of work distributed among each department is known as loading. Loading is basically equal and coordinated distribution of task among different units. For that purpose availability of important information about each workstation regarding resources and facilities available at firm's disposal is very important. For example the number of employees in each department, machinery and facilities can help an organization in allocation of work to each unit.
The execution of work according to the set priority of each task is sequencing. Sequencing varies according to the nature of each business, but prioritization of work is must in every organization. Sequencing of task is done in number of ways.
Nature of raw material determines in what order each task should performed For example, In assembly of an automobile vehicle each part is assemble in a set order, the cutting and painting of metal, then forming metal in body structure and assembly of other part in to that structure determines the priority of each task performed one before other.
Meeting the demand of important clients first is another form of sequencing. Prioritizations of task in order to meet deadline or according to due dates is also sequencing.
The scheduling provides answers to questions like what, when and where task of the company should be performed through detailed calculations and schedules. The tools which are used for that purpose are forward and backward scheduling, Gantt charts and rostering.
4.1.4 Monitoring and Controlling the operations:
To ensure that planned activities are followed and that there are no deviations from plans, monitoring and controlling of such activities is very important. Comparison of actual performance with planned and rectification of any deviations is the role of monitoring and controlling.
4.2 Kanban and its Benefits:
Kanban was created by Japanese manufacture which uses pull control system. It was originally created to implement the concepts of just in time (JIT) system. Kanban is made up two Japanese words "Kan means Card" and "Ban mean Signal". The main idea behind using kanban is to control inventory by visual card signals, as the material is only supplied to manufacturing unit when there is customer demand for it. This results in effective use of resources, reduced waste of raw material, optimal level of work in process in units, workstations are much more adaptive to changes, less costly in comparison with system using high technology, short lead time and cycle time.
One Card System
This is a signal from workstation to supplier to send more stock.
Benefits of Kanban:
Following are the benefits of Kanban system.
4.2.1 Reduces Inventory to Optimum level:
Kaban uses pull system which reduces inventory significantly, material is not acquired in workstation until there is demand for it which reduces storage cost rent, labour cost, free cash in hand to invest in other potential opportunities, handling of fluctuation in prices of raw material.
Other benefit of kanban is that product can be designed and created according to latest changes occurred in the market since the product is processed when customer demands, so this allows extra time for any late adjustments.
4.2.2 Identification of Problems:
There is a quick of identification of problem in manufacturing units with the usage of kanban visual signals.
4.2.3 Reduces Lead and Cycle time:
Kanban uses pull control system which specializes in usage of raw material and resources according to demand of customer, thus reduces work in process levels in workstations which results in short lead time and cycle time and customer satisfaction.
4.2.4 Reduced overall cost of production:
By reducing overstocking, avoiding waste of raw material and resources, staff cost, increasing lead time which bring in more business, reducing factory overheads allows a firm to reduce its overall cost of production.
4.3 Importance of Good Layout:
The layout of company is usually defined as the act of positioning transforming resources and devotion of different task to these resources by layout. (Slack N, Chambers S, Johnston R, 2007)
A good layout structure should ensure safety for both transformed and transforming resources. The flow of transforming resources should be clearly defined and access of these resources to transformed resources should be made easily available. For example distance between two workstations should not be that far from each other. And flow of raw material processing through different units should be clarified through signboards. Layout should assist in providing staff with pleasant environment it should be noise free, clean and safe for working condition. It should also ensure free flow of information, provide assistance in administration of activities and communication.
The layout structure of Ogel Corporation is very complex, which made planning and achievement of its objectives very difficult. Layout should address the different needs of staff, facilities, help in smooth flow of raw material and other resources, facilitate communication between the team member, which is none to be found in company's current layout structure. A more appropriate approach is the redesigning of company's layout structure though Business Process Re-engineering (BPR).
"Business Process Re-engineering is an approach used in fundamental, radical, dramatic process change, over short time horizons" (Brown S, Blackmon K, Cousins P, Maylor H, 2001, pp 325-326)
BPR is detailed observation of any business, its objectives, activities, layout of its workstations, the kind of facilities it uses (machinery, plant, equipment) and the nature of its finished products and developing a new design and structure that best suites the need and nature of that business thus providing it with a leverage with new layout structure.
4.4 Importance of Teamwork:
Now a days teamwork in organization is becoming much more popular than individual efforts. Even more, group members working in a team are preferred over departmental work because of integrated efforts and quick results. Contributions of work done by each team member is of high quality and efficiency in comparison with individual undertakings. Products produce through joint efforts of team have relatively high success rate and customer satisfaction as team much more attentive to customer needs and market trends. This is the reason organizations presently prefer team work for the innovation of development of new products. Recently a lot of successful companies like AT&T, Proctor & Gamble, Federal Express and General Electric are adopting team work environment for the achievement their goals. For the success of any team there are four pre-requisites.
Team work is a collaborative effort, team member should join their heads in the achievement common goal.
There should be continuous communication and exchange of information between the team for the identifications of problems and providing solutions.
Efforts should be in coordination with each other.
4.5 Just in time (JIT):
JIT is "A method of planning and control and an operations philosophy that aims to meet demand instantaneously with perfect quality and no waste" (Slack N, Chambers S, Johnston R, 2007)
Ogel Corporation should use Just in time manufacturing system to reduce excess level of work in process, wastage of resources and cash, unnecessary overstocking of finished goods, warehouse overheads.
4.6 Reduction in setup time and lot size:
For ideal output rate the setup time should be kept at minimum as much as possible. This can only be known by observing which machines are not producing efficiently and limiting the overall output of the company ie the bottlenecks. These bottlenecks are liable for causing delays in meeting the customer demand. So company should focus its attention and resources to reduce setup time of such machines.
Setup time is directly related to lead time, thus reduction in setup time will automatically reduce lead time which results in high customer satisfaction which is an important factor in success of any organization. Reduction in lead time has another benefit as it reduces the level of work in process in each unit, thereby reducing batch size and increasing cash in hand. So by reducing setup time of bottleneck units Ogel firm can reduce its batch size and lead time which will increase output rate customer responsiveness.
4.7 Reduction in Lead and Throughput time:
It is in the benefit of Ogel organization that its lead and throughput time should be at its lowest level. If customer does not get a product in the desired time frame this proves harmful the image of a business, and long lead time is main cause to it. Same is the case with throughput time if a product spend a lot more time in workstation in form stocking or product quality testing or machine failure it is additional loss for the company as its fixed cost tend add up.