Operation Management Problems At Classics Cabinets Management Essay

Classic Cabinets makes two lines of products, they are custom made kitchens which is traditional product and its one-off and small batch, another is builders kitchen line which is the new product and its quantity manufacture for each a payment work.

Operations traditionally refers to the production of goods and services separately, although the distinction between these two main types of operations is increasingly difficult to make as manufacturers tend to merge product and service offerings. More generally, Operations Management aims to increase the content of value-added activities in any given process. Fundamentally, these value-adding creative activities should be aligned with market opportunity (see Marketing) for optimal enterprise performance.(Ackoff R, 1957)

The builders kitchen line is the high quality standardised kitchen lines that the company is making on an increasing basis. They traditionally made only custom made kitchens(that is, made to individual customer preferences and specifications), which they still do. The issue is that they now have 2 separate product lines (standard (the builders line and custom made) and custom made kitchens, each will require their own forecasting, scheduling, production lines etc, hiope this helps

The Scheduling trade-offs in the case study refer to the fact that the company doesn’t have sufficient resources (space, machines, labour) to do all the work they currently have so they have to make a ‘trade-off’ between the custom jobs and the builders line and prioritise or choose which one to work on (schedule) at any given time

Operations management is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient in terms of using as little resource as needed, and effective in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labour and energy) into outputs (in the form of goods and services).(Ackoff R, 1957)

With starting any business, a business strategy must be set. This is a set of plans and policies to ensure the organisation will be superior to others, be able to do well in the market and against competitors, and thus be able to grow and expand the business (Gardiner 2006). One of the first steps involve better understanding the environment the organisation intends to set up in – this would determine resources, customer needs, and what competition the organisation will have. This research before set up the company is critical as this will make sure that the company will be in more control, better prepare with operations and have a higher chance of being better than other same companies. The main basic to achieve when starting a business are to provide good quality products/services at reasonable prices, and with the best customer service. In this way, we can achieve customer satisfaction and this is the most important factor that helps to expand a business.

At the start, in businesses and other organizations, internal reporting was made manually and only periodically, as a by-product of the accounting system and with some additional statistic(s), and gave limited and delayed information on management performance. Previously, data had to be separated individually by the people as per the requirement and necessity of the organization. Later, data was distinguished from information, and instead of the collection of mass of data, important, and to the point data that is needed by the organization was stored.(Nguyen D, 1998)

Early on, business computers were mostly used for relatively simple operations such as tracking sales or payroll data, often without much detail. Over time these applications became more complex and began to store increasing amounts of information while also interlinking with previously separate information systems. As more and more data was stored and linked man began to analyze this information into further detail, creating entire management reports from the raw, stored data. The term “MIS” arose to describe these kinds of applications, which were developed to provide managers with information about sales, inventories, and other data that would help in managing the enterprise. Today, the term is used broadly in a number of contexts and includes (but is not limited to): decision support systems, resource and people management applications, ERP, SCM, CRM, project management and database retrieval application.(Nguyen D, 1998)

Business should tightly control the purchasing function as its decision on volume and ordering time will affect the location and stock levels of inventory. And the location and stock levels of inventory ill affect quality, flexibility and lead times. Incorrect and delay information will result inventory in wrong place and place time (Gardiner 2006, p.18).

Modern business information system (BIS) can provide real time control and measurement for both procurement and inventory department (Kroenke 2009, p.67). How much parts should be ordered and when them should be order can computerized by stock control system. Then the dealership should use an transaction monitor device to record the position, status and possibly values of the stocks. Finally, inventory control system can generate regular reports of stock value for different items. It can also record the number of stock-outs or the number of incomplete orders (Slack C, 2004).

The project manager effectively involved in the project which under a limited resource constraints and use the right methods and theories. From the project beginning to the end, they should planning, organizing, directing, coordination, control and evaluation, to achieve the objectives of the project. Members of different departments make a team for the project, project manager is the leader of the project team. Their responsibility is to lead his team on time, quality completion of all work, to achieve project objectives within budget.

For example, if you do not know whether it will rain tomorrow, then you have a state of uncertainty. If you apply probabilities to the possible outcomes using weather forecasts or even just a calibrated probability assessment, you have quantified the uncertainty. Suppose you quantify your uncertainty as a 90% chance of sunshine.(Wang G, 1990) If you are planning a major, costly, outdoor event for tomorrow then you have risk since there is a 10% chance of rain and rain would be undesirable. Furthermore, if this is a business event and you would lose $100,000 if it rains, then you have quantified the risk (a 10% chance of losing $100,000). These situations can be made even more realistic by quantifying light rain vs. heavy rain, the cost of delays vs. outright cancellation, etc.(Wang G, 1990). The project manager should prepare for any uncertainties and variables because every forecast has marginal error. Unexpected demand and variables of purchasing can have impact on inventories and affect the service level (Gardiner 2006)

The critical issues we found after a fine analysis are less strategic production layout, workload burden on current staffs, inefficient work flows, etc. Thus, the manager should maintain the competencies by implementing the initiatives such as balancing the production lines with changing demands, re-scheduling the workload in daily operations. If they remain on these issues, the balance sheet will be affected in inventory, accumulated depreciation, GST control and equity-profit.

The term Production and Operations Management (POM) naturally represents organized process of producing goods and services. It is essentially the way of making things, such as manufacturing a product (Young 2009). The manufacturing industry contains typical cases in exploring operation management theory. Even in U.S. over the centuries, a declined workforce was involved in the manufacturing industries and no one could deny the positive contribution (80%) to country’s GDP from growing service industry (Sprague 2007). However, the 2004 Boston Annual Meetings of the Decision Sciences Institute stated that 80% of the core courses in operations management were still focused heavily on manufacturing, which showed a mature operation management in manufacturing area (Heineke & Davis 2007).

In the new era, the manufacturing operations were evolving with the support of business strategy and computer-based operation systems. The modern business world has reviewed the hidden lessons behind Japanese production management (JPM) phenomenon and found their leading practices becoming a global competitiveness (Sprague 2007). For example, Toyota has the best practice of introducing the operational excellence as a strategic weapon for improving processes, teamwork and quality via customer orienting and empowering employees while reducing operation costs and wastes (Liker 2004). Thus, a smart operation strategy as well as highly performed operation systems will enhance the business competiveness.

Based on the evolution of manufacturing operations and operation issues faced by Classics Cabinets, it is critical to concentrate on processes that add value to customers’ desired cabinets. The operation strategy can be seen as a functional strategy conducted by business strategy and it is widely shared that the strategic operation can offer a source of competitive advantage (Hayes et. al 2005). Classics Cabinets’ operation performance objectives could timely react to the changing needs of customers, which indicate that they were market-led company. Their managers, who have no clear self duties, could not focus on consistent objectives, thus, their operations were not able to provide a long-term source of competitive advantage. So when demands in new manufacturing line boosted, it hit the business and questioned their operations on a basis of limited capabilities and resources (Reid & Sanders 2007).

Generally, as a manufacturing company, they could not consistently address core competencies in the operations, such as experienced workers, efficient systems, creative products, flexible facilities, etc., showing how their cabinets win orders in the market place (Slack et al. 2004).

The operations strategy helps to divide the operation requirements into two areas, named structure (production process) and infrastructure (operation system). Regarding to the case, the Classics Cabinets has applied the basic open operations system. They first source the raw material from their suppliers. Then, they should have a location to produce the products and after receiving the materials, use a system to assemble the new cabinets. Here, as a manufacturing company, the operation is a transforming process converting a set of raw materials (inputs) into final cabinets (outputs). There are other resources that will go through the transformation process, such as labours, capitals equipments, etc. (Young 2009). Finally, the products would be delivered to a growing diverse client base.

In an open system, the transformation process was mainly relies on customer feedback to ensure what they manufactured catered for the outside environment. Traditionally, Classics Cabinets only produced custom-made kitchens for customizing individual needs, which would consult with Anh, the master cabinet maker as well as the production and operations manager, before they put the design into the manufacturing line. In this condition, they knew their clients well; they could satisfy their specific needs 100%, so there were no needs worrying about whether the environment matched with the products. However, as the business’ growing, they added another production line, which was builders kitchen, which aimed at dealing with low volume contracts. Thus, the market environment changed, these small ‘spec’ builders required standardized kitchen cabinetry with high quality, good price and stringent delivery service. Therefore, they should take more notice of operation processes.

Indeed, the product requires completion of certain tasks being carried out by work stations and flow lines consist of linked work stations. The Classic Cabinets had mixed multi model flow lines, which were designed for assembling two or more different models on the same flow line. There raised a strong balancing needs when every repetition of the task is carried out by same work station and when small volume of two or more sizes’ cabinets are produced through mixed model lines. As the company had limited manufacturing facility and sound quality from individual cabinetmakers, we assume the stations were closed and all cabinets could only be made inside its boundaries. This means the worker cannot finish his work in another station, he need to compete both custom and standard cabinets for processing time on the same equipment by the same craftspeople. Thus, the cabinets may transfer from lower boundary to the upper in the boundaries where the cabinet-making tools or equipments were placed (Bautista & Cano 2008). Referring to the old manufacturing process, the custom-kitchen was always given the priority because of its high sales and margins. Nevertheless, based on the continuous boosting of the business, during the past few months, the Classics Cabinets met a sharp sales growth in builders’ line, which suddenly increased staffs’ workload. In this case, the Classic Cabinets faced a lack of workforce and common work methods for the increase of demand in builder’s cabinets. When people is a key enabler in the operation process, the best amount of workforce with the proper common work methods could brought a positive change to the production (Marksberry, Badurdeen & Maginnis 2011).

In addition, production layout will help in selecting and arranging raw materials, equipments and processes, which may ideally lead to a reduction processing time according to the flow of value-added operations (Iqbal & Hashmi 2001; Marksberry, Badurdeen & Maginnis 2011). As a result of maintaining the flexibility of satisfying both manufacturing lines, the factory layout had various equipments grouped together, which were strategically placed in sections based on the frequency and importance of use. However, due to scheduled standard cabinet components were left around in different stages of completion, the volume of work in process had increased while occupying the limited space. This brought about a rise in costs of inventory for renting expensive public warehouse.

As a consequence, the inventory challenging underlined the uniqueness in equipment where the company could not maintain a constant processing in a various product base (Marksberry, Badurdeen & Maginnis 2011). Moreover, there was a fact that the lead times had gone up for both custom and standard orders, which caused longer promised delivery times that generated more inventory and ran far away from actual orders.

According to the case, it is obviously that the resources such as the capital, labour, delivery condition is constraint and consideration time for incremental changes to keep the sustainable production growth is the shorter the better. Thus, Chinh Chu, as the production and operations manager, shall think seriously about the daily operational decisions as follows:

Firstly, arrange the proportion to organize the manufacture of custom-made kitchen and standard kitchen according to the short-term customer demand in currently. As BX Zhang (2008) asserted that customer demand accompanying with the degree of production capacity can have the great influence on the budget, efficiency and profit margin of a company on the condition that the demand from the market was fluctuating. It can be articulated that both long-term and short-term demand goes up and down frequently, which directly affects the decisions about the product mix, the maximum amount of capital invested in each products with the same capability and core competence. Under the current data evidenced custom-made kitchens occupied the 75% of the company’s sales revenue and 60% of total product volume, it is rational and reasonable for Chinh to believe and forecast in the short-term, most of customers remain choosing custom-designed kitchen as their first-choice. And promoting the standard kitchen is also feasible for business growing. In addition, allocate the money and resources priority on the custom-designed kitchen as the main source of the revenue and key competitive advantage comparing with other rivals in the same industry. Definitely, if Chinh does not make the right decisions on the production portion of the each individual product, it is hard to estimate accurately on the quantity of the inputs should be needed in the current production.

Secondly, arrange and control the production schedule of custom-designed and standard kitchen line. In the current operation condition, that is no more advanced technology brought in, no additional capital invested, no more production facilities and factories utilized, Chinh should be careful to make the decision on the schedule of production including the due date of each job, arrange efficiently on manufacturing both products without leaving any idle time. Shisheng Li and Jinjiang Yuan (2011) believed jobs in the same group are recommended to operated in one machine continuously, in order to increase the efficiency and reduce the possibility of wasting time and money resources. As the case mentioned, now saws and cutting tables are in one section, routers and shapers in another section. And some less frequently used machines are kept away from the working area. Chinh has the responsibility to determine and valuate the factory layouts to facilitate the custom-kitchen production and strict the time to achieve this change. What is more, Chinh also shall ponder no production conflict happening in the future. It is possible that in the short term under some criterion, the demand for kitchens will rise dramatically such as real estate industry booms quickly in the Springvale. So how to arrange the operation of the standard kitchen without distracting the production of custom designed kitchen under the condition of the limited and scarce resources and time is the critical problem for Chich to solve. If he does not tackle it well, the whole due date of assignment will be delayed, delivery time to customer delayed as well, resources may be idle in certain time to take up the warehouse and increase the some direct and indirect costs, for instance labour costs and administrate costs related to inventory respectively.

The last but not the least, Chich shall make the decisions on the scheduling of the workforce and adjustment on employment level in the daily operation. Because during the competing time, both custom and standard kitchens are processed by the same machine and by the same craftsmaker, Chich should consider the workload and work stress factors before set the shifts rosters for the employees. To reduce the labor costs, Classic Cabinets combine the similar processes between two product lines into the same jobs. Once the company gets the high volume orders of either custom or standard cabinets, employees will in the fierce working environment, some mistakes happened unconsciously and job satisfaction will be dropped dramatically. The internal operational management will be crashed by poor employee satisfaction and high staff turnover rate. Furthermore, how many full-time, part-time, contract and casual workers should be employed is also a critical issue for Chinh to think about. Different levels of workers can bring a large number of advantages for company, such as balance the work and life for employees, increase employees’ company loyalty and bring more qualified values to the customers or the end users like shorten the delivery time and reduce the defective rate.

When Classic Cabinets bring into the Builder’s kitchens, the positive and negative effects lead company’s financial structure a different way in four areas: inventory, accumulated depreciation, GST control and equity- profit.

Inventory, company’s assets, will increase after introducing the standard kitchen. The source of this increased amount comes from three facets: raw materials supporting and maintaining the standard kitchen’s daily production and operation; work-in-process goods which are left behind the custom-made kitchen in variety process of completion should be stored in the warehouse to wait for assembling and the finish goods waiting for delivering to clients. There is no doubt that this frequent inventory transaction will be increasing continuously if no improvement in the factory layouts and adjustment on the production lines.

Accumulated depreciation on equipment probably grows slightly. As Shirley Carlon (2008) quoted from AASB116 about plant, property and equipment, “depreciation is the process of allocating to expense the cost of a PPE asset over its useful (service) life in a rational and systematic matter”. Because the company’s production objective is conduct the standard kitchen line with no violates the priority of the custom-design cabinet production. Because the due date is fixed and no more equipment acquired, the original machines should be fully used and definitely will reduce its’ useful life. While the costs of those equipments are settled, depreciation will increase, so as the accumulated depreciation do.

GST control will literally increase. GST is the short of goods and services tax. It can be divided the concept into GST paid for suppliers and GST collected from the customers (Shirley Carlon, 2008). As Shirley Carlon (2008) mentioned every business transactions includes the GST from the suppliers to the consumers. As the manufacturer, Classic Cabinet will purchase some components and raw materials from the suppliers generating the GST paid, and sold the standard kitchens containing the GST collected. No matter how much amount they will reach, it surely will raise the liability of the company in the GST control catalogue to some extent.

Equity-profit possibly is negative. Although the standard cabinets have some potential to grow further, the costs apparently are higher than the custom ones. As the result of producing all custom components prior than standard ones, standard components should be moved to warehouse. Many costs can be recognized including the delivery fees, the rent expense for warehouse, the labour costs to secure and maintain raw materials, work-in-process and finish goods’ sound quality, some sundry expenses such as electricity, additional depreciation expenses associated with adding the builder’s cabinet line, and administrative costs related to monitor and control processes. If the total profits are not larger enough, it probably makes the loss by deducting those costs. Nevertheless, based on the current sales condition that majority of revenue attributes to custom-kitchen, the possibility of getting the positive results is still very high with no advent of some unpredictable variables.

To conclude, based on analysis of Classic Cabinets’ current production systems and processes, it is obviously to indentify the problems in the operation management after brought into the Builders’ kitchen, like inefficiencies on the factory layout especially on the inventory section, low efficiency on arrangement of the equipments to produce both lines, and increase employees’ workload. So Chich should consider three parts in the daily-operation decision making: arrange the right proportion of each line according to the market short-term demand, schedule of the production and schedule of the employees’ shifts. If the company does not treat those problems appropriately, inventory, accumulated depreciation, GST control and equity-profit will reflect this change in the balance sheet.