Operations Management Of Cyclone Furniture Management Essay

Any Organisations base mission is Customer service and that is the main reason for existence. The job of operations manager is optimum utilization of resources within the organisation’s policy and to provide customer satisfaction.

In manufacturing organisation such as Cyclone Furniture, customer interaction is not essential, here resources like; material, machine / equipment, Information systems, people, real estate are used together to transform material into finished goods.

At Cyclone Furniture Company on retail side focus is more towards Customer service. The location of the outlet, décor and presentation, right atmosphere of sophisticated elegance and over all their reputation as “the” Place for finely crafted furniture.

Resource utilization at factory is not optimum, as machines are lying idle, overstaffing, stock of raw material is high, stock of finished goods is high though the premises is neat and tidy, workers are satisfied and cheerful, high standard of workmanship is being maintained.

Operating objectives of Cyclone Furniture Co:-

Satisfy customers wants

Specification (providing the customer with what he is prepared to accept or providing the customer with what he expects)

Time (provide product / service within a timeframe which is acceptable)

Quality service

Efficient use of resources

People

Material

Machine / equipment / infrastructure

Information technology

Real estate

Inventory

Time & information

Key success factors for any business

Customer satisfaction – We need to consistently achieve certain level of quality as determined by Business policy and the intention should be to define what customer wants (basic requirements of specification), time frame and cost.

Answer to customer’s call.

Don’t make promise unless you can meet them

Listen to your customer’s

Provide customer service and be helpful

Adequately train the front end staff

Take extra step and through something extra

Stakeholder’s expectations are met

Efficient use of resources

Key Success factors for Cyclone Furniture Co

Customer satisfaction

Showroom in prime place

Near monopoly of business retail outlet.

Near proximity to manufacturing unit

Owners involvement in retail business

Workers satisfaction at factory (overall sense of people taking pride in their work).

High standard of workmanship

QUESTION 1 – The Cyclone Furniture Company Case

Describe the operating structure of Cyclone Furniture. Draw a structure diagram and discuss improvements that can be made.

Answer:

Current operating structure of Cyclone Furniture

V Oi

V Oii O (Finishing) O (Upholstery) V Customer

V Oiii Polishing etc Finished Goods

Oi = Domestic Furniture, Oii = Export Furniture, Oiii = Office Furniture

The operating system at Cyclone Furniture Co. is divided in three broad sections namely Domestic Furniture (retail shop), Export Furniture and Office furniture (Commercial) each one had a dedicated setup. Work moves from these dedicated setups into a single finishing unit which does staining and polishing and where necessary it moves to upholstery department. Finished goods are either stocked or moved to retail unit or are exported as the case may be.

Improvement suggested:

As the workers at manufacturing sections are interchangeable and work is done in small batches, it is suggested that we combine all the three sections of Domestic, Export and Office furniture into one section which has the flexibility to change as per the demand raised by sales. This will have economy of scale in terms of manpower, machinery usage and all operations under one roof therefore releasing leased plant and machine and redeployment of factory space which will be vacated. We need to gather additional information of five office staff at factory premises to better understand utility of the same.

With more effective utilization of manpower, it is suggested that the retail outlet can start taking made to order furniture requirements from customers which will give additional sale and better customer service.

QUESTION 1 – The Cyclone Furniture Company Case

What do you think is the real cause for the cash flow problem at Cyclone? What actions can be taken to improve the situation? Comment on Rangi’s management of the factory.

Answer:

Real cause for the cash flow problem at Cyclone

High level of inventory – Raw material and finished goods (Quote: Rangi admits that he does about three months of uncommitted stock of finished goods on hand at present), & (Quote: but now I think about 25% of stock is just taking space and gathering dust and apart from the imported stuff (about 25% of the materials needed) you can get locally.)

Actions which can be taken to improve the situation

Workers schedule should be quickly adjusted to current demand and amount of finished goods lying in hand. This will reduce labour cost.

Machinery which is lying unutilized should be given back to the lessors which will impact the P&L and will indirectly effect the cash flow.

Sales team be directed to contact the customers and sell off the office furniture at special / discounted rates so that we have optimum level of finished stock in hand. We can generate cash which can be utilized to pay back the overdraft from bank. (AT Cyclone carrying cost is 30% PA which suggests that cost of carrying office furniture will be approx 23% for 9 months, hence discounts can be offered from 5% to 15% depending on credit / cash sale to customers.)

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EOQ system should be checked and made to work so that we can plan optimum level of stock of raw materials in hand.

KANBAN be introduced for raw material which is being procured locally hence eliminating stock pile-up of goods which can be procured without any lead time.

Rangi’s office staff should be reduced from 5 people to 3.

Comment on Rangi’s management of the factory

Rangi’s management of factory is of a traditional approach to operations management, where the work was divided into sections and each section has its own way of operating without any interference from other sections. He makes budget in advance but which are not flexible as per current demand and current requirements. Keeps good stock of inventory of raw material and finished goods but fails to check the cost of carrying the inventory. Efficient use of human resource and machinery is not there has 5 people who manage account and office and has machinery with is lying idle. His interaction with Sales and support team is minimal, whereby he can alien to current demand. Rangi does not rely upon new support functions which have been installed and has a traditional approach towards stock management. His staff is highly motivated and takes pride in their work and lays good stress on quality manufacturing.

QUESTION 1 – The Cyclone Furniture Company Case

Comment on the organization with respect to the value chain and the relationship between primary activities and support activities. Also comment on the relationships between the factory and head office staff.

Answer:

The key concern of any operations manager is to provide goods and service as defined by business, as efficiently as possible. Internally efficiency means best utilization of resources and elimination of wasteful activities. Operation is only one part of the whole organisation structure. World class organisations strive on total efficiency of all the departments and functions with a common mission for all.

Michael Porter identified a set of interrelated generic activities common to wide spread range of firms. The model is depicted below:1

Firm Infrastructure

Human Resource Management Support Activities

Technology Development

Procurement

Inbound logistics Operations Outbound Logistics Marketing & Sales Service

Primary Acitivties

The goal of these activities is to create a value that exceeds the cost of providing the product or service, thus generate a profit margin.

Value chain highlights the importance of Operations manager and his involvement in all aspects mentioned above. It transcends the old approach that one department be responsible for purchase / service and other for planning. Activities were scheduled by a different function as were warehousing / storage and distribution, and operations.

In value chain functional boundaries are ignored whole process from buying in raw material to the final stage of customer satisfaction is managed by operations manager. Whereas support functions like marketing / accounting / HR do not appear in value chain but the operations manager has to be involved in these functions also.

Here in Cyclone Furniture:

Rangi the operations manager seems involved in inbound logistics, operations and to some extent outbound logistics but is least involved in marketing & sales and service. He is not involved / informed in support functions like infrastructure / Information technology / HR / Accounting. Operations manager is not talking to the sales team about inventory / finished stock. He is not speaking to the accounts and finance guy and does not seem to be informed about cash flow issues. HR is not informing ops about excess manpower and the top management seems to be more involved in retail operations and least bothered about operations. Rangi is more concerned about his area of operations as per the old approach of things. There are silos between each department and they appear to be working for their own departments rather than an organisation as a whole. The operations head is planning and implementing his own set of thought whereas information from other functions / units is not being passed. All the functional head don’t seem to heading in one direction and talking the same language.

QUESTION 1 – The Cyclone Furniture Company Case

Discuss the advantages and disadvantages of outsourcing of manufacture to Indonesia. What would be the cash flow implications?

Answer:

Outsourcing is usually the term used when a company takes part of its business and gives that part to another company.

(Main points have been referred from http://operationstech.about.com/od/outsourcing)2

The advantages of outsourcing manufacture activities of Cyclone Furniture Co to Indonesia.

Focus on core activities: Here the owner seems to be more involved into retail operations of the business and exports.

Cost and Efficiency Savings: When the factory is taken close to the raw material sourcing point there will definitely be cost saving in terms of transportation. Labour is cheap.

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Reduced Overheads: Back office overheads will get reduced, lease rentals of machinery and factory space can be utilized for alternate revenue generation.

Operational Control: No inventory of unutilized finished stock will be there.

Staff Flexibility: The staff at factory back office will be better utilized.

Control and Risk Management: Employee turnover at factory and uncertainty of inconsistency of operations will not be there.

The disadvantages of outsourcing manufacture activities of Cyclone Furniture Co to Indonesia.

Loss of Managerial Control: The contract will be there but there will be a loss of managerial control. The outsourcing company mat not be able to drive the same standards and mission that are driven by Cyclone.

Hidden Costs: Like lawyer fees.

Threat to quality and Confidentiality: Here 75% business is exports, the outsourcing co, can come as a competitor with better rates, as they will have the quality standard that you had maintained.

Quality Problems: As the outsourcing company will be motivated by profit and during the course of time they can compromise of quality which can upset export / retail customers.

Tied to financial well being of outsourcing co: As financial control over the outsourcing co. will not be there Cyclone will carry a risk of financial mess the outsourcing co. might create for itself leaving you holding-the-bag.

Bad Publicity and Ill Will: As the retail showroom is in New Zealand and people take pride in Made in New Zealand products this can create bad publicity.

What would be cash flow implications?

The cash flow situation will be better as amount stuck in raw material and finished goods will be liquidated and that majorly accounts for the amount of overdraft taken. There will a cash surplus in absolute terms.

Secondly the cash will also get struck in outsourcing contract. The amount of cash involved cannot be quantified as of now.

As the operations need to be shifted to Indonesia there will be extra inventory that has to be maintained at the retail outlet.

As factory premises are owned it can be leased and there will be cash generation.

As machinery used at factory is leased and the same will not be utilized there shall be cost savings in terms of lease rental payments.

QUESTION 2 – Task Two

Answer:

We pickup any service industry and no matter how well the processes are automated and how cleaver the IT I, there will be people to interact with customers.

Seven steps systematic method approach

The systematic method approach consists of the following seven steps.

Select – Select the stage of method study (This includes recognizing and defining a problem).

Determine the Aim

Standard of judgement

Scope of the study

Record (Record the facts related to existing way of work)

Examine (Step by step critical examination of each element of job) What, where, when, who, how.

Develop

Define (Has to be defined in writing)

Install (Effective way the new process has been installed)

Maintain

Here we shall examine the Field Investigation Process in Credit Underwriting Unit -CBOP.

Centurion Bank of Punjab re-started its Credit Underwriting Unit in 2005 and the Target for the bank was to sell Personal Loans (PL) to the tune of 100 crs in one calendar year by 2009.

Delhi being one of the biggest location for Loan process started with 2 units namely CPA1, CPA2 both being at different location in Delhi. Loan requests were booked at both the locations.

In brief the Credit underwriting process is described below.

File Login In

Basic Check not Ok returned back to sales

Basic Check Ok Logged to System

Files with deficiency logged out / returned to sales

Health Check of File / Internal Dedup

Dedup Check negative -file logged out and returned as rejected

File is OK FI Initiated / CIBIL (Central

FI Negative / CIBIL Negative/ Get Mitigants /

File logged out and returned as rejected

FI OK / CIBIL OK- Personal Discussion (PD) with customer initiated (Credit Manager checks the File

PD Negative / Get Mitigants / File logged out and returned as rejected

PD Positive / Collect additional documents if required

Additional Documents might be asked from customer

Basic parameters met – File is approved

Post Disbursal Documents Collected – Loan is Disbursed

Field investigation (FI) process details:

The CPA shop would initiate FI agency for all customer who have applied for loan and the FI shall be conducted at Residence and place of work. FI was initiated by mail to FI agency and FI agency would come back with hard copy of the report that was sent by courier. The courier comes once in a day and the CPA shop would collect all the FI reports put the same in file. Maintain a log of all FI that were initiated and reports received. They would then send mails for delayed FI / FI not done. This entire process was taking a lot of time and lot of manual work was also there.

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Seven Step systematic method study approach to this problem.

Select – The Field investigation process (FI) was taken a long time and there was a lot of storage activity, operations, mails exchange, courier cost, time delays, manpower involved.

Record –

Sending mail to FI Agency

Capture residence / work details / compile mail

Delay D

Mail received by FI agency / allocation to field

Delay D

Field investigation complete record on PC

Printout / Courier to CPA office

Delay D

Courier delivered to CPA

Hard copy removed / checking / filing

Delay D

Maintain log / MIS

File handed-over to Credit Manager / Return to Desk

Examine –

Critical examination of each element of the process.

Why are we sending mail to FI Agency?

Why we printout being taken ? Why Courier is used?

Why are be maintaining a log / MIS when system is there?

Why are we wasting resources?

Why can’t there be a better procedure?

The FI process was examined at length and alternate strategy was thought thru. The new process was discussed and argued. The facts were put on paper and critically examined.

Develop –

The answer to the above questions furnished clues for improvement. Detailed process was relayed, discussed and argued. The new process was finalised as under:

LOS (Loan Originating System) was re-developed for use by FI agency. The details for the same are mentioned below briefly.

Create Login for FI agency

Assign the Case to FI Agency on system

FI agency assigns the case to agent on system

Field investigation complete record on software

Case assigned back to Credit Manager

File handed-over to Credit Manager / Return to Desk

Define –

The entire process was re-designed and tested and documented. The process was first pilot run at one agency. After testing the same for 15 days, the system was open for Delhi location and then implemented all India.

Install –

The process was installed on LOS (Loan originating System) server, and access was given to FI agency.

Maintain –

Regular feedback if any is being provided to the IT team in case any process improvement is required. On-line support provided to users in case of any difficulty.

QUESTION 3 – Task Two

Answer:

Management of capacity is most underestimated, and, therefore most underperformed, activities in organisation.

Capacity can be related to:

Space (Real Estate)

Labour (Manpower)

Equipment (Machinery)

Technology (IT)

Materials (Raw Material)

In simple terms Capacity management can be terms as managing the amount of what the organisation has and uses to perform a given task. Capacity becomes most important aspect of managing an organisation because of the following reasons.

It represents a major cost for the organisation

It represents a major portion of the assets.

It represents a major portion of the cash flow.

It impacts the overall operations and performance of organisation.

It impacts the organisation brand and brand image.

Issues involved with management of capacity in the operations mentioned above in answer 2 are:

Proper utilization of resources was not there, lot of wastage of manpower in handling paper work, printing and filing, maintaining MIS was being done and lot of time wastage in the entire process with lots of gaps. This delay was resulting in customer dissatisfaction and delay in underwriting the file, final decision being taken. Overall the organisation was impacted by time delay, loss of opportunity (customer loss) and financial loss (wastage). The result was huge pile of FI being in process and communication repetition.

Most appropriate strategy to be adopted:

Holding or maintaining excess capacity and risking the possibility of underutilisation.- In the process mentioned above excess capacity would not have helped much. The issue was more of technology related and not of manpower. But with better technology and better process there was saving in terms of manpower, cost and time. Hence it would be waste of resources if excess capacity was maintained.

Managing capacity through the efficient adjustment of capacity – This would be most appropriate for the process mentioned above. Re-designing the technology resulted in better utilization of resources, manpower, reduce errors and time. That resulted in overall saving for the organisation in terms of cost and better customer satisfaction and meeting business objective.

Fixing the upper limit of capacity and accepting queuing/ loss of customer – This strategy will be more of disadvantage to the process as it will result in loss of time and good customers. Delay in FI process will result in delay in decision making, data confidentiality being lost, costs being high.

Manipulating the demand – This strategy would not work as FI process was an ongoing process and any kind of queuing / staggering in the process would not help much. Hence demand manipulating would not help.

To Summarize the best possible strategy for the FI process would be “Managing capacity through the efficient adjustment of capacity”3

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