Operations Performance Objectives and Supply Chain Relationships - Case Study Example

? Operations Performance Objectives and Supply Chain Relationships of HCF This is a two-part essay focusing on Hadrian’s Country Foods’ processing operations and supply chain relationships. HCF, a manufacturer of chilled foods, was founded by nutritionist Dr. Andrew Smith whose knowledge of health foods started a growing business that supplied ready meals to the people of Northumberland and County Durham. HCF has to introduce innovations and create new menus with ingredients that boast the health of consumers and meet the delicate taste of consumers. Convenience food business is increasingly growing as this helps the nutrition needs of busy career bodies. HCF’s supply chain has to meet the growing demands of the consuming public. Some suppliers did not meet schedules, so HCF has to apply innovations in supply chain by introducing in-house manufacturing of a special kind of sauce. This paper will talk about operations management and supply chain relations. Introduction Consumption of chilled food is increasing in many parts of the world. One of the main reasons for this is convenience; chilled foods are convenient to prepare. Hadrian’s Country Foods (HCF) started by supplying chilled foods to family and friends. HCF’s founder, Dr. Andrew Smith, saw the need for chilled foods with nutritious ingredients. As the company grew, it started to meet numerous problems and challenges in management and supply chain. HCF must introduce an effective supply chain and operational management. Products have to be consistent with new lifestyles and new product innovation (NPD) must meet consumer demands. HCF has to improve its operations in delivery of products and services to improve supply chain relationships. Task 1 HCF’s Operations Management Operations management is transforming inputs into outputs, or the production capability of the firm. In terms of quality, operations management focuses on internal activities of the firm, such as ‘process control, process improvement, product design improvement, and design of experiments’ (Foster et al. 2011, p. 2286). HCF receives ingredients from its suppliers, transforms the inputs into products, and makes the supply chain moving until the product reaches the retailers (the supermarkets) and end users. The company has to introduce innovations and create new menus with ingredients that boast the health of consumers and meet the delicate taste of consumers. Improvement of processing operations must consider how it can enhance operational performance to satisfy customers. HCF has two kinds of market: B2B and B2C markets. Challenges and Opportunities Product innovation must be continuously introduced because of competition. The company has to stimulate the market with its diverse chilled foods and introduce new delicious menus to meet consumers’ demands and taste. Products have to be consistent with new lifestyles and new product development must provide customer satisfaction. HCF has to conduct regular research and development as a regular activity and a focus for R&D should be how to reduce operational costs. R&D can experiment on new health foods as competition is growing in the food industry. Innovative ways of reducing costs can be discovered. For example, packaging is significant in reducing operating costs. An example of effective packaging for food items is ‘combined transit and point-of-sale packaging’ which saves labour time through faster shelf loading and easy access to product and uses lesser resources. The total distribution cost influences the demand side as this affects price. For some fast-moving commodity like chilled foods, the cost of distribution and retail selling affect the total product cost which represents about 50 percent of the product price (Coles 2003). Reducing costs, especially in distribution, attracts retailers like supermarkets. Information technology (IT) application to shorten workload is another opportunity to improve production and distribution. IT can enhance the “just-in-time” (JIT) manufacturing philosophy. Time is significant in the delivery of chilled foods as lateness can spoil foods. The company should be able to apply optimized production technology (OPT) in order to minimize throughput times. This can be enhanced through an effective transportation and distribution system wherein temperature is controlled and contamination avoided. If these two are not attained in the delivery, there will be wastes. Supplies to and from HCF are transported by refrigerated trucks through a contract with another company. This company must ensure that supplies are delivered on time and ingredients and food are as fresh as they were taken from suppliers. Customers are more self-assured and very demanding on products and services and on suppliers. The food industry has to transform ‘production-driven supply chains into market-driven supply chains’ (Folkerts & Koehorst 1998, p. 385). Research institutions and the chilled food sector must cooperate in order to find new tools, methods and knowledge for chain analysis and chain management. HCF needs more accuracy, speed and flexibility in responding to a competitive market, an improved response to consumer demands and environmental factors, and development of new products through technology application. Performance Objectives The company must emphasise performance objectives to improve competitive advantage. The performance objectives are quality, speed, dependability, flexibility, and cost. A key strategic challenge for HCF managers is to decide which of these five performance objectives they want their operation to specialize or excel and how they can configure their operation in doing it. 1. Quality This is about doing things right in the context of operations. HCF should consistently produce foods that meet customer expectations. It needs to improve its skilled workforce and proper technologies to improve manufacturing. Transporting chilled foods from the factory to retailers, the supermarkets, and then to end user must be improved. Customers expect high-quality products and n the food industry, higher quality means safe and healthy foods. (Slack et al. 2010) 2. Speed Speed can be achieved by doing things quickly and delivering HCF foods to retailers and consumers as fast as possible. Decisions regarding the operations and movement of materials and information inside the operations are part of the concept of speed. HCF management should quickly decide if automation and other aspects about speed of operation are needed. 3. Dependability Trust is important when we speak of dependability. Customers will learn to trust HCF if it delivers products on time and as promised. Dependability is synonymous with reliability of the operations. It can be achieved through the use of reliable equipments, effective communication system, efficient scheduling systems, motivated workforce, transparency of processes, etc. HCF has to focus on long-term supply chain relationships because it involves a steady commitment. Trust is essential as ingredients, sauces and other food products have to be delivered on time and needs high level of service and quality. 4. Flexibility Flexibility is about range and adaptability. When a company displays flexibility, it has the ability to fulfill existing customer requirements in various ways and can change the operations to fulfill new requirements. Requirements may change; thus, firms have to develop operational capability to introduce new or modified products and services. Flexibility can be achieved by using more versatile equipments, suppliers with good flexibility performance, multi-skilled workforce, etc. 5. Cost Cost refers to the economic side of doing things. Firms and people always prefer to operate at low cost. Lower cost of product and service delivery reflects an increasing relationship with the customer. Cost should be clearly stated to the customers. Feigenbaum (1961 as cited in Neely, 2007) indicated that there are three types of quality cost: prevention, appraisal and failure costs. Prevention costs for HCF are those expended to prevent discrepancies. HCF has to introduce ‘quality planning, supplier quality surveys and training programmes’ for its workforce. Appraisal costs are costs spent for evaluation of product quality and looking for discrepancies. Failure costs are those costs spent as a result of discrepancies (Campanella & Corcoran, 1983 as cited in Neely, 2007, p. 70). All costs expended for the activities mentioned above will affect quality for HCF chilled foods. Task 2: Supply Chain Relationships Identifying and working out to strengthen customer satisfaction, supply chains can help in having a good relationship with customers. HCF has to focus on improving supply chain and having good relationships with suppliers. Several new supply contracts have been cancelled due to poor product specification while other products were not delivered on time. Bullwhip problems were created. The bullwhip effect results when a small disturbance at the downstream side of the supply chain creates increasingly large troubles, errors, inconsistencies and volatility at the upstream end of the supply chain. The bullwhip effect is one of the most critical issues in the supply chain. In the upstream end of the supply chain, decentralised decision making can affect the entire supply chain performance. (Zarandi & Avazbeigi 2012) Supply chain refers to a ‘system of suppliers, manufacturers, distributors, retailers and customers, where material, financial and information flows connect participants in both directions’ (Fiala, 2005 as cited in Zarandi & Avazbeigi, 2012, p. 259). Supply chain management involves handling of business functions constituting the transfer of materials, from manufacturer to retailers, then to end-users. It also involves converting raw materials to the designed product, and starts from planning to the delivery of the product to the customer. (Fortes 2009, p. 51) In focusing on HCF products, supply chain may start with the suppliers of ingredients and the raw materials for chilled foods. HCF has to be very careful and discreet since the processes involve handling of foods and ingredients. Any mishandling and deviation from the planning will result in wastes and costs for the company, suppliers and retailers. But HCF will take all the blame and will lose profits. Suppliers sometimes do not meet schedules. HCF has to introduce strategies by producing its own ingredients for products that need fast delivery to supermarkets and end users. HCF must involve long-term relationships in the supply chain partnerships. Product availability becomes a problem if there is a mismatch between the type of product and the type of supply chain (Der Vorst et al. 2010). HCF experienced a supply chain problem when suppliers could not meet its demands. The nature of demand should be considered before HCF can devise a supply chain. The supply chain strategy and structure should coincide with the characteristics of the marketplace. A combination of agility and leanness in supply chain can be effective in product availability in the chilled-food industry. Upstream suppliers are numerous who provide the ingredients for HCF’s various chilled products. Suppliers range from individual local farmers to international flavouring companies. In the downstream side, it has one major distributor, the Prospect Handling Ltd., who sells majority to a wholesaler, the Grainger Food Corporation. Grainger has major contracts with all the major supermarkets. Doing more with less is characteristic of lean production which HCF should adhere to. Lean production is applicable to the food business, particularly chilled food business. Lean manufacturing implies a zero inventory, just-in-time approach. Lean manufacturing originated from the Toyota Production System, with its emphasis on the reduction and elimination of waste. Agility and leanness in production focus on customer responsiveness, and this means to focus only on what the customer wants. Leanness emphasizes efficiency and cost reduction and thus deals with the trade-off between long lead times and the presence of inventory. In looking for suppliers, HCF must first determine the total cost assessment. Cost should be related to value and quality of work. Suppliers are compared in order to get the lowest price. But HCF should first consider quality as selection based on a low price can deceive the company. A successful customer-supplier relationship depends on several factors and not just on price. (Chee-Cheng & Ching-Chow 2002) Long-term relationship with suppliers can provide quality and reliability requirements. The supplier and the buying organisation can always negotiate about how to best serve their customers in the delivery of products. Unsatisfactory supplier performance can spoil the relationship but open communication can mitigate the harm inflicted on the relationship. Communications between members of different companies can enhance the relationship of the companies involved in supplier-buyer relationships. Cross-organizational communications can hold the relationship together as ‘communication allows firms to transmit persuasive information between themselves’ (Frazier & Summers, 1984 as cited in Gligor & Autry, 2012, p. 24). This type of communication can foster participative cooperative decision-making. (Gligor & Autry 2012) The role of communications in supply chain relations is demonstrated in Appendix 2. Conclusion Operations management for the chilled-foods supplier HCF involves a complex system of supplier-buyer relationship. Food business requires effective operations management and fulfillment of performance objectives, which are quality, speed, dependability, flexibility, and cost. In the discussion above, a company can excel in any one of the five objectives but performing for the five objectives is also necessary. HCF’s supply chain has to meet the growing demands of the consuming public. The company has to achieve effective supply chain relationships with its suppliers. References Chee-Cheng, C & Ching-Chow, Y 2002, ‘Cost-effectiveness based performance evaluation for suppliers and operations’, The Quality Management Journal, vol. 9, no. 4, pp. 59-73, viewed 14 January 2014, via ABI/INFORM Complete database. Coles, R 2003, ‘Introduction’, in R Coles & M Kirwan (eds), Food and beverage packaging technology, John Wiley & Sons Ltd., West Sussex, UK, pp. 1-28. Fortes, J 2009, ‘Green supply chain management: a literature review’, Otago Management Graduate Review, vol. 7, viewed 5 January 2014, via Business Source Complete database, EBSCOHost. Folkerts, H & Koehorst, H 1998, ‘Challenges in international food supply chains: vertical co-ordination in the European agribusiness and food industries’, British Food Journal, vol. 100, no. 8, pp. 385-388, viewed 15 January 2014, via ABI/INFORM Complete database. Foster, S, Wallin, C, & Ogden, J 2011, ‘Towards a better understanding of supply chain quality management practices’, International Journal of Production Research, vol. 49, no. 8, pp. 2285-2300, DOI 10.1080/00207541003733791. Gligor, D & Autry, C 2012, ‘The role of personal relationships in facilitating supply chain communications: a qualitative study’, Journal of Supply Chain management, vol. 48, no. 1, pp. 24-43, viewed 14 January 2014, via ABI/INFORM Complete database. Neely, A 2007, ‘Measuring performance: the operations management perspective’, in A Neely (ed), Business performance measurement: unifying theory and integrating practice, 2nd edn., Cambridge University Press, Cambridge, UK, pp. 64-81. Slack, N, Chambers, S, & Johnston, R 2010, Operations management, Financial Times Prentice Hall, New York. Van Der Vorst, J, Van Dijk, S, & Beulens, J 2001, ‘Supply chain design in the food industry’, International Journal of Logistics Management, vol. 12, no. 2, pp. 73-85, viewed 14 January 2014, via ABI/INFORM Complete database. Zarandi, M & Avazbeigi, M 2012, ‘A multi-agent solution for reduction of bullwhip effect in fuzzy supply chains’, Journal of Intelligent & Fuzzy Systems, vol. 23, pp. 259-268, viewed 6 January 2014, DOI 10.3233/IFS-2012-0517. Appendix 2 Figure 1 The role of communications in supply chain relationships SOURCE: Gligor & Autry (2012) Read More