Operations Management Issues with Carter's Bakery - Case Study Example

Operations Management Case Study: Carter's Bakery Introduction Carter's Bakery can be ed as a small/medium sized business which is currently expanding; however this expansion has also brought about a few problems for its owners. This expansion is also affecting the management of the bakery's operations through its effects on the production and other functions. Operations management involves inputs into the system (Waters 2002, Slack et al 2007), which include the equipment and ingredients used to produce their cakes, and the Carter's have expressed their concern over the possibility that this could affect their outputs. As part of the consultation, a few operations management issues have been identified and recommendations have been presented. Operations Management Issues with Carter's Bakery Carter's Bakery differentiates itself from its competitors by specialising in high quality decorated fruit cakes, instead of making a variety of products. This suggests that Carter's Bakery is focussing on its quality objective (Waters 2002, Slack et al 2007) and this is reflected in the bakery's processes and procedures which place an emphasis on quality. However, the need to maintain quality has raised the operational management issue of design. Carter's Bakery is currently operating on a batch process which means that there is little room for variation and flexibility (Waters 2002, Slack et al 2007). This process is appropriate for the volume of orders that Carter's Bakery is processing, and the high volumes can only be output by a batch process. However, the bakery also decided to capitalise on growing sales by producing smaller cakes to retail shops for family purchases and this is when the operations design issue became apparent to the owners. Due to the high demand for the later product, the bakery had to increase production, and even this was not enough to sustain demand. The batch process can no longer sustain the operations of the bakery as the process requires certain periods of rest which do not allow for the bakery to meet demand. For instance, it takes three hours for one batch of small cakes and four for the larger cakes, which means that there is a period when the equipment cannot be used to generate cakes. The increasing demand for smaller cakes calls for a different design in the form of mass processes which are appropriate for high volume and low variety goods (Waters 2002, Slack et al 2007) such as the cakes being made by the bakery. The mass process was appropriate when the business started as they could predict the demand, and therefore produce in batches and use less storage space. The mass process is also repetitive and predictable (Waters 2002, Slack et al 2007), which would enable the Carters to fulfil their private and family requirements. In addition to this, there is evidence that Oven 1 may require some maintenance which suggests extensive use, and also poses as a major quality issue. Oven 1 is acceptable for the 1kg cakes but not for the 2kg cakes, which demonstrates the creation or the need for another operations design to maintain the quality of the 2kg cakes. Therefore the first issue is that which is related to the processes within the bakery which are no longer appropriate for the bakery. The expansion of the bakery has also presented a layout issue which needs to adapt to the growing demand and the new market the bakery is attracting. It seems that the current layout is based on the product layout which locates the transforming resources for the convenience of the baking process. The product layout worked well with one type of cake and fairly fixed demand levels. When demand levels rose, the bakery could not cope with two different sizes of the cakes. Even though the transforming products were similar, the size of the cake and the speed of service delivery were compromising the quality of the cakes. This essentially requires that the bakery obtains another line of equipment to maintain service delivery. The Carters are reluctant to employ more staff or obtain more equipment due to financial constraints, and this is understandable as the current layout provides low unit costs for the high volumes (Waters 2002, Slack et al 2007), however the equipment is showing signs of stress due to the high usage. The current layout is also convenient for moving the product and its ingredients, which would be difficult to maintain with another layout. However, the layout the Carter's would like to keep is not flexible enough to accommodate both types of cakes, and is liable to disruption. This has been demonstrated the Carters who have stated that they have had problems meeting demand due family constraints. This issue can only be resolved if the Carters change their layout to one which allows for flexibility and one which can cope with the high demands called for by the customers. However, this will require some financial input on the part of the Carters which means they will need to increase their team and/or obtain new equipment. Another issue facing the Carters is that of meeting their demand. There seems to be very little in the way of problems concerned with supply, however, most of the operational problems experienced by the bakery are those that can be attributed to the introduction of the smaller cake. Prior to the introduction of the smaller cake, the demand for the larger cake was manageable even though it was not generating a significant amount of revenue. This suggests that the Carters did not have to pay much attention to the effects of demand on their business, as the demand could be predicted and forecasted. When they decided to introduce the smaller cakes, the Carters did not anticipate the increase in demand, and they were also taken aback by the potential market they had missed. The demand for the larger cakes could be classed as dependent demand as the Carters were able to provide figures and statistics based on the dependability of this demand. However, the smaller cakes are presenting with independent demand which is relatively unpredictable (Waters 2002, Slack et al 2007). The switch from independent to dependent demand has been highlighted as it is also affecting their inventory, as the limits on the stock room are starting to become apparent. The pressures of demand are also being increased by Hannah Carter, who would like to capitalise on the potential new markets, which would ultimately mean that they would have to work more hours, especially with the equipment and machinery they have at their disposal. Therefore the operations management issue is that which deals with their response to demand. The bakery was initially responding to demand by starting the process of producing the cakes when it was required, hence the ease with which they were able to cope with the demand. They were also able to cope with the demand because their customers, who were the larger shops and organisations, were placing orders based on their forecasts. The introduction of the smaller cakes has resulted in unpredictability in demand, which means that the bakery can no longer start the process when it needs to, but it has to produce the cakes ahead of orders, which requires inventory management. This is known as a make-to-stock demand response which is appropriate where demand is independent and unpredictable (Waters 2002, Slack et al 2007). However, this type of response to demand immediately places constraints on their capacity, as evidenced by concerns over the nature of quality if cakes are maintained for up to 12 months. When dealing with the larger cakes, the bakery did not have to deal or be aware of any quality issues once their product had left their bakery, but when dealing with the smaller cakes, the bakery has to deal directly with the customers and customers are unpredictable. The issue of capacity is a serious one as it will directly affect other aspects of the operations management function such as the costs involved. The bakery will have to consider expanding itself in terms of equipment and/or staff which will lead to an increase in the cost of the cakes which may jeopardise their market. There is also the possibility that the bakery will have to consider the type of quality they can produce, as higher production volumes are likely to suggest a compromise in one area of the operations, if the bakery is still insisting that it does not want to recruit more staff. As the smaller cakes have brought them into contact with the actual market, the bakery has the issues of speed of response, dependability and flexibility to contend with. As customers are unpredictable in their demand, they will expect a reasonable speed of delivery, especially if they will be able to purchase the product directly from the bakery. However, flexibility will also be dependent on the skills and experience in the bakery, which will enable the bakery to forecast and predict demand, and so enable them to make time for aspects of their family and social life. To summarise the main operational management issues with Carter's Bakery, the first issue is that of the operational design which is currently a batch process. The batch process is one which is more suited to one product or good, and the current production of two types of cakes is highlighting the need for a different process. The second issue is that of operational layout, as the current layout is based on the product layout which works well for products that require little in the way of variability, however, the larger cakes present with a smaller level of variability, but this is affected by the inability of the systems to meet this demand. The third issue is that of meeting demand, which has seen the bakery move from dependable demand to independent demand which is not compatible with the product layout and the batch process design. The final operational management issue is that of capacity and/or inventory which affects their ability to meet demand and dependability. Recommendations for improvements The Carters have made it clear that obtaining more funding and increasing staff is not an option, and this is probably related to their decision to enhance their quality of life and not take on additional responsibilities which will jeopardise this. For instance, the seeking of additional funding would result in the pressure to meet certain sales and profit objectives to enable them to provide the returns of investment, which would in turn reduce their quality of life as they would be forced to spend more hours producing their cakes. Similarly, taking on more staff would cut into costs, and place additional requirements on the Carters to monitor the quality of their cakes, and it would also place additional human resources requirements, which would mean that they would be diverted from producing and selling cakes to managing people. Therefore any recommendations made to the Carters would involve decision-making on their behalf by presenting them with options that are compatible with their family life. The first issue that was encountered was that of operational design. It was discovered that the current batch process is no longer adequate to cope with the rising demand for the smaller cake, but is still appropriate for the larger cake. The larger cake is sold to larger retailers, who go on to sell the cakes to customers. The sales for the larger cake are not enough to generate profit; however they can cover the basic operational costs. The demand for the cakes from the larger customers is also reliable which means they can depend on this source for basic income. The smaller cake is sold to individual customers; however these customers are unpredictable in their demand, which places a requirement for constant production. The most appropriate course of action would involve getting additional equipment so as to have two different design systems that would be able to cope with the different products. As this is not an option, the bakery will have to maintain both types of cakes and divide their production design into a mixed design. This would involve either alternating the production of the cakes or undertaking division of labour (Taylor 1947). Alternating production would involve producing the smaller cakes on alternating days and likewise with the larger cakes. The advantages of this are that, they would be able to control their capacity and inventory, and they will also be able to build up sales figures to help them predict and forecast demand. The Carter's already know the demand levels for the larger cakes, and it may be that they will have to work longer hours on the days when they are baking the larger cakes, but this will be complimented by the slightly shorter days for the smaller cakes. Another variant to alternating production would be to use Oven 1 for the smaller cakes, as the temperature control seems unreliable for the larger cakes, and use Oven 2 for the larger cakes. As the smaller cakes are likely to require more hours for production, Oven 2 can be used when the requirements for the larger cake have been fulfilled. However, to ensure that this system works efficiently, the Carters should consider division of labour, where each of them works on one cake. This will enable them to identify idle periods in their process (Taylor 1947), which will be used to control demand. This will increase their competitiveness as the bakery will be able to predict and forecast demand, which will enable them to plan their time and resources so as to maintain their quality of life. The second recommendation is that which is concerned with the operational layout of the bakery. As previously stated, the bakery's layout is based on the product layout which does not allow the Carters room to vary their product. The recommendation for this issue is related to that of the operational design, as a change in the design of the operations will influence the operational layout of the bakery. The appropriate operational layout would be the cell layout as it would enable the bakery to maintain its product variability and meet demand (Waters 2002, Slack et al 2007); however this type of layout would require financial input which is not an option in this case. However, the bakery could adopt a process layout which would enable them to cope with disruptions to production, which is essential if the bakery is maintaining its competitiveness. The process layout will also enable supervision for the bakery, even though it could generate a huge inventory. The process layout will also enable the bakery to cater for the different demands of their customers. This can be achieved in the bakery by identifying processes that are identical for both types of cakes, so as to standardise the complex parts of the process. This may also involve being innovative and finding out methods of storing the cake mixture prior to baking, which would cut down the time required to bake the cakes when demand is high. This has its advantages in this case, as the bakery needs to meet its demand, and sales can only be increased by reducing the process times, hence the importance of identifying key elements of the entire process (Fitzsimmons and Fitzsimmons 1994). This will also increase their competitiveness as it will give them an edge over their competitors as they will be able to immediately cope with demand and create the time for family and social life. The third recommendation addresses the issue of meeting demand. During the period that the bakery was producing larger cakes, their demand was dependable and reliable, with order amounts not having much variability. However, the introduction of the smaller cakes has introduced this variability into the demand issue. Therefore, the recommendation would be that the bakery adopts processes and procedures that enable it to meet independent demand, as this type of demand is responsible for generating large amounts of revenue. Failure to meet this type of demand also means that the bakery can lose its hold on this target market. The Carters' need to address the previous two issues which will lead to a focus on the smaller cakes, so as to generate forecasting data for the bakery, which will provide them with enough information to develop a more permanent solution to this problem. In the short-term, the Carters will need to invest some time in producing the larger cakes which will be stored for the appropriate time so as to maintain quality. By fulfilling the larger orders in advance, the bakery will be able to concentrate on normalising the demand for the smaller cakes to suit their process and design. The benefits of doing this are that, the bakery will become more responsive to customer demand, which will increase their positive reputation and generate more sales. The larger cakes seem to present with more problems in terms of baking than the smaller cakes and it makes sense to have orders for this type of cake fulfilled at least 2 months in advance, which will allow them to dedicate their resources and time to managing the smaller cakes. This will also enable them to consider opening a specialist shop with which they can control the demand, and in a sense, heighten the demand and quality of their cake. The final recommendation is concerned with the operational management issue of capacity, which is also referred to as inventory in some industries (Blackstone 1989). The bakery is currently experiencing capacity problems due to their inability to plan, monitor and forecast the demand for their smaller cakes. Capacity was probably easier to control with the larger cakes due to the stable demand, and the fact that quantities are known in advance which allowed them to plan their time and resources. However, the introduction of the smaller cakes has introduced problems in meeting demand which has resulted in more cakes being made at some periods, and sometimes the bakery have fallen short on the customer demands. The bakery has currently taken a reactionary measure by filling their storage area, which is no longer sufficient to meet the demand. Storage also costs money (Blackstone 1989) as the cakes that are stored are not generating revenue, which generates waste. Therefore, to solve this issue the Carters have to learn how to plan and control their capacity, which will involve adopting processes and procedures that enable for the collection of information to use to plan and control demand (Fitzsimmons and Fitzsimmons 1994). This will involve keeping sales figures for the smaller cakes, so as to pick up trends (Cooke and Slack 1991). They may find that smaller cakes are bought in larger quantities during holiday or festive seasons, but experience lower demand in the summer. Having this knowledge will also enable the Carters to alter their working hours, as the orders for the large cakes are known and can be planned, but if they are able to anticipate demand for the smaller cakes, they will be able to afford some downtime in the factory. This down time can be used to service and maintain their equipment, which is essential if they are to avoid disruptions which can particularly damaging to their competitiveness. In addition to this, planning and control will also help them manage their capacity as they will become aware of the quantities they need to store, and the length of time they need to be stored for. By following this approach, the bakery will be able to maintain the quality of its products, and have the quality time they desire. Conclusion These recommendations take the personal and financial situation of the Carters, which means that the recommendations are not based on the acquisition of new technology or equipment; but they are based on fundamental business decisions that the Carters need to make. The Carters started out selling the cakes to larger customers as it provided stability, reliability and dependability of income. However, just as with any other business, most will need to expand and in the case of the bakery they are facing the options of either maintaining business security by retaining their stable customers, or taking a gamble and concentrating on the unpredictable customers who also happen to be responsible for the majority of sales. However, by focussing on their unpredictable customers, the Carters are exposing themselves to a more competitive environment and one which will require more innovative and process input as the risks associated with failure are higher. Retaining their larger customers will allow them to stay in business and is lower risk; however the recommendations made for the Carters will enable them to test both markets without investing finances. The recommendations also encourage the Carters to focus on key business decisions that need to be made as the business is growing, and growth often involves some management and operational changes. References Blackstone, WH. Jnr (1989). Capacity Management, South Western, New York. Cooke, S. and Slack, N. (1991). Making Management Decisions. 2nd Edition, Prentice Hall, London. Fitzsimmons, JA and Fitzsimmons, MJ. (1994). Service Management for Competitive Advantage. Mc-Graw-Hill, London. Slack, N., Chambers, S., and Johnston, R. (2007). Operations Management, 5th Edition, Financial Times- Prentice Hall, London. Taylor, FW. (1947). Scientific Management. Harper and Row, New York Waters, D. (2002). Operations Management - producing goods and services, 2nd Edition. Financial Times- Prentice Hall, London. Read More