Manufacturing Organization: Systems and Benefits - Coursework Example

Manufacturing Organization: Systems and Benefits Introduction Manufacturing is a business venture that entails the process of converting raw materials into finished goods through the process of manufacturing. In most cases, manufacturing is used to refer to a range of human activities ranging from basic handicraft to high technology production. However, the term is commonly used to refer to industrial production in which there is a transformation of raw materials to finished goods in large scale (Loch, 2003). Proper management of a manufacturing business entails predicting the aggregate demand for manufacture products, supply of the raw materials and ensuring that the desired quality of products is maintained. In manufacturing business quality is a state of being free from deficiencies, defects, or significant variations. It can also be used as a measure of excellence in a company. Quality may be brought about by consistent and strict commitment to certain pre-determined standards with the aim of achieving uniformity of a product so as to satisfy specific customer requirements. As far as manufacturing and diverse industry is concerned, quality is tested, regulated and certified. Normally, various methods, standards and models may be used to ascertain the quality of manufactured products. For example, the concept of Fitness for Use (FFU) is used to assist in testing the quality of a variety of products such as electronic and electrical equipments. This mode of testing implies that manufactured products must be tested to ensure that they meet their ‘fitness for purpose’ (Loch, 2003). This may entail checking whether the product’s durability, as well as, quality meets certain pre-determined standards. The main objective of this study is to ascertain how manufacturing processes can be structured and organized in order to minimize the losses in the process of manufacturing while at the same time maximizing the benefits, which may accrue to a company that ensures that there is efficiency in production and production of good quality products. Manufacturing Organization for Efficiency As noted, manufacturing entails processing of products especially in large quantities by use of industrial machines. This makes a manufacturing business, an entity whose main business is to transform raw material into finished goods hence increasing their value utility to consumers. However, for a manufacturer to achieve the objective of increased sales and good profit margin, it should ensure that its operations are very efficient (Hesselbach, & Herrmann, 2011). An efficient manufacturer is characterized by the following tenets; keeps its inventory and work in progress to a minimal level, completes its job in a timely manner and maintains high quality products. These characteristics of an efficient manufacturer make it have relatively high operating margins, high return on investment and more profitable compared to inefficient manufactures. Conversely, a manufacturer who is operating inefficiently exhibits symptoms such as high costs of operation, chronic shortages, late deliveries, overstocking, poor quality, and anemic profits among others. Therefore, for any manufacturer to graduate from conditions of inefficiencies to efficiencies there is a need for them to optimize efficiency by decreasing wastages throughout all stages of the process workflow. This is commonly referred to lean manufacturing and should always go hand in hand with continuous improvement (Wilson 2009, P.9). The following are the practices, which manufacturers need to adopt to become efficient and raise their competitive advantage. Just in Time A lean manufacturing method of minimizing work in progress is to input materials to their respective jobs in ‘just in time’ basis (Wilson 2009). This implies that the supervisors in a manufacturing process avoid stock hoarding, which is counter-productive in the overall efficiency. As such, it is advisable for the supervisors to dispatch the raw materials just in time. This ensures that the work in progress will be maintained as lean as possible keeping the aisles and staging areas very clear providing a free movement of materials throughout the building in an efficient manner. Inventory Management/Control Accurate inventory is key to lean manufacturing. This is because, manufacturers who are unable to control their inventories are normally plagued with delays, shortages, relatively high expediting costs, and overstocking (Wilson 2009). Among others, the following techniques may be employed in ensuring proper management of inventories. Ensure that inventory is updated in real time Instead of mass physicals, use cycle counts Make use of dispatching Make use of location control Always correct stock discrepancies immediately Avoid mass physical inventories Cellular Manufacturing This is an important part of lean manufacturing. In this system, work stations and equipments are arranged in a very efficient sequence of cells that enables smooth and continuous movement of raw materials and inventories from start to finish in a fast and continuous flow (Hesselbach, & Herrmann, 2011). This ensures that operations of the company are enhanced by removing setups and unnecessary costs between the operations. These cells may be designed in such a way that they are able to complete a process, part of the process or produce a complete product. Increased speed level in the production process and minimal handling of raw materials may lead to saving of time and cost. This leads to reduced inventory and hence making manufacturers efficient. Kanban As noted, a lean manufacturing system is that which meets service demands or throughput with very minimal inventory. Kanban control makes use of the levels of buffer inventories in the production system to regulate production (Wilson 2009). When the pre-determined and preset maximum level of buffer is attained, the upstream machine is normally instructed to stop producing the product in question. This is normally achieved by circulation of cards commonly referred to as Kanbans between the downstream buffer and the machine. The use of kanbab control ensures that the parts in production are made only in response to the demand. As such, this ensures that the manufacturer remains efficient by avoiding overstocking. Cost for efficiency An efficient manufacturer must ensure that he employs strategies that ensure that all costs in the production process are as minimal as possible without necessarily compromising on quality (Hesselbach, & Herrmann, 2011). The theory of constraints tries to give an explanation how the traditional cost accounting techniques rewards efficiencies locally at the item, work center and job level, which is counter-productive to the company’s goal of attaining overall efficiency. The following are some of the considerations, which the manufacturer must have in mind in order to guarantee cost efficiency. Setup costs should be considered as an overhead cost and not a direct cost. The manufacturer should increase its setups and reduce its run sizes. Better decisions are made when a single hourly shop rate is maintained. Factory overhead costs should be considered as indirect costs, The best way to lower costs is by increasing shop utilization. Shop rates should be updated once in a quarter. Inventory costs should be differentiated from the actual job costs. 5s Philosophy and Lean Manufacturing This is a Japanese philosophy that supports orderliness and cleanliness with an aim of achieving maximum productivity and quality. This system is normally the first step towards the implementation of other lean manufacturing techniques (Wilson 2009). It approves continuous organization and efficiency in the work place with a great emphasis of elimination of waste and visual communication. The five Japanese words Seiri, Seiton, Seiso, Seiketsu and Shitsuke represent the five steps, which aims at reducing waste, streamlining of operations, and increasing efficiency. Through a very simple five step procedure, the 5s may help to increase the productivity of the manufacturing company, worker safety while at the same time reducing the level of wastage. This is a key to attaining efficiency in a manufacturing company. Continue to improve Continuous improvement is a core element to the philosophy of lean manufacturing. It entails constant evaluation and improvement of all processes with regards to their contribution to company’s overall efficiency (Goetsch & Danis, 2006). Some of strategies that can be used to enhance continuous improvement include; Undertaking systematic examination of processes for improvement Applying the bottom up approach for best results Holding internal meetings in regular basis for example once in a week Applying continuous improvement and enhancement for incremental gains Undertaking a review of the efficiency checklist in a quarterly basis Manufacturing Organization for Quality In manufacturing business, quality is a very vital component of all functions and processes. In this regard, purchasing managers must ensure that suppliers meet quality requirements, planning and production departments should not be pressurized to an extent of degrading the quality of outputs. In addition, shipping, packaging, and warehousing should be responsible for ensuring availability and timely delivery of goods in transit. Therefore, all sectors in a manufacturing company have a role to play in order to ensure that it operates in an efficient way. The following terminologies are related to quality and its significance to a manufacturing business. Quality Control A manufacturing organization may define its own internal standards, which can be used to ascertain the quality of its manufactured products, processes and procedures. Once developed, different stakeholders are expected to adhere to these standards so as to enable the manufacture achieve its objectives. The process of ensuring that all stakeholders of the manufacturer adhere to these set procedures and standards is referred to as quality control (Goetsch & Danis, 2006). Quality control is a process where objective verification of the quality of products is undertaken. This can be undertaken by the use of a quality manual. As such, it is the duty of every officer to be aware of their responsibilities as stipulated in the quality manual. Quality Assurance This is a broad practice that is used in assuring that the quality of products is maintained at highest level possible. It is different from quality control in that for quality assurance, there is a constant deliberate effort to enhance quality practices in the manufacturing business (Goetsch & Danis, 2006). This necessitates the setting of quality assurance teams in an organization to define the processes for achieving and improving quality. In some organizations, they come up with their own internal processes while other organizations implement or adopt processes such as ISO. The function of quality assurance in an organization may use a number of tools in order to enhance the quality practices. This calls for the undertaking of formal training of all quality assurance professionals within the organization. Quality Management Systems This is a collection of business processes, which are focused in achieving the organization’s quality objectives and quality policy (Goetsch & Danis, 2006). It is normally expressed as organizational policies, structure, processes, procedures, and resources needed to implement quality management. There are many quality management regimes. However, the 1S0 9000 family of standards can be considered as the most implemented globally. Proper implementation of these quality management systems by a manufacturing organization is vital in insuring that the organization attains the required efficiency levels by producing and sustaining high quality products. Six Sigma Six sigma refers to a set of tools and techniques, which are vital for process improvement. It is a terminology related to manufacturing business (Tennant, 2001). In specific, it is associated with modeling of the process of manufacturing. In this case, the maturity of the process of manufacturing maybe described by a sigma rating, which indicates its percentage or yield of defect free products it produces. A six sigma process is that which 99.99966 percent of manufactured products are statistically anticipated to be free of defects. Its objective is to improve the quality of output of a given process by identifying and consequently removing the causes of errors (defects) and minimizing variances, which may occur during manufacturing and business processes (Tennant, 2001). Six sigma makes a set of quality management techniques and methods such as statistical methods. As such, it necessitates the creation of special infrastructure such as champions within the organization who are experts in these methods and techniques. Ordinarily, each six sigma program or project undertaken within an organization follows some defined and predetermined steps and has some quantified value targets. For instance, the targets may include reducing operation costs, increasing profits margin, increasing customer satisfaction levels, reducing pollution, among others. Kaizen This is Japanese concept, which is the basis for continuous improvement. This is a philosophy of continuously seeking means and ways of improving operations of the organization. It entails benchmarking of best practices elsewhere and instilling a sense of ownership of the process to company employees. The basis of this philosophy is the belief that any aspect of the operation may be improved and the people undertaking the process are best placed to come up with suggestions on the best ways in which the operation can be improved. As such, employee participation plays a major role in coming up and implementing continuous improvement projects. Total Quality Management (TQM) Quality management may be defined as the act of overseeing all tasks and activities that are needed to maintain a desired level of excellence. This entails creating and putting into operation quality planning and assurance over and above quality control and quality improvement. Quality management is also referred to as Total Quality Management (TQM). TQM is a continuous process of eliminating or reducing errors in manufacturing, reformation of supply chain management, improving the experience of the customers, and ensuring that employees are trained on need basis (Tennant, 2001). The main objective of total quality management is to ensure that all parties who are involved in the process of production are personally held accountable for the quality of the final goods and services produced by the manufacturer. As such, this is a very crucial ingredient of ensuring that a manufacturer attains high levels of efficiency. Statistical Process Control This is a method of quality control that makes the use of statistical methods. Statistical Process Control (SPC) is normally used in order to control and monitor a given process (Tennant, 2001). The main objective of monitoring, evaluating and controlling the process is to ensure that a given process attains its full potential. At full potential, the output of the process is good quality product with minimal wastes. SPC is a method that can be applied to any product provided that the conforming product, which is a product that meets given specifications, output is measurable. Some of the main tools used in Statistical Process Control include continuous improvement, the control charts, among others. Conclusion The main aim of a manufacturing business is to maximize its profit margin while at the same time minimize its operation costs. This can only be achieved if the manufacturer operates in an efficient manner. That is, keeps his inventory and work in progress to a minimal level, completes its job in a timely manner, and maintains high quality products. As such, if a manufacturer intends to move from conditions of inefficiencies to efficiencies there is a need for them to optimize efficiency by decreasing wastages throughout all stages of the process workflow. This is commonly referred to lean manufacturing and should always go hand in hand with continuous improvement. Further, the manufacturer will need to come up with strategies that may help in evaluating, monitoring, and controlling the quality of its output in regular basis. This will ensure that the manufacturer is able to ascertain areas of inefficiencies and undertake corrective measures in a timely manner. In coming up with strategies for change, it is vital for the manufacturer to involve all stakeholders especially employees who are directly involved in the production process. This is because they are in a better position of suggesting the revolution needed to create the desired impact in the company. PART B Question B1 A company wishes to introduce a new product. In order to do this, it must invest in some new manufacturing equipment. The choice is between Machine A and Machine B. Costs and income associated with each machine are as follows. Costs / Income Machine A Machine B Fixed Costs £75,000 £87,000 Variable Cost per Product Produced £13 £10.50 Selling Price for each Product £25 £25 Plot separate break-even graphs (Costs/Income -v- No of Products) for Machine A and Machine B. Which machine would you recommend for purchase? Why? (10 marks) Figure 1: Break-Even Graph for Machine A Note; For machine A the break-even quantity is 6,250 as shown above. Figure 2: Break-Even Graph for Machine B For machine B, the break-even quantity is 6,000 as shown above. As such, I will recommend the purchase of machine B. This is because machine B will produce the least quantities before it breaks even than machine A. Break-even point can also be calculated as; Question B2 A batch of 2500 components is manufactured by an operator. Each of these components takes 4 minutes to make. The direct materials costs are £2 per component. The operator is paid £15 per hour. If the total overheads in this company are calculated at 350% of direct labor costs, what is the true cost of manufacturing each component? (5 marks) Solution Direct material cost per component = £2 Labor Costs = (4÷60) × £15 = £1 Total overheads cost per component = (350÷100) × £1 = £3.5 Therefore, cost of manufacturing each component = £2 + £1 + £3.5 = £6.5 Question B3 a) (i) By simple inspection of the cash flow figures, estimate the payback period for each machine and thereby state which machine you would choose and justify your choice. Solution Machine A=£5,000+£8,000+£12,000+£20,000+£25,000=70,000 Therefore, payback=5 years + (£10,000 ÷£30,000) = 5.33 years Machine B =£35,000+£25,000+£18,000=£78,000 Therefore, payback= 3 years + (£2,000 ÷£10,000) = 3.2 years I will choose machine B with a payback period of 3.2 years. This is because; it will take the firm 3.2 years to get the initial cost back with machine B as compared to 5.33 years for machine B. (ii) Your colleague disagrees with your choice. Suggest one valid reason why your colleague’s choice may be justified? (6 marks) Solution My colleague’s choice may be justified because the payback period method ignores the cash flow beyond a certain year. In this case, the cash flow for machine A is greater than that of machine B in the later years. In addition, the total cash flows for the two machines for the 6 years is the same i.e. £100,000. b) Calculate the total NPV for each machine after 6 years assuming a discount (inflation) rate of 7% for each year of the project. Table B3b provides a list of discount factors for a range of discount/inflation rates. (10 marks) Solution NPV for A= NPV = - £80,000+£4672.90+£6,987.51+£9,795.57 +£15,257.90+£17,824.65+£19,990.27 NPV = £ -5471.2 NPV for B= NPV = - £80,000+£32,710.28+£21.835.97+£14,693.36 +£7,628.95+£4990.90+£3331.71 NPV = £ 5,191.17 (c) Calculate the total NPV for Machine A only assuming a discount (inflation) rate of 4% for each year of the project. Hence calculate the Internal Rate of Return (IRR) for Machine A over the 6 year period by a graphical method. (9 marks) Solution NPV for A= NPV = - £80,000+£4,807.69+£7396.45 +£10,667.96+£17,096.08+£20,548.18+£23,709.44 NPV = £ 4,225.8 Internal Rate of Return (IRR) for Machine A Discount Rate NPV 4% £ 4,225.8 7% £ ˗5471.2 Figure 3: Graph of Internal Rate of Return (IRR) for Machine A Question B4 (a) Calculate (i) the average and (ii) the range for each sample batch. (4 marks) Sample Batch 10 x Diameter (cm) Average (cm) Range (mm) 1. 25.0, 25.1, 24.8, 25.1, 25.1, 24.9, 25.0, 25.0, 24.9, 25.1 25.0 3 2. 25.2, 24.9, 24.9, 25.0, 25.0, 25.1, 25.1, 24.9, 25.1, 25.1 25.03 3 3. 25.0, 25.1, 25.2, 25.2, 25.3, 25.1, 25.0, 25.4, 25.0, 25.1 25.14 4 4. 25.2, 25.4, 25.4, 25.5, 25.4, 25.5, 25.3, 25.2, 25.2, 25.4 25.35 3 5. 25.3, 25.4, 25.3, 25.5, 25.6, 25.2, 25.3, 25.5, 25.5, 25.4 25.4 4 6. 25.2, 25.4, 25.3, 25.6, 25.6, 25.5, 25.6, 25.6, 25.4, 25.4 25.46 4 7. 25.4, 25.5, 25.6, 25.7, 25.6, 25.6, 25.7, 25.6, 25.7, 25.4 25.58 3 8. 25.7, 25.6, 25.7, 25.6, 25.6, 25,6, 25.4, 25.7, 25.6, 25.8 25.63 4 (b) Plot the average and range control charts showing the appropriate limits on each. (8 marks) Figure 4: Graph showing the Average Control Chart Figure 5: Graph showing the Range Control Chart (c) Comment on the Quality implications of the data you have analyzed (8 marks). Control charts are tools for monitoring the stability of the process and control, as well as an analysis tool. As noted above, the range variation can be used to predict how the process will vary (but within) limits in the future. This implies that the process of producing PVC pipes is very stable and in control since it displays variation that is inherent to the process. Further, some of the points in average control chart are outside or beyond the control limits. As a result, there is a possibility of the presence of a special cause, which might compromise on the quality of the PVC pipes produced. Therefore, the manufacturer should ascertain the cause of variability and undertake corrective measures so as to improve on the quality of the outputs. References Goetsch D, & Danis, S, (2006), Quality Management: Introduction to Total Quality Management for Production, Processing, and Services, New Jersey: Pearson/Prentice Hall. Hesselbach, J, & Herrmann, C, (2011), Glocalized Solutions for Sustainability in Manufacturing: Proceedings of the 18th CIRP International Conference on Life Cycle Engineering, Technische Universität Braunschweig, Braunschweig, Germany, May 2nd, Braunschweig: Springer. Loch, C. (Ed.). (2003). Industrial Excellence: Management Quality in Manufacturing. Springer. Tennant G, (2001), Six Sigma: SPC and TQM in Manufacturing and Services, Aldershot: Gower Publishing. Wilson, L., (2009), How to Implement Lean Manufacturing, New York: McGraw Hill Professional. Read More