Application of OM Concepts/Tools - Essay Example

Application of OM Concepts/Tools Executive Summary Operations management is one of the significant areas that are of great importance for any organization as the production and manufacturing of goods and services of the company is the prime objective of this sector. Amongst the numerous concepts and tools that can come under application for the problem related to the facility location and layout, centroid method came under consideration as the best applicable tool for the company Eldora (EDC) who were leading manufacturers of bicycle in the U.S. The highlighting issue of EDC illustrates the information that the manufacturing plant units did not come under relocation to other locations such as in Asian countries as this market was becoming the leader in the manufacturing industry especially due to its cheap labor. Because of a domestic strategy allied to the production of the bicycles, all the business processes of EDC remained to one location only. As an outcome of this decision, they came across several issues associated to the facility location; centroid methodology was the finest solution if adopted by EDC would resolve the concerned issue. This tool proves to be fruitful for the organization as it has numerous benefits that can aid the company. The expected results of this method will lead them to reduced costs in their production due to cheap labor, having the prospect to penetrate into new market segmentation, competitive advantage over others as being present into a global marketplace. In addition, the manufacturing enterprise will also have the advantage from the environmental regulations in the local plant and will also develop and persuade the relationships with the local residents of that area, and will help in removing the cultural barriers between them and there are many more benefits that the organization can have from it. Background Information The organization that is under discussion in the thesis paper is Eldora Company (EDC), which is considerably one of the dominant, well-known and most popular businesses that manufacture and supply bicycles in the United States of America (Chase, 2006). Eldora experienced a boom in its sales and recognition in the marketplace since the last decade, as their lower price of the bicycles for a very long time gave them an edge over their competitors. With the increasing reputation, EDC became the market leader as it contributed to more than twenty-five percent of the bicycle sales of the United States. Eldora Company’s business units were located at the same site and all the operational units and the corporate office shared one roof. EDC was a huge organization with numerous employees and workers; and they have come under division according to their capabilities, areas of expertise and skills (Chase, 2006). Through the joint venture with a company based in Europe, Eldora expanded its business into the European market as well. Eldora was an organization that encouraged and promoted the viewpoints, innovative ideas, and recommendations of their employees related to the mechanism of the bicycle that provides with additional features. The loyalty and dedication of the employees towards the company can come under limelight as information and awareness of most modern and recent fashion and approach was the key motive of the members of the staff (Chase, 2006). The principal motivation and influencing factor for the bicycle manufacturers’ repositioning of facility location to the Asian world was that this market was experiencing a boom of bicycle producers at a phenomenal and an unprecedented rate, which allowed them to have cheaper labor in comparison coupled with low distribution costs (Chase, 2006). Problem Description One of the primary and high-priority matters of subject especially in the contemporary period of universal and comprehensive marketplace and international creation and manufacturing of goods on the strategic plans, programs, and schedules for the operational management team of the enterprises is the location or the site setup of the service facility. With the boom of globalization, businesses have the opportunity along with better and higher adaptability of the locations of their service facilities. However, the location selection is very critical and crucial for any organization’s strategic plan, as there are few main aspects associated to it (Drezner & Horst, 2004). Amongst which is the concern of the location that should be in the nearby area to the consumers due to fast-growing competition, and added charges of transportation. Another factor or the need that is of prime interest for the enterprises is the location that should be closer to the labor and worker group so that the business owners can get benefit from the highly skilled workers according to the requirements of the jobs in a much reasonably economical salaries and pay-scales (Drezner & Horst, 2004). There are various issues and difficulties that the organization encounters during its business processes or while making decisions. In order for the company to grow, expand and accomplish its goals and objectives it is essential and imperative to elucidate the obstacle of the location of its facilities as the planning and constructing the facility location is considerably one of the significant components and building block for the organization (Klamroth, 2002). The planning of the facility location depends upon various benchmarks that the company has to take decisions on which involve factors such as regional factors that comprise of nearness to consumers, total costs involved with the production of the bicycles, infrastructure, efficiency of labors, suppliers, political risks, government barriers, trading blocks, environmental regulations, competitive advantage and many more. The growing demand of universal and comprehensive environment and the development and innovation in technological sector in the recent times have alleviated the time consumed in the decision-making process and factors of the facility locations for the enterprises (Heragu, 2006). Since the labor cost in U.S. has always been one of the biggest concerns for the manufacturers due to the reason that the hourly labor income rate in U.S. has been comparatively high on a constant basis, therefore, EDC encountered the same issue as the labor costs covered more than fifteen percent of the total cost of the bicycle. Another crucial issue that EDC faced was increased expenditures of shipment, and excise and custom duties on imports to the consumer markets (Heragu, 2006). This thesis statement based on the case study defines the foremost and one of the most important problems of the firm Eldora Company that “due to an internal production policy and plan of action the company’s production plant location did not shifted and remained on the previous site coupled to its business workplace in Colorado. In contrast, the principal and chief competitors were relocating their production functions and processes to abroad locations as they observed the benefit of cheap labor expenses. Therefore, EDC was not able to grow and flourish itself into the international market when compared to the countrywide market”. Operations Management Concepts/Tools that can be Applied Operations management is one of the important features and aspects that the company heavily depends on as it attributes the process that initiates from the manufacturing of the raw materials to the processing and assembling of the resources or the un-finished products into the form of finished goods or services (Khanna, 2007). Operations management is a division of the enterprise that acts as a helping hand in achieving a competitive advantage over others in the local and international market through its products’ unique quality, efficiency, and receptiveness of the company. Operations management is the practice of conversion of actions that involves designing, formulating, organizing, and administration of raw materials in association with the labor efforts and machineries into the finished framework of the products or the services. Several renowned, accepted, and popular concepts and tools are available that can come under application to the operations management process (Khanna, 2007). While the operations management envelops many operational problems, such as “process planning and development, supply chain management, capacity planning, total quality management, manufacturing planning and organizing, facility location and layout, supplier management” (Ballou & Srivastava, 2007), and many more, Centroid method is one of the well-developed tools that come under adoption in the area of logistics and facility location and layout. Centroid method comes under consideration to be the best solution related to the facility location as it speculates and deals with all the locations that are operating and functional, the amplitude and the length connecting the two sites, and the quantity and amount of products or services dispatched and transported between them (Ballou & Srivastava, 2007). The procedure comes under implementation for the measurement and the calculation of the unknown factors or coordinates that abridges the gap or the distance between different existing sites and the quantity of the product that comes under transportation within these locations entails few explicit principles and theorems. The opinion and the outcome of the results that define the setup of the location profoundly depend upon lowest allocating expenses. The creation and formulation of the comparative area and length connecting multiple sites is the key intention and objective of the centroid method (Ballou & Srivastava, 2007). Factor-rating system is another concept/tool for designing the facility location that come under very extensive and common adaptation by the organizations due to the reason that various and dissimilar features can come under amalgamation through an available functions of processes in an uncomplicated and lucid system. Corporations assess, evaluate, and give points within a range to the sites against the factors than have an impact on the locations (Mahadevan, 2010). The comparison came under performance between the computations of the points assigned to individual location and the selection of the location came under basis according to the highest achieved points. The justifications and clarifications of the extensive array of expenditures that come under association to the aspects influencing the costs is one of the leading barriers with this tool. Qualitative, measurable, and assessable recommendations and comments become the basis for the verdict and assessment features of the allocation of the locations (Mahadevan, 2010). Transportation method of linear programming is an additional tool/concept that can relate to the issue of estimating the facility location. However, the major problems associated to this tool are the shrinking of the costs to the lowest level and escalating the profits to a highest level of transportation of particular units to destinations (Starr, 2004). With the help of some software applications, the problem can come under resolution through their evaluations. The foundations of the decisions lay on either the unprocessed materials and assets or the completed products or services (Starr, 2004). Application of OM Concepts/Tools Centroid method is the paramount and dominating tool/concept of facility location that EDC has adopted in order to solve the issue of the facility sites. With the growing demand of bicycles in the Asian market, the employees of the executive level had no option left except to make a way to enter into a new target market (Chase, 2006). With the development of the new facility location, the manufacturers of U.S. bicycles such as Eldora would have an edge over others and will dominate the Asian markets in terms of the innovative designs of the bicycles due to more technological advancements in U.S. (Chase, 2006). With the development and advancement of technologies, it is easier to locate and trace customers with the facilitation of communication towers; therefore, with the adaptation of this method coupled to the technology, facility location discovery becomes uncomplicated where the customers are in proximity (Chase, 2006). The calculation of the centroid method comes under performance on a grid system where all the current and real locations come under positioning on coordinates, as the selection of coordinates are exclusively on random basis. The quantity and volume of product sold at the existing locations should also be present and available on the grid system. The determination and recognition of the area and the length between the existing locations is the fundamental objective of centroid method. The X and Y represents the coordinates that comes under weighing up to find the centroid as an outcome of the least shipping expense with the help of the formula (Li, 2007). For example, there are three manufacturing plants of Eldora with the X and Y coordinates as follows: Facility Locations Coordinate X Coordinate Y Quantity Location 1 200 80 5500 Location 2 150 265 8500 Location 3 325 415 7600 The calculation of the new location of the facility will be according to the formula presented below: “X = [sum (Xix Qi)] / [sum Qi] Y = [sum (Yiy Qi)] / [sum Qi] Where: Xix / Yiy represent the coordinates of the new location Qi represent the quantity of bicycles shipped from and to the new location Therefore, by putting all the values in the given formula will calculate and provide with the coordinates for the new facility location (Li, 2007). X = [200(5500) + 150(8500) + 325(7600)] / [5500+8500+7600] X = 224 Y = [80(5500) + 265(8500) + 415(7600)] / [5500+8500+7600] Y = 271” (Li, 2007) With the calculations through the formula, the new coordinates or the destination that is 224 and 271 for the location have appeared on the grid system that presents with a most suitable source of origination from where the exploration and development of the location can come under accomplishment (Li, 2007). Analysis of Expected Results The proposed solutions will bring a number of positive changes for the Eldora Company. As Eldora has always been flexible and open to new adaptations and changes in their bicycle innovations with reference to the varying market demands in order to expand and grow (Kumar, 2006). The primary purpose of selecting the location or relocation to a new site is to reduce the total cost of the product that include the distribution costs, land costs, construction costs, labor costs, energy costs, shipping costs and so forth to a minimum level. Another benefit of having multiple facility locations is that it abridges the cultural differences and obstacles amongst these countries. Facility location plant in Asian market also benefits Eldora due to the reason that it will promote the market threats to a nominal level (Kumar, 2006). In addition, it will also facilitate in the foreign trade barriers and currency exchange rates as few of the countries provide with flexible payment methods for the custom charges and duties on import of the products. Furthermore, labors with low-salary wages are one of the biggest advantages for the manufacturers as this cost covers a lot of percentage of the total cost of the product (Kumar, 2006). The business of Eldora also got the advantage of proximity to consumers, as they would be able to integrate the requirements of the customers on a constant basis into their manufacturing products. The incentive to have a new facility location particularly in the Asian region will also lead to new contacts and opportunities to enter into the Asian market and expand the business in that region as well. The liaison and associations with other corporations in the similar industry will also influence and promote the management and the employees to be exclusively updating themselves and be aware of the current and modern market trends and fashion styles (Kumar, 2006). Conclusion As far as Eldora Company is concerned, it was a leading and prominent manufacturer of bicycles in the U. S. market. However, the cost of production decreased gradually as the competition was increasing on international perspectives with a much lower price of the product. This motivating power leads the verdict of EDC to offshore the facility locations in the Asian countries as these countries provided a benefit of cheap labor. Through the processes, concepts and tools of operations management that can come under application and adoption by the companies, the problems, and issues related to the manufacturing of the products can be lessen down. However, the focal point of the thesis report is addressing the issue of facility locations that the manufacturing industries encounter and the possible solutions to such problems. The decisions made in the strategic planning for the manufacturing of goods or services that are in connection to the facility location are one of the imperative and significant aspects for any organization. As the Eldora Company always welcomes the new adaptations, the centroid method is one of the solutions that can overcome the issue of the facility location and paramount the profits and success rate. The estimated results demonstrate and verify to be productive in the achievement and growth of the company in the future for a long time. References Ballou, R. H., Srivastava, S. K. (2007). Business Logistics/Supply Chain Management. Pearson Education India. Chase. (2006). Operations Management for Competitive Advantage. Tata McGraw-Hill Education. Drezner, Z., Hamacher, H. W. (2004). Facility Location: Applications and Theory. Springer. Heragu, S.S. (2006). Facilities Design. iUniverse. Khanna, A. (2007). Production and Operations Management. PHI Learning Pvt. Ltd. Klamroth, K. (2002). Single-facility location problems with barriers. Springer. Kumar, S. A. (2006). Production and Operations Management. New Age International. Li, L. (2007). Supply chain management: concepts, techniques, and practices enhancing the value through collaboration. World Scientific. Mahadevan, B. (2010). Operations Management: Theory and Practice. Pearson Education India. Starr, M. (2004). Production and Operations Management. Cengage Learning. Read More