Systagenix's Improving the Processes and Value Chain - Research Paper Example

 Report on Systagenix Operations Question 1 An evaluation of SYSTAGENIX’s operational strategy using the performance dimensions and other relevant theory. If we consider the value equation where value = performance/cost and where performance is a function of quality, speed and flexibility we can conclude that in order to evaluate performance we have to look at these factors. Performance then can be evaluated on the basis of cost, speed, quality and flexibility. Lead time is one of the methods used to measure speed. Speed is measured in terms of quickness and reliability. The manufacturing lead time is the time it takes from the receipt of an order to the start of manufacturing and onwards to its entry into the distribution system (Snyder (1996). This is really the time it takes to add value to the raw material. Based on the information provided in the tables there is a wide variation in the planned hours and the achieved hours. For the most part they tend to be unfavourable but sufficient information is not available to determine the reasons for the unfavourable or favourable variances where these exist. The reason for this is that the planned hours are variable for some of the weeks and therefore there is no “constant” available to adequately evaluate actual lead time. Cost is evaluated using taking total number of hours multiplied by the cost of the resources used in the process. The result is divided by the level of production in order to arrive at unit cost. This is compared against industry standards to determine the efficiency with which the items are produced. Quality is the ability of a system to respond quickly to changes in the external and internal environment (Snyder, 1996). Quality (Q) is measured by the following formula: Q = [(Total Output – Defects)/ Total output] x 100 Flexibility is the ability of the system to respond quickly to changes in the external and internal environment. The internal environment involves factors inside the organisation while the external environment relates to the macro-environment. According to Snyder, (1996)flexibility creates value in the following ways: Supporting shorter product life cycles permitting the firm to adopt a niche strategy creating the opportunity to charge premium prices supporting quality improvement programs reducing costs by eliminating wasteful practices fast to market gets product development funds back sooner. Systagenix Product and information process flow diagram: Systagenix’s process flow, core elements of the supply chain, for both products and information are shown below. Information is sent from the company to supplier requesting suppliers based on previous agreements reached. The diagram below indicates this. Diagram of the purchasing/supply side of the supply management chain When the order is received it is sent to storage and from there it is supplied to production. The orders is prepared by the stores manager or clerk who checks the supplies available against the buffer stock required and then places an order based on the economic order quantity (EOQ). This order is sent to the accounts department where it is checked and approved. It is then returned to the stores clerk who places the order with the supplier. The node labelled “A” above shows how this aspect of the flow of goods and information is connected to the product process flow diagram (shown below) at the point which is also labelled “A”. In the Product process flow diagram shown below, materials from the suppliers are received and inspected by the stores manager to ensure that the description and quantity of the product ordered is correct, and that it meets the required quality standards as set by Systagenix. The materials are stored until they are required for production. Order Materials Materials received from suppliers Inspect materials Storage Impregnator Storage Mixing Storage Flat Bed 1 Storage Flat Bed 2 Storage Flat Bed 3 Storage Flat Bed 4 Storage Flat Bed 5 Storage Flat Bed 6 Storage Flat Bed 7 Finished goods Systagenix’s Product Process Flow As shown in the diagram above the raw materials are passed to stage 1 of the production process. Because achieved hours are not normally the same as planned hours the work in progress has to be stored before it is passed to the next process, and so on, until the several processes are completed. The next process is that an order is received from a customer. The order is checked to determine if the required quantity of the items are in stock. The order is approved and sent. The connection between the product process flow diagram and the information flow diagram is at the point labelled “B”. Systagenix Information Process Flow Analysis of Systagenix’s Product Process Flow In order to maximise output the hours spent on the different processes needs to be finished within the standard budgeted time allowed. Presently some of the processes are not completed on time and so the materials from processes have to be stored before they can be passed on for the next stage of processing to be done. The processes should simply pass to the next stage without having to tie up storage facility of handling time to move the product in and out of storage. All these things take up time. If the materials are not available it means that the workers will be idle. They are paid for this time because they are salaried employees. Any delays along the way will result in idle capacity in terms of idle machines and labour waiting to perform tasks. Information flow is an organisation is important. Information on what to purchase needs to reach the department making the orders on time. It therefore means that the warehouse manager needs to be aware of the lead times as it relates to the ordering and subsequent purchase and receipt of materials. Furthermore, any delay in the information flow may delay the supply of raw materials, the production process and the delivery of products to the customers. The information flow in the organisation would also include Marketing and Sales, Accounting, Production/Manufacturing, Engineering/Technology, Research and development, Regulatory and support functions as well as agency staff. All of these departments would communicate with each other on a regular basis. An In Depth Evaluation of Systangenix’s Operations Two operations management concepts that can be used to evaluate SYSTAGENIX’s operations in depth are the value chain and variance analysis using Deming’s theory of variance. Deming’s Theory of Variance Snyder (1996) states that: “Deming’s central premise was that variations from standard activities cause many problems for all operations management (OM) processes and most firms.” He came up with various categories of variances which is shown in the diagram below. Common Cause Special Cause Controlled Variance Management Employee Uncontrolled Variance Management Management The diagram above shows types and causes of variance. Deming identified two (2) types of variances and two causes of variances. The common causes of both controlled and uncontrolled variances were management while the special cause of controlled variance was employees and the special cause for the uncontrolled variance was management. He is really saying that management is the main cause of variation from standard activities. If this is so then it has many implications. A number of variances were seen for the various process involved in the production of the Adaptic* products. Sometimes the variances were favourable and sometimes they were unfavourable. The unfavourable instances were more than the favourable ones. The diagrams below shows the variances in terms of planned and actual hours achieved in the production of these products. The Impregnator Process From the information it can be seen that in the in the first five (5) weeks the actual hours achieve were between 20 and 30% in excess of the planned hours. The possibility exists that the hour allocated for the process in those weeks were not adequate. In the most in which the planned hours were increased a favourable outcome was observed. It therefore means that management considers that the time allocated was inadequate and so they increased it. There seem to be some adjustments along the way. However, we do not have the necessary information on the number of products passing through the production process during those weeks for comparative purposes. If we just look at the figures as they are it is clear that the comparison is inconsistent. In week 9 and 14, 29 hours were planned and 15 and 24 hours were achieved respectively. It is very clear therefore that more information such as the number of units produced each week is required. We also need to know the number of persons employed in each week. What is clear from the information is that it is the same number of persons that would be employed as persons are paid on a monthly basis. We do not know however if some of the workers were redeployed to other areas in the organisation resulting in overtime having to be worked on some processes. The Adaptic* Mixing Process The mixing process shows both favourable and unfavourable variances but again we are not sure of the production levels. The hours are not the same and obviously one of the reasons for the variance might relate to differences in the level of Adaptic* products produced. This cannot be determined from the information provided in the case. The Flat Bed 1 Process An analysis of the variances shows that most of the weeks were unfavourable except weeks 2, 3 and 18. The reasons are not explicit and so the information cannot be used as a basis for decision making. Further information is required before a recommendation can be made. There are two (2) variables involves so one has to be held constant while the other changes. It is only based on that criteria that a recommendation could be given. The Flat Bed 2 Process Again the variations were unfavourable for most of the hours worked but as before additional information is required to make decisions or to make recommendations. The units of produced is very important in this analysis. The Flat Bed 3 Process The analysis is similar to the others. There were more unfavourable than favourable hours. Adaptic* Flat Bed 4 Process The analysis of the variance in terms of planned and actual hours used in this process is the same as above in terms of additional information required. There variances for most of the weeks were unfavourable. Adaptic* Flat Bed 5 Process The analysis of variance is the same as for all the other processes. There were more unfavourable variances than there were variable. Adaptic* Flat Bed 6 Process It is of note that there were only eight weeks of activity for this process. It could be that some of the Adaptic* variants go through this process while some do not. The number of weeks in which unfavourable variance exists were equal to the number of weeks when they were favourable. Other information is required to make recommendations are as noted above. Adaptic* Flat Bed 7 Process There were equal weeks of unfavourable variances as they were of favourable variances. However, it is not possible to make recommendations and so the same requirements noted above is important. The variances found and the hurdles encountered in determining the reasons suggest that management may be the reason for these variances. No information was presented as to the number of units produced in order to make a reasoned evaluation and therefore recommendation. In order to analyse further the process lead time is important. This is a common measurement in manufacturing and the goal is to shorten it. If the problem with the variances in terms of the planned and actual hours used to perform the processes is not resolved then an appropriate lead time cannot be set. This will impact the value chain in respect of both internal and external customer service. Business process reengineering (BPR) can be used to address this issue. Snyder (996) indicates that: “BPR is a technique for implementing radical change in a process by defining the sequence of activities that most effectively deliver the output that customers want. This will be stated in the vision statement. The principles of BPR suggests the combining several jobs if possible. This will cut down on cost. It may be possible that some processes can be down simultaneously as one (1) single process instead of one, two or three. It may be possible to combine the several flat bed processes into one by investing in technologically improved equipment if these will not impact on the production of the several Adaptic* product variants. The processes could also be rearranged where possible into ‘natural sequences’ (Snyder, 1996). Multiple versions of the process could also be developed so that the processes for the various Adaptic* variants can be made simpler. This however could either increase or reduce costs. The minimum resources should be used to check and control work (Snyder, 1996). This will reduce time and cost. Radical changes are required if Systagenix is to continue the process of reducing variances and add value in the production of Adaptic Processes. A look at the demand schedule for Systagenix’s products shows that there is a very low demand for some items. The diagram below illustrates this. The Demand for the Adaptic* Product Variants From the information presented it is clear that the demand for Adaptic* 1 varied tremendously. In the months of May, September, January February and March none were demanded. The demand show little changes over May when approximately 259,200 units were sold. In June 288,000 units were supplied and in July 633,600. Demand for Adaptic* I fell to 288,000 in November and increased by two fold to 576,000 in December 2009. The demand for Adaptic* 2 were positive for all 12 months. Sales fell from approximately over 816,700 in April 09 to 778,000 in May 09. It increased substantially in June 09 to over 1.1 million. Demand August 2009 was more or less stable and in September 09 demand increased to 1.2 million which is quite an achievement. The demand for Adaptic* 2 fell significantly by 90% in October 2009 to 658,500 units. There were significant increases and decreases between November and 2009 and March 2010 ranging from 100,000 to 300,000. The demand for Adaptic* 2 ended the year on a high of 1,075,650 units. The Adaptic 3 is the product with the highest demand during the year, with demand averaging approximately 1.17 million per month. Of all the other variants of Adaptic, Adaptic* 8 and 10 were the other two products that showed reasonable demands. The demand for the Adaptic* 8 ranged from a low of 269,354 to 477,685 in any one month and that for the Adaptic* 10 from 187,752 to 345,288 in any one month over the period. All other Adaptic* variants show demands ranging from 50 to 111, 648 units. Adaptic* 4 was the product with the least demand ranging from 0 to 1,000 units during the period. The demand for Adaptic* 4 were only in April, June, July and September 2009. Based on this demand information Systagenix should carefully consider whether the business is creating value by producing Adaptic* 4, 5, 6, 7, 9, 11, 12, 13 and 14. This consideration is extremely important for Adaptic* 4 since less than 2,000 items were demanded during the period. A thorough analysis of the cost involved and the benefits to be achieved from producing all the Adaptic* products that are in low demand should be carried out. The Value Chain “The value chain provides a structure to capture the linkage of organizational activities that create value for the customer and profit for the firm. It is particularly useful to get across the notion that operations and other activities must work cross-functionally for optimal organisational performance” (Chase et al 1998, p754). Porter’s value chain looks at the inbound and outbound logistics that go together to create value for the business. The diagram below provides information on the value chain. Michael Porter’s Value Chain consists of primary activities and support activities. The primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities include the firm’s infrastructure, the human resource management, technology development and procurement. The inbound logistics are the processes involved in getting the raw materials into the business from the supplier into the business, storing them and issuing them into production. Operations relate to the production process – how the raw materials are transformed into finished goods and outbound logistics is the process involved in getting the goods to the customers. It involves the collection and of the finished goods. Customer satisfaction can be addressed from the perspective of internal and external customer service. Internal customer service relates to the next user of the product. The next work process centre or department should be provided with the raw materials to carry out the next level of processes or the finished goods section should be provided with finished goods in order to facilitate a sale. According to Kasul et al (1996), this also includes: “Presenting improvements or cost saving suggestions to management and authorising employees to self implement solutions, cross training employees for mastery of more than one job and providing adequate technical training.” External customer service involves responding to queries and complaints in a timely manner and doing what is necessary to reduce complaints and questions. This also includes recognising all persons involved in the provision of quality service to Systagenix’s customers. Marketing and sales relates to the process involved in informing potential customers about the product, convincing them to purchase and facilitating the sale of the finished goods. Services relate to the services provided to the customers in order to improve the value of the goods including activities to keep the product working. Procurement relates to the acquisition of resources and inputs. How this is done is very important. The question is: Does Systagenix seek to get the inputs at the right price without it negatively impacting on quality? The major responsibilities of purchasing according to Snyder (1996) are: Setting the terms and conditions of purchases; supplier selection; scheduling; education; evaluation and feedback; certification; development; and supplier advocacy. Materials requirements’ planning is of importance here as it would be unwise for a company to time up space and money in buying too much inventory. This plan should also include improving the quality of materials received whenever there is room for improvement. Kasul et al (1996) states that: Components of the materials plan should include: reducing inventory levels and increasing turnover rates through smaller lot sizes and more frequent deliveries, using a few suppliers with close relationships, emphasising quality and delivery capability instead of price, eliminating queue space and inventory quantity through continuous flow processing embracing the techniques of Just-in- time (JIT). Human resource management includes all activities involved in recruiting, training and development, and compensation. The company needs to look at it’s the training programmes or employ staff that have national vocational qualifications (NVQs). “Six Sigma seeks to improve the quality of process outputs by identifying and removing causes of defects and minimising variability in manufacturing and business processes… Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase)” (Wikipedia, 2011). Six Sigma will result in significant reductions in defects as it seeks to drive down the rate to defects and improve quality to 99.999%. Technological development relates to the technology used in transforming the input into output. This relates to technical knowledge and equipment, software and hardware used in the process. Management should carry out a thorough evaluation of equipment costs and consider cost effective duplication of the technology as part of the criteria for selection (Kasul et al, 1996) Infrastructure relates to the structure of the organisation and its functional departments. How these activities are carried out will affect costs and therefore impact on the margin. The proper functioning of these departments is important to the production process as all the departments are linked through communication and flow of information. Value at the margin can be achieved through team work and the use of kaizen budgeting which involves continuous improvements the production process through reductions in labour hours per unit and reductions in per unit cost by raising the volume of production. An evaluation of the production process to determine value added and non-value added may be done to reduce or eliminate non-value added activities and therefore reduce costs. Conclusion Other organisation-wide strategic management techniques such as balance scorecard could be considered to ensure that there is a balance between improvements in internal processes, growth and learning, increased levels of customer satisfaction and an improvement in shareholder value. Systagenix has a lot work to do as it relates to the Adaptic* products in both improving the processes and its value chain. References Chase, R. B., Aquilano, N.J & Jacobs, F. R (1998). Product and Operations Management: Manufacturing and Services. 8th ed. USA: Irwin McGraw-Hill companies. p754. Kasul, K & Motwani, J. G. (1996). A proposed model for evaluating a company's operations profile. Industrial Management & Data Systems. 96 (8), p7-12. Melnyk, S. A & Denzler, D. R (996). Operations Mangement: AValue Chain Approach. USA: McGraw-Hill Company Snyder, R (1996). Operations Management. USA: Irwin McGraw-Hill Wikipedia. (2011). Six Sigma. Available: http://en.wikipedia.org/wiki/Six_Sigma. Last accessed 10th January Walton, J (1999). Strategic Human Resource Development. UK: Pearson Prentice Hall Read More