Operations Management in Heinz Company - Case Study Example

Operations Management A Study of H.J. Heinz Co Table of Contents Table of Contents 1 1.0 Introduction 5 2.0 Discussion 9 2.1 Evaluation on H. J. Heinz Co 9 2.1.1 Definition of Lean Production 9 2.1.2 H. J. Heinz Co’s Lean Production 14 2.2 Analysis of H. J. Heinz Co’s Value Chain 24 2.2.1 Waste Management 25 2.2.2 Recommendation 33 2.3 Impact & Justification of Recommendations 37 2.3.1 Impact on H. J. Heinz Co’s Resources 38 2.3.1.1 Increase Competiveness 43 2.3.1.2 Long-term Sustainability 48 2.3.1.3 Corporate Social Responsibility 53 2.4 Porter’s Value Chain Framework 59 2.4.1 H. J. Heinz Co’s Porter’s Value Chain 59 3.0 Conclusion 71 4.0 Bibliography 75 1.0 Introduction H.J.Heinz Company was started in the year 1900 in Pennsylvania and it manufactures a vast range of food products throughout the world. The Company’s principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition and other food products (HJ Heinz Company, 2005). The company is present in over 110 major locations worldwide, with leading brands on six continents. The Heinz brand is a $2.5 billion global icon and Heinz's top-15 power brands account for two-thirds of annual sales (HJ Heinz Company, 2006). With more than $8 billion in annual sales, Heinz's 50 companies have leading brands in more than 200 countries (HJ Heinz Company, 2009). In the year ending 2010, it achieved sales of $10.5 billion and gross profit of $3.8 billion (HJ Heinz Company, 2010). These positive results reflected increased innovation and marketing and dynamic growth in Emerging Markets. However, one of the core aspects of the company is also its unique lean production techniques which have played a major part in enhancing the efficiency of the company while at the same time managing to survive tough global markets especially for a US based company tackling recession. 2.0 Discussion 2.1 Evaluation on H. J. Heinz Co 2.1.1 Definition of Lean Production Lean production simply means a manufacturing paradigm that improves product quality; reduce production costs and being able to respond to customer needs quickly (Radhakrishnan and Balasubramanian, 2008). The main principles of lean focus on the methods of creating a continuous improving culture that engages employees in reducing production time and material in order to meet customer’s needs. Lean production also concentrates on systematic elimination of non-valued added activity of waste from the production and implementation process of lean principles (Chalice, 2007), which will contribute an improvement environment performance (Radhakrishnan and Balasubramanian, 2008). The term lean production can be traced to its origins with Japanese companies more specifically in the Automobile market which faced issues like lack of resources including financial and labour. At this stage of crisis, two employees of Toyota Motors namely Eiji Toyoda and Taiichi Ohno developed this unique concept to manage such a crisis focusing solely on terminating waste in a production or manufacturing process which is called as Lean Manufacturing in the western region. 2.1.2 H. J. Heinz Co’s Lean Production Being a global food processing company, Heinz critically needs to leverage its production aligning with its strategy of waste management. While the company has extensively worked on various lean production and waste management cases, research will focus on one of the major cases of the company where waste management was successfully done Amongst its other global strategies, when Heinz chose to give priority to waste management, it realized that technology would be one of the key aspects if it were to successfully compete in the industry and reduce waste. After careful analysis of several competitive applications, Heinz chose an enterprise asset management (EAM) application (Infor Global Solutions, 2009). As manufacturing and maintenance employees began using EAM after implementation, the company gained better visibility into their processes and realized that more progressive lean manufacturing and lean maintenance practices would enable more significant efficiencies (Infor Global Solutions, 2010). Heinz Co started using lean manufacturing and maintenance practice in order to improve results in a short period of time. It started to identify maintenance waste elements and to use EAM as it was meant to be used in concert with lean manufacturing and lean maintenance (Infor Global Solutions, 2010). This created awareness among employees on the needs to change, understanding of goals and objective, and also the commitment from the high management to those performing tasks. Heinz Co learned that lean practices are instrumental in implementing an EAM application to achieve excellent results quickly and cost-effectively and that asset reliability is a key tool for successful lean manufacturing operations (Infor Global Solutions, 2010). Other than EAM, the others primary lean tools that Heinz Co adopted were maintenance planning, preventive maintenance, total productive maintenance, reliability centered maintenance, and reliability engineering to eliminate failures (Infor Global Solutions, 2009). Heinz Co also uses other lean tools such as FiveS, to keep things in order; FiveWhys, to ensure ease of use; Kanban, to provide a visual representation of progress in the work cycle; Hansei, to enable reflection upon errors and correction of them; Genshi Genbushu, to allow seeing the work to spark ideas on how to improve; and Kaizen, to review four-hour progressive manufacturing tasks to eliminate waste (Infor Global Solutions, 2010). EAM features KPI (key performance indicator) inboxes plus reports to see hours worked per month, overdue PMs, planned-hour ratios, and rework hours. After that, processes were tweaked in order achieve efficiency goals. Furthermore, EAM and lean practices could enable verification of maintenance plan ahead of time and saved three to five times the total time invested. Time invested in planning with EAM, lean maintenance practices, and a focus on continuous improvement more than pays for itself (Infor Global Solutions, 2010). Figure 1: Heniz Co’s Enterprise Asset Management 2.2 Analysis of H. J. Heinz Co’s Value Chain 2.2.1 Waste Management H. J. Heinz gives a lot of importance to waste management within the company and being the leading manufacturer in the food industry, the company plays a lot of attention to the research and development and also on innovation. The company focuses a great deal on the issue of waste management and has constantly tried its best to ensure that the departments of packaging and recycling take extra caution in better waste management. For instance as has clearly been explained on the website of the company, it is clear that in North America, the company has introduced trays made from recycled pulp and cartons which are not chemically bleached for all the frozen Boston Market meals. Similarly, the company has also included the use of 100% ‘post – consumer reground and recycled glass’. Heinz has also been making complete attempts to reduce the weight of the cans and using lighter weight cans for beans and soups. Also, the company has adopted the paper sleeves in China for the infant food jars and has completely eliminated the use of the plastic shrink wrap. Heinz has also shown intense commitment to the process of waste management and apart from the development and implementation of the Environmental Management System (EMS), the company has also made an effort of working with the suppliers and works towards reducing the wastage of water in the crop production. The company’s recent report also highlighted efforts on the part of Heinz to incorporate and increase the use of drip irrigation in Portugal and Greece. The company has already implemented as much as 98% of the overall crop irrigation in terms of drip irrigation while the rest of the 2% use sprinkler irrigation and also percent furrow. Greece was noted to have as much as 85% of the overall irrigation in drip while the rest of the 15% was in terms of sprinkler irrigation (Heinz CSR Web, 2005, p. 34 - 36). Similarly in terms of Australia, the company has adopted the use of drip irrigation and this has been the exclusive method for the Heinz products over the past few years. Also in California, the company has worked on changing the traditional furrow method to the drip irrigation method. The company’s commitment is clearly evident here as the use of drip irrigation as a process has been doubling since 2004 and has grown to a great extent in terms of the tomato growing and in key tomato growing areas. As explained in the report by Heinz, “It currently represents about 15 to 20 percent of the total acreage, and another major expansion is planned for the upcoming season. In California, Heinz contracts directly with growers for only 25 percent of the total tomato requirements from this area, relying upon other tomato processors for its requirements. Heinz works closely with these suppliers to help ensure that they are promoting the best practices” (Heinz CSR Web, 2005). 2.2.2 Recommendation Based on an understanding of the company and the strong policies that it has built around the manufacturing processes and the environmental safety, it is evident that Heinz clearly has been able to effectively cover all aspects of the waste management. It is recommended that the company continues to adopt the Environmental Management System (EMS) and to work on continuous training and development of the employees to ensure complete awareness and complete knowledge in terms of the waste management within the company. The company can also include a stricter and more focused approach in terms of the use of energy, water, packaging and also raw materials. Heinz can also include more interactive programs with the suppliers and the contractors to ensure that they also share the commitment and partnership and work together towards the waste management. Also, Heinz can include a detailed presentation to explain the impact of the operations on the environment and assist the supplier and contractors in reducing these effects. Another major place where the company can reduce waste is by using the online medium solely for the reports. This will not only reduce the printing costs but will also allow the company to reduce the paper wastage as well. It is also recommended that the company focuses on the standardizing the overall Environmental Management systems across all locations, along with the complete documentation and complete focus on the various laws relating the operations like the International EMS Standard, ISO 14001. 2.3 Impact & Justification of Recommendations The main aim here is to discuss how the above mentioned recommendations can impact the resources of the company and also to identify how these recommendations can assist the company in improving the overall competitiveness, and also increase the long term sustainability along with understanding the company’s corporate social responsibility likewise. 2.3.1 Impact on H. J. Heinz Co’s Resources The recommendations that have been developed here for the company are clearly based on the current operations and the current areas that the company focuses on. Here it is important to note that implementing the recommendations will clearly provide the company with more efficient and effective processes and reduced overall discrepancies across the locations. The main resources that might be used here for the above mentioned recommendations include the use of a few of the personnel; with excellent knowledge of not only all processes of the company but also the various laws. This will allow the individual to provide the suppliers and the contractors and also the employees of Heinz itself with more detailed knowledge and will permit the employees to be more sure of their goals and also what is expected to be able to assist the company meet the objectives. The resources that the company will need to use will be a few personnel and limited levels of investments in order to conduct and develop a few information based classes for the suppliers and the contractors. It is crucial to note here that the overall investments or use of resources here will be minimal as compared to the results that the company can achieve based on the recommendations. It is also important to note that the implementation of better and more standardized Environmental Management Systems will only help in ensuring that the company is working based on the needs and requirements and not unnecessarily. This will not only help the company in terms of the human resources and their efforts but will also allow the company to cut on costs and will permit more accurate production and management of the overall operations likewise. 2.3.1.1 Increase Competiveness Based on the above recommendations the company can help gain a strong competitive advantage in the industry. In the current times, with the increasing importance given to the environment and increasing focus that people across the world give on more ethical and socially responsible behaviour, with Heinz following the recommendations, and the current efforts of the company, Heinz will be able to successfully gain an upper hand as compared to its competition. The company has been able to already establish a strong brand image, not only for the excellent products but also for being an ethical company with major focus on the environment. Also the increased innovativeness that the company will implement, Heinz will only be able to move a step closer to its goals. A company can be referred to be highly competitive when there is a focus not only on the quality or marketing of the product but also humane behaviour displayed by the company. Here with the implementation of the recommendations the company will be able to reinstate its overall effectiveness and will also be able to provide support to the overall brand image. This will permit Heinz to portray the customer centric nature as well as environmental friendly performance and operations. These cumulatively along with the current contributions and excellent performance and effective overall operations will provide the company a major competitive advantage over its competitors. 2.3.1.2 Long-term Sustainability Heinz’ implementation of the environmental management systems has not only helped the company to reduce the environmental risks and impacts and also has helped in perfect assessing and management of the these risks. With the intense commitment that the company portrays in the implementation and risk management it is clear that in the long run, Heinz will benefit from this to a great extent. Also, following the above mentioned recommendations will help the company develop a stronger system which will allow Heinz to expand the application of the systems to all the manufacturing locations. Having the Environmental Management Systems (EMS) set up across all the locations will not only allow the Heinz to keep the overall performance higher and more effective but will also allow the company with a strong framework for the environmental performance and these will all be in sync with the rules and laws like the International EMS Standard, ISO 14001. It is important to understand that development of standardized operations across locations allows the company to perform more effectively and also permits the company to be able to implement changes and improvements easily. In the long run, when the company is faced with newer challenges and need to improvise their systems either in terms of upgrades or also in terms of the overall operations, with the standardized approach, the company will be able to implement any change more effectively and will also permit an easier transition in the long run as well (Kotler, 1999). Also, it is important to note that with the growing interest of major parts of the society on environmental development and improvements, the Environmental Management Systems along with the Enterprise Asset Management will only help the company gain a lot more and will make the company more stabilized and steady for long term sustenance as well. 2.3.1.3 Corporate Social Responsibility Heinz has already been noted to focus highly on the corporate social responsibility. The company unlike several other companies is not focused solely on the profit making and the company has proved by the number of different events and programs that it already organizes. The already existing programs like H. J. Heinz Company Foundation, Providing Aid in Times of Greatest Need and Helping to Create Stronger Communities along with the other programs like, Project Mayang – Indonesia, Project Mei Li – China, Project Ashok – India, and the Heinz Micronutrient Campaign have not only proved to be very effective but will also be faced with an added advantage when the company adopts the above mentioned recommendations. This is clearly because Heinz is naturally a very ethical company with major focus on the social responsibility. This is evident from their website which clearly states, “At Heinz, our firm commitment to corporate social responsibility is embedded in  the way we conduct business. Heinz is a global food company built upon a legacy  of integrity, ethics, transparency, and community engagement” (Heinz, 2011). Following the recommendations will allow the company to only make its operations much stronger and also help spread the goals to the suppliers and contractors as well. Together the company can develop and improvise on the contributions that it makes to the society in terms of donations, programs and also various campaigns but also in terms of the reduced and conservative use of energy, raw materials, and also water (Mintzberg, et.al, 2002). On the whole the recommendations will provide the company with a chance to reach out to a wider range of people and also provide support in several different ways, both big and small. The overall corporate social responsibility will be clearly improved and will become more effective and efficient. Taking a few of the recommendations will also help the company perform much better which in turn will assist in more social responsibility based programs to be effectively managed and higher contributions to be made to the society as well. 2.4 Porter’s Value Chain Framework 2.4.1 H. J. Heinz Co’s Porter’s Value Chain Micheal Porter introduced in 1985 in his book, ‘The competitive Advantage’, a theory called Value Chain. This theory he explained that the operations within an organization are all divided into value adding and non value adding. The activities that add value to the organization and services are the optimum and help the organization with a higher competitive advantage (Porter, 1998). Porter divided the activities into two main groups, i.e. primary and support activities. Here in this section the aim is to identify the major wastages that are possible in the activities in terms of the value chain. This section will be divided into firstly identifying the wastages that are possible in the company in terms of the primary as well as the secondary activities. This will be followed by a discussion of the ‘danger signals’ from each of the activities and how these can be dealt with effectively to improve the overall performance of the company (Schroeder, et.al., 2010). H.J. Hienz value chain analysis is clearly a relatively clearer and straight forward. While considering the possible threats that the company faces in terms of both the primary and secondary activities the analysis helps identify the seriousness and urgency of each of the dangers and helps the first line manager concentrate on the issues accordingly. In terms of the primary activities, Heinz has two main areas that need care and attention. Firstly the Operations is important to be concentrated upon since it can involve a high chance for wastage in terms of spoilage of the products (as it is a food industry) and also possible breakage or damage to the packing materials (Stevenson, 2008). In terms of the outbound logistics the company can face issues in relation to the shipping, transport, and also most importantly storage of the finished products. Considering the support activities, it is clear that only procurement can be recognized to be high. The main issue that the company can face here includes possibility of low quality raw material, or material that does not reach the quality levels of the company (Kotler & Lee, 2004). Also, the company can also face issues in terms of time wastages until the raw materials arrive within the company premises. Hence having understood the possible issues that the company might face, it is crucial that these are listed out to gain a clear idea and to assist in better recovery and reduction of wastes. Based on a thorough study of the company, the following danger signals for each of the activities have been arrived. It is crucial to note here that the company faces ‘medium’ risk for a number of activities and hence, it is important that the first line manager here takes a clear look into these areas and works on resolving the issues at the earliest. Value Chain Analysis Danger Signals Primary activities Product Interrelationships Inbound Logistics HIGH Operations MEDIUM Market Interrelationships Outbound Logistics MEDIUM Service LOW Marketing and Sales LOW Support Activities Product Interrelations Procurement HIGH Technology Interrelations Technology Development MEDIUM Infrastructure Interrelations Firm Infrastructure LOW Human Resources Management LOW As seen in the above table, the high dangers are for two main activities, i.e. inbound logistics and procurement. Here it is the duty of the line manager to ensure that the wastage is reduced and that the company does not spend a lot of the resources for the shipping or the transportation of the raw materials. Also, wastage in terms of the storage can be reduced to a great extent by implementing Just – in – time approach for the raw materials procurement. In terms of operations, the first line manager can deal with the issues of spoilage and also breakages by implementing more standardized methods of handling on the floor. In terms of the outbound logistics and technology department, the manager needs to ensure that the products are not transported unnecessarily and the overall processes are close to each other. This helps in reducing the possible wastage in time and also permits the company to make better use of the human resources in more productive areas of work. For the technology department, the manager can help reduce the possible wastes by ensuring that the machinery are in optimum working condition and also by ensuring that no unnecessary human resources are wasted to simply overlook the working of the machines throughout the day. 3.0 Conclusion H. J. Heinz Co can be easily recognised to be one of the most well known brands in almost every home through numerous countries. The company has clearly proved to be very effective and efficient in its operations and has also been able to contribute to the overall society to a great extent. It is important to note that Heinz has been able to effectively implement the lean production technique within the company and has been able to effectively develop reduced wastage as well (Heizer, 2010). The company clearly faces issues in a few of the areas of the operations. Each of these has been discussed in detail above. It is evident that Heinz has a strong and effective operations system which allows the company to face the issue of wastage and any other operations related issues very effectively. On the whole Heinz can be concluded to be a strong and effective company with high levels of overall performance. The company has also been able to effectively contribute to the society to a great extent and has been able to also help in better overall use of its resources as well (Jobber, 2004). Heinz has proved to be very effective in handling the wastes until now and the company has the potential and ability not only to implement excellent lean management systems but also to ensure that the company is profitable. 4.0 Bibliography Chalice, R., 2007. Improving Healthcare Using Toyota Lean Production Methods: 46 Steps For Improvement. 2nd ed. USA: ASQ Quality Press. pp. 46. Heinz CSR Web, 2005. Corporate Social Responsibility Report. Hoechstetter Printing, An RR Donnelly Company, pp. 34 – 36 Heinz, 2007. Corporate Governance and Ethical Operation. [online] Available at: [Accessed 02 January 2011]. Heizer, J., & Render, B. (2010). Operations Management. Operations Management. HJ Heinz Company, 2005. HJ Heinz Company Annual Report 2005. [online] Available at: < http://www.heinz.com/data/pdf/2005HeinzAR.pdf> [Accessed 29 December 2010]. HJ Heinz Company, 2006. HJ Heinz Company Annual Report 2006. 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