Operations Management - Report Example

Operations Management By Presented to Table of Contents Executive Summary 4 Introduction 5 Analysis of current operations management practices at Southern Foods 5 Strategies for Success 6 Aggregate Plan 7 Conclusion 11 References 11 List of Tables Table 1: Table showing the total number of cases that would be produced in the company in eight hours 8 Table 2 Table showing the number of days it would take to complete orders in each quarter. 8 Table 3: Table showing the number of cases that would be produced when employees work overtime for four hours each day 8 Table 4: Table showing the number of days it would take to complete orders in each quarter when employees are working overtime 9 Table 5: Table showing the total number of cases that would be produced in the company in eight hours when the other production lines are opened up 9 Table 6: Table the cost incurred when employees work only normal time with only 10 lines operating 10 Table 7: Table showing cost incurred when all employees work overtime with only 10 lines operating 10 Table 8: Table showing the costs that will be incurred in opening up the remaining five lines and hiring 30 more employees to operate them 11 Executive Summary Operations management within a company primarily deals with the design and control process of production (Greasley 2008). This is done in a manner that ensures efficiency in in the production of goods and services. Southern Foods is one such company that undertakes manufacturing systems in the production of Cake Mix. It currently has several issues with its production systems that need to be addressed before it can operate efficiently. The company has a lot of wastage when it comes to resource allocation and use. Its operations management system is not working optimally to ensure growth. It has 15 operational lines for production but is currently only utilizing 10 lines. Their inventory system paves way for a lot of expenses as a result of the storage costs. They currently do not have an efficient stock system that allows them to determine the amount of products they are supposed to produce at any given time. Their employees are also working for 7.5 hours but are essentially being paid for 8 hours. It is because of this wastage that an aggregate plan has been developed to provide possible solutions to the inefficiencies of the company. It is suggested that the company hire more employees to utilize the idle production lines in order to reduce operating costs. The number of days undertaken for production will also be produced thus allowing the company ample time to plan ahead. Operations Management Introduction Southern Foods currently has an area of management that oversees the design, production and redesign of business operations in its production of Cake Mix. It seeks to manage its operations in a manner that ensures efficient use of resources in order to satisfy customers requirements. Its current production systems are mechanized with the bulk of activities being carried out by automated packaging lines. They have got various packaging lines that have each got a known capacity of production per hour making it easy to determine the number of hours required to produce a certain amount of goods. Various production systems are employed in operations management (Lowson 2002). In Southern Foods, a manufacturing production system is employed in which cake mix is produced through the use of labor and machines. Analysis of current operations management practices at Southern Foods The company utilizes the Just in time (JIT) production strategy that strives to improve business return on investment by reducing in-process inventory and associated carrying costs (Greasley 2008). It has relied on previous data to develop signals that are used to tell what quantity to produce and when to do so. It experiences higher sales during the periods of Easter and Christmas because of the holidays that are associated with those months. Its processes of production have been put into place to ensure that continuous improvement is achieved to achieve quality and efficiency. The JIT production strategy that the company utilizes also requires personnel to use systems that ensure new stock is ordered before they are depleted. The company utilizes and inventory system which costs $1 per case per year. This is however far much better that waiting until stocks are depleted and sending to the customer at an extra cost of $2.40. This strategy allows them to save up on warehouse costs and space. The storage of unused resources however, is a potential source of wastage and eventual losses in the company. The JIT production system however has its shortcomings and must be implemented with great care (Johnston 2003). This is realized in the situation whereby the company is actually paying more for its employees when compared to the number of hours that they work. They are paid for 8 hours work when the maximum that any of them ever works if 7.5 hours. This can be perceived as wastage on the part of operations and may be the cause of significant losses in the future. The JIT system of production also exposes the hidden cost of keeping inventory. It defines unused inventory as a waste of resources hence the cause of the costs that Southern Foods has incurred as a result of keeping inventory. Instead of adding and storing value, inventory leads to recurrent costs that are incurred as a result of storage and eventual loss from expiry. It is important to keep inventory because it prevents stock outs from occurring. Stock outs lead to other less desirable costs like late shipping or additional non efficient production. These are some of the reasons why Southern Foods utilizes the inventory system. Strategies for Success In order to address the inefficiencies that are experienced by the current production systems that are in use by Southern Foods, a different approach to operations has to be undertaken. The amount of stock to be produced has to be determined first. To protect them from any errors that may occur when planning for the number of units to produce, they should employ the use of safety stock (Paton 2011). This is extra stock that is maintained to mitigate the risks of stock outs as a result of uncertainties in planning. This will ensure that customers receive their orders on time and the company does not incur unnecessary expenses. Then once the product becomes more predictable, the company can reduce the level of safety stock that is required to an eventual production process whereby the produce to meet their forecasted sales demand. Finding the right balance of safety stock is essential for the company because they deal with perishable products. Too little safety stock may reduce the customer confidence in the ability of the company to meet their expectations. Too much safety stock on the other hand will encourage waste and attract huge warehousing fees. In addition, the product might even expire while it is in storage. The cost incurred in packaging materials can also be reduced to ensure that the operating costs are placed at a minimum. The cake mix is packed into so many boxes that may not be really necessary. These boxes can be reduced so that the packaging lines in the plan operate faster and are able to produce more goods within the same time. The company should also try to increase the number of hours that the employees work to 8 hours so that they can effectively get value for the money they are paying them. In this way, the company reduces on wastage that may be realized as a result of low utilization of resources (T. Hill & A. Hill 2011). Aggregate Plan In the months of the year, production levels in the company vary but in a day, this is the expected production schedule: Production line No. of employees working normal time No. of employees working overtime No. of cases per hour for all lines No. of cases after 8 hours for all lines 10 60 0 5000 40,000 Table 1: Table showing the total number of cases that would be produced in the company in eight hours If this production schedule is maintained throughout the year then the following would be the number of days that production would take in the company Quarter Orders No. of days required January – March 1,860,000 46.5 April – June 2,350,000 58.7 July – September 2,040,000 51 October – December 4,190,000 104.5 Table 2 Table showing the number of days it would take to complete orders in each quarter. From the above, it is clear that the company needs to engage its employees in overtime work in order to ensure that the orders are completed in time (Johnston, 2003). Production line No. of employees working normal time No. of employees working overtime for four hours every day No. of cases per hour for all lines No. of cases after 12 hours for all lines 10 60 60 5000 60,000 Table 3: Table showing the number of cases that would be produced when employees work overtime for four hours each day If this production schedule is maintained throughout the year then the following would be the number of days that production would take in the company Quarter Orders No. of days required January – March 1,860,000 31 April – June 2,350,000 39.1 July – September 2,040,000 34 October – December 4,190,000 69.8 Table 4: Table showing the number of days it would take to complete orders in each quarter when employees are working overtime This table indicates that when employees are all working overtime everyday then the amount of time they are likely to take doing the work is reduced significantly. But because it may not be feasible to have employees working overtime every day, it may be advisable to hire other members of staff and open up the other lines for production. Production line No. of employees working normal time No. of employees working overtime No. of cases per hour for all lines No. of cases after 8 hours for all lines 15 90 0 7500 60,000 Table 5: Table showing the total number of cases that would be produced in the company in eight hours when the other production lines are opened up The time it takes to complete production would be similar to the time it takes to complete production when employees are working overtime. This staff recruitment will have its own cost implications which have to be compared against the original system. Quarter No. of employees working Normal Time Hourly wage per employee for normal time Total No. of hours to work (Days*8) Total cost incurred January – March 60 10 372 223200 April – June 60 10 469.6 281760 July – September 60 10 408 244800 October – December 60 10 836 501600 Table 6: Table the cost incurred when employees work only normal time with only 10 lines operating Quarter No. of employees working overtime Daily wage per employee for overtime time Total No. of days Total cost incurred January – March 90 180 31 502200 April – June 90 180 39.1 633420 July – September 90 180 34 550800 October – December 90 180 69.8 1130760 Table 7: Table showing cost incurred when all employees work overtime with only 10 lines operating Quarter No. of employees working Normal Time Hourly wage per employee for normal time Total No. of hours to work (Days*8) Cost incurred Cost of hiring Total cost January – March 90 10 31 27900 90000 117900 April – June 90 10 39.1 35190 0 35190 July – September 90 10 34 30600 0 30600 October – December 90 10 69.8 62820 0 62820 Table 8: Table showing the costs that will be incurred in opening up the remaining five lines and hiring 30 more employees to operate them Conclusion The cost of hiring an employee will only be incurred once, in the first quarter. No employee shall be laid off as the year progresses to ensure that there is minimal loss arising from laying off an employee. From this analysis one can conclude that it is far more efficient to reduce wastage in the company and use up the resources that have been left idle. This is the only way that the company will be able to meet its output demands. References Greasley, A., 2008. Operations Management, New York: Sage Publications. Hill, T. & Hill, A., 2011. Essential Operation Management, London: Palgrave Macmillan. Johnston, R., 2003. Cases in Operations Management, Boston, MA: FT Prentice Hall. Lowson, R., 2002. Strategic Operations Management: The New Competitive Advantage, Belmont, CA: Routledge. Paton, S., 2011. Operations Management, New York: McGraw-Hill Education. Read More