Description and Analysis of a Production System - KFC - Case Study Example

and Analysis of a Production System Table of Contents Table of Contents 2 Introduction 3 2. Management of Inventories and Assets 4 3. Importance of Supply Chain Management through Illustration 6 4. Performance Objective of Supply Chain Management and Delivery System Failure Points 8 4.1 Poor Development Practices 9 4.2 Incorrect Assumptions With Regard to System Requirements 9 4.3 Faulty Hardware 9 4.4 Inadequate User Training/ User Error 10 5. Implementation of Lean Approach in KFC 11 6. Conclusion and Recommendations 14 References 16 1. Introduction In case of a manufacturing unit, the responsibility of operations manager is to perform the entire process, starting from raw material management to overseeing the production of the final product. Subsequently, it can be asserted that the prime responsibility of an operation manager is to utilise the land, labour, capital and other resources to produce the final goods/ services (Fish, n.d.). In case of production system management, quality, quantity and cost are the primary parameters that can be accentuated to ensure organisational effectiveness. Production management depends upon a few key activities including planning, organising, directing and controlling (Halevi, 2001). The main objective of production management system is to produce the goods and/or services at a minimum cost with satisfying quality and quantity at the precise time. The significance of production management is very high for an organisation. It eventually helps an organisation to build goodwill and create a brand image on a competitive market situation. On the other hand, it is also helps to introduce new products in the market through its research and development department. Besides, production management also supports other functional areas including marketing and sales, finance and personnel department. Moreover, it also helps to expand business in a competitive market and also facilitates to utilise the optimum resources (Halevi, 2001). In order to analyse and determine the prime value of the production system, Kentucky Fried Chicken (KFC) has been chosen as the organisation for the study. Kentucky Fried Chicken (KFC) was founded in the year 1930. KFC is one of the most revered fast food restaurant chains, which concentrates on rendering high quality and assorted fried chicken items. Over the years, it has expanded its business globally in 118 countries and also has around 32,500 outlets all over the world. McDonalds is one of the prime competitors of KFC in the modern day context. Correspondingly, the main objective of the study is to find out the organisational approach to manage assets and inventories. The importance of supply chain management with respect to KFC will be evaluated along with ascertaining the plan of execution of lean approach in KFC (KFC, 2014). 2. Management of Inventories and Assets Inventory is known as the stock of any particular element or resource in an organisation. In case of an organisation, inventory management is one of the essential responsibilities for management. Inventory management is the set of strategies which helps an organisation to monitor/ supervise the entire inventory and on the other hand it is also helps to make decisions about the further manufacture or in case of supply of finished products or materials (Wild, 2007). It has been observed that inventory management team of KFC has applied a few pertinent strategies to ensure that its inventory is managed in an optimum manner wherein there is less wastage of valuable resources and effective time management. Generally, the foods of KFC can be classified into two categories, one is dry food and the other one is frozen food. For dry foods supply purpose, KFC has opted to establish its own warehouses, on the contrary for frozen foods it has a different agreement with K&N chicken for supporting regarding chicken and fish food products. It has been also ascertained that over the years KFC has used first-in-first-out (FIFO) method for its inventory management. FIFO method can be defined as a quantitative method which is generally used in inventory management and this procedure denotes the raw materials which have been entered in the warehouse earlier have to be supplied earlier. At the same time, it has been also identified that inventory management for the chicken and fish products is completely different. The chicken product stay for maximum period of 15 days in a warehouse but the storage warehouse of chicken and storage warehouse for dry food are completely distinct. Moreover, most of the warehouses have a cold storage facility (Scribd, 2014). Management of assets of the organisation is a valuable method by applying which business firms want to monitor and maintain the valuation of an entire entity. The concept of asset management can be applied on the tangible properties and intangible properties along with that it can also applied in terms of goodwill. Generally, asset management helps to plan for the future (Austerberry, 2009). With regard to asset management strategy of KFC, it has been observed that due to professionalism and excellence in asset management, KFC has become one of the world’s foremost and fastest growing restaurants. In case of managing assets, KFC has specifically focused on asset acquisitions and installations properly along with calculating the depreciation for the entire fixed asset which has helped the organisation to identify the requirement of new asset. Moreover, KFC has also analysed property tax and audit schedules relating to fixed asset. Besides, it has also tracked down the expenditures for fixed assets in comparison with the capital budget (Scribd, 2014). Thus, it can be determined that through implementation of these strategies KFC has managed or organised its inventories and assets in a competitive manner within the ever-evolving marketplace. 3. Importance of Supply Chain Management through Illustration Supply chain management is a channel through which goods and/or services flow from the raw material supplier to the finished good buyer. Supply chain management provides value adding services. The supply chain management process involves various activities, including the movement and storage of raw materials in a warehouse, work-in-progress in a factory and finished goods and/or services delivery to consumer. Thus, supply chain management can be defined as planning, implementing, controlling, monitoring and designing of supply channel activities, which helps to maximise profit performance. According to the understanding of the roles of supply chain management, it can be affirmed that, the significance of supply chain management is very essential for an organisation. It helps to lower purchasing and inventory carrying cost, at the same time it enables to provide better product quality and higher level of customer services. Subsequently, it also helps an organisation to achieve maximum sales volume (Wisner, 2011). Figure: 1 Supply Chain Management of KFC In relation to supply chain management strategy, it has been observed that KFC largely depends upon the suppliers, vendors, logistics, storage as well as wastage management. During the raw materials gathering process, KFC has focused on daily supply on the items such as vegetables, milk and chicken. On the other hand, regarding the soft drink gathering process, KFC has preferred every alternative day delivery system. Vender choosing is one of the key elements of supply chain management. It has to be done carefully. KFC has used a few strategies such as supplier’s capability check and tender based price quotation to bargain with its vendor. Furthermore, KFC has also focused on the quality of the raw materials. In case of logistics and storage management, KFC has always taken care of its brand image and responded well. Consequently, in case of logistics and storage management, KFC has always focused on specific temperatures in case of transportation and storage. In this regard, it has been determined that the wastage of KFC during every financial year has been around 1.5%-2% from its total sales. Thus, it can be asserted that the significance of supply chain management is unquestionable for ensuring sustainable competitive advantage for KFC in the long run (Scribd, 2014). 4. Performance Objective of Supply Chain Management and Delivery System Failure Points The primary objectives of supply chain management are to develop the overall performance of the organisation and also to improve the quality of the products and/or services. Correspondingly, it also attempts to ensure that the organisation is able uphold customer satisfaction in continuous manner. There are a few other objectives also present for the supply chain management to increase the performance which include: 1) Augment the source of revenue, 2) Replacement of the material/ product, 3) Cost quality improvement, 4) To meet consumer requirement for assured delivery of high quality and low cost with marginal lead time, 5) To attain world-class implementation, 6) To boost pre and post production inventory related levels, 7) Decrease transportation cost and 8) Superior labour efficacy, equipment and space proficiency. Continued focus on meeting these objectives can help the organisation to perform better with competitive advantages (Pore, 2012). Even after the proper exhibition of supply chain management, KFC’s delivery system may at times fail due to various reasons to align the determined performance objectives. The probable delivery system failure causes are depicted hereunder: 4.1 Poor Development Practices In terms of finding the reason behind delivery system failure at KFC, poor development practices can be acknowledged as one of the most significant reasons. During the marketing practice, poor developed practices in case of supply chain management can create an issue inside the organisation. As a result, it will directly create an effect on its sales volume and revenue. In case of KFC, its supply chain management is completely dependent on its traditional operation module. However, KFC has not changed its supply channel structure and has expanded its branches with an extremely high growth rate. This focus on traditional approach might create certain hindrances for the company to address the altering needs of its suppliers and customers (Benmeadowcroft, n.d.). 4.2 Incorrect Assumptions With Regard to System Requirements In case of marketing practice, identifying the system requirements is also essential. Incorrect assumption about system requirements can create a huge negative impact on an organisation. Over the years, KFC has correctly identified the requirements of its system, but further in upcoming period it may fail in the delivery system due to incorrect assumption (Benmeadowcroft, n.d.). 4.3 Faulty Hardware Fault on hardware can create a problem for an organisation. In case of KFC, fault on its warehouse hardware or food production hardware can create a massive problem on organisational delivery system. During the transportation process, hardware problem can also create huge indiscipline in delivery system (Benmeadowcroft, n.d.). 4.4 Inadequate User Training/ User Error Due to inadequate training and error, an organisation can face problem in organisational delivery system. It has been observed earlier in case of many organisations. KFC can also face this kind of problem in case of its operational team due to a lack of knowledge and training. And, it may create a problem in its delivery system in future period as well (Benmeadowcroft, n.d.). These are the factors which can create a negative impact on an organization which will lead that organization towards facing failure in its delivery system. Moreover, apart from the determined causes, after thorough analysis of the particular issue, it can be reasonably asserted that natural causes such as earthquake, flood and wind among others along with human made fire, labour strike, loss of patent, political issue, terrorism and transportation indiscipline can create an environment wherein it becomes impossible for KFC to maintain its effective delivery system (Punter, 2013). 5. Implementation of Lean Approach in KFC Lean is known as an opportunity for a firm to improve the efficiency of the organisation and also it produces a new platform for competitiveness. This lean approach was introduced on 1988 and since then it has been one of the most significant approaches in manufacturing industry. The concept of lean approach has generally been used or seen in case of production and operations management activities (Carlborg & et. al., 2013). The objective of lean approach is to develop organisational culture and ownership. At the same time, it provides satisfactory resources and strategic approach improvement in case of organisational production related activities. Apart from these, team work development is also one of the important objectives of lean approach (Togni, 2003). The meaning of lean approach has developed over the years and now it has specially focused on Total Quality Management (TQM) and also it has a similar kind of focus on quality costs and delivery system. The lean approach can be summarised into six basic lean principles, which are mentioned below: 1. Define value 2. Define value stream 3. Flow 4. Pull 5. Standardisation 6. Perfection All these principles are obtained from the manufacturing concept (Carlborg & et. al., 2013). In relation to the organisational business activities especially related to production system, KFC’s management can endeavour to incorporate the lean approach. It is determined that till date KFC has not followed the lean approach in case of its manufacturing process and services purpose. At the similar purview, it can be also acknowledged that in case of total quality management, KFC is also extremely successful even after not following the lean approach. The KFC restaurant is aiming to concentrate on labour productivity and customer service along with sales growth. During the quality management process, KFC has specifically focused on customers’ expectation. Similarly, it has also designed products assortment according to the customers’ expectations. Subsequently, it has also ensured that the products manufactured during the process have maintained quality, cost appropriation and specific quantity and time. Correspondingly, it can be stated that KFC’s management team needs to control not only the tastes, packaging, appearances and temperature of the food, but also the environment of the outlet and the formality and/or speed of the services it provides to its customers. In case of quality management, KFC has identified certain fundamental strategies instead of lean approach, including the quality, service and cleanliness program for verifying the quality of services response from the standpoint of a customer and the operations facility review (OFR) related program for assessing the restaurant’s performance against competitors (Apte & Reynolds, 2001). In order to utilise the lean approach concerning supply chain management, it is important for KFC to first identify its own management team and then specifically focus on waste reduction. It is also applicable for KFC to introduce supplier selection process based on lean approach wherein only those suppliers will be selected that have followed minimum waste reduction measures. Using waste reduction procedure as a primary goal, the organisation can make its supply chain management more effective. On the other hand, demand management is the most crucial component of the lean approach because excess production of goods is the primary responsible factor for waste. According to an observation, it can be determined that, lean approach can create an environment where demand management can efficiently be supported through providing customers value and delivering the product on its actual time and location (Ventana Research, 2007). Therefore, with these comprehensions, it can be highlighted that by using lean approach KFC can pull its product through the supply chain, rather than the organisation pushing it through. KFC can implement this lean approach in case of its supply chain management but in that case KFC has to be little careful to accept the changes. In case of ensuring successful execution of lean supply chain, there is a need for changes in people’s behaviour, business process and technology. However, the decisive benefits form the approach can instil un-parallel benefits for KFC in the long run. 6. Conclusion and Recommendations Within the domain of production system, supply chain management is a key factor which acts as a pivot for the organisation to replicate all-round efficiency. In case of KFC which has ensured a global successful presence with its availability of assortment of products, supply chain management is of high value to overcome any delivery failure. In this regard, the use of lean approach can be of massive value to streamline the production system of KFC by ensuring minimisation of waste and maximisation of value of the available resources. For engaging in lean supply chain, KFC’s concerned organizational members have to regularly report to the strategic management team to identify the required issues and demands. At the same time, every individual of the business entity needs to ensure that each of them concentrates on specific targets to achieve the predetermined goals. Moreover, the management has to perform carefully and enthusiastically. Furthermore, the other key major factor is to emphasise training and development of the employees’ who would be provided the responsibility of managing the new lean supply chain model. It can also be recommended that KFC needs to be careful about its used machinery and hardware along with upholding a facility of upgrading the system. In case of KFC, if in upcoming future, it loses control over its supply chain management then it can gain it back by using the lean approach on its production system. Subsequently, internal issues are required to be addressed to ensure the use of successful lean approach while external issues which can affect the supply chain management and that cannot be solved through lean approach need to be resolved through managerial tactful application. Conclusively, it can apparently be stated that production system is generally based on manufacturing unit and/or services that are largely dependent on the supply chain management effectiveness. In this regard, for KFC the endeavour to evolve through a lean approach can be highly beneficial to determine long-term competitive advantage. References Apte, U. M. & Reynolds, C. C. 2001. KFC’s Quality Management Program. Quality Management at Kentucky Fried Chicken, Vol. 1, Issue. 1, pp. 1-21 Austerberry, D., 2009. Digital Asset Management. Taylor & Francis. Benmeadowcroft, No Date. Why Systems Fail. Home. [Online] Available at: http://www.benmeadowcroft.com/reports/systemfailure/ [Accessed April 09, 2014]. Carlborg, P. & et. al., 2013. The Lean principles. A Lean Approach to Service Productivity Improvements: Synergy or Oxymoron?, Vol: 1, Issue: 1, pp. 1-23 Fish, L. A. 2008. Graduate Student Project: Employer Operations Management Analysis. Journal of Education for Business, Vol: 1, Issue: 1, pp. 1-30 Halevi, G. 2001. Handbook of Production Management Methods. Butterworth-Heinemann. KFC, 2014. History. Home. [Online] Available at: http://colonelsanders.com/ [Accessed April 09, 2014]. Pore, D. 2012. Objectives of Supply Chain Management. India Class. [Online] Available at: http://www.indiaclass.com/objectives-of-supply-chain-management [Accessed April 09, 2014]. Punter, A. 2013. The Nature of Supply Chain Risk. Supply Chain Failure, Vol. 1, Issue. 1, pp. 1-49 Scribd, 2014. KFC Supply Chain. Supply Chain Management. [Online] Available at: http://www.scribd.com/doc/76119764/KFC-Supply-Chain [Accessed April 09, 2014]. Togni, F. V. 2003. The Concept of Lean. Lean Supply. Vol: 1, Issue: 1, pp. 38-42 Ventana Research, 2007. Creating a Lean Supply Chain. Strategies to Run a Lean Supply Chain, Vol: 1, Issue: 1, pp. 1-8 Wild, T. 2007. Best Practice in Inventory Management. Routledge. Wisner, J. D. 2011. Principles of Supply Chain Management: A Balanced Approach. Cengage Learning. Read More