Operation Management - Book Report/Review Example

Operation Management 1.0 Executive Summary The report intends to analyse and discuss the overall performance of the Glamorgan Group, which has been acquired by Triton Ltd. While analysing the performance, varied significant aspects have been taken into concern for discussion. In this regard, the aspects included the underlying problems faced by Glamorgan Timber Mills, which is one of the subsidiary companies of the Group that eventually resulted in underperformance and determining the varied investments to be made whether appropriate or not. Correspondingly, this report presents a comprehensive analysis of the ‘root causes’ of the problems within the Group, accompanied by sound proposals as to how these should be addressed. The analysis of the problems reveals that serious quality concern has been prevailing within the Glamorgan Timber Mill. On the other hand, the report reflects that Smooth Finish is faced with the challenge of poor delivery system, while increased level of customer complaints has negatively influenced the Swansea Board Supplies. In this regard, certain imperative solutions were proposed, which included purchase of a new oven for Glamorgan Mill, acquiring new No.2 machine and constructing new warehouse along with developing new handling system for Swansea Board Supplies. Based on the analysis of the proposed solutions, it has been recommended in the report to purchase a new oven for Glamorgan Mill, which would be primarily allocated for the production of heavy gauge boards/ Moreover, apart from this, suggestions have also been provided about acquiring new No.2 machine for Smooth Finish and developing new handling system rather than investing in the construction of a new warehouse for Swansea Board Supplies. 2.0 Introduction In relation to the case provided, it can be ascertained that the acquisition of the Glamorgan Group by Triton Ltd. is associated with few serious problems. These problems are deemed to impose considerable impact on the future growth and success prospect of the Glamorgan Group. Accordingly, the Group consists of three separate companies that are involved in the production and sale of wooden boards. The three subsidiary companies of the Group include Glamorgan Timber Mill, Smooth Finish and Swansea Board Supplies. In this regard, Glamorgan Timber Mill is involved in manufacturing different gauges of wooden boards. The subsidiary Smooth Finish deals with the purchase of untreated boards and coats them with a plastic finish before selling the same to wholesalers. Swansea Board Supplies acts as a wholesaler for finished boards. These three subsidiaries of the Group have not been able to perform in accordance with the respective standards of the business. The underperformance of these subsidiaries of the Group has certainly created significant challenge for the acquirer company i.e. Triton Ltd. In order to deal with the challenge of underperformance by the above stated three subsidiaries, three major solutions were proposed. These solutions included construction of a new warehouse, developing a new handling system for Swansea Board Supplies, purchasing the new high capacity No.2 machine for Smooth Finish and obtaining a new oven for light gauge for Glamorgan Mill. However, due to the lack of unanimous consent from the managers of these three subsidiaries, the new Managing Director of the Glamorgan Group is not able to make rational decisions regarding the execution of the three proposed solutions. Besides, the costs associated with the each investment are ascertained to be quite high. In this regard, the investment costs for warehouse extension and introducing a New Handling System for Swansea Board Supplies are estimated to be £642,000 and £326,000 respectively. Similarly, the investment costs associated with the acquisition of New No. 2 Machine for Smooth Finish is reckoned to amount £350,000. In this similar context, the investment costs for installing an extra oven in Glamorgan Mill are estimated to be £50,000 (Swansea University, 2014). Correspondingly, the purpose of this assignment is to produce a brief report on the Glamorgan Group. The report includes a comprehensive analysis of the ‘root causes’ of the problems persistent within the Group, accompanied by sound proposals as to how these problems can be addressed. Moreover, to measure the viability of these proposed solutions, the report relies on obtaining qualitative as well as quantitative data. In this regard, the quantitative data for the report includes the measurement of the financial performance of these three subsidiaries. On the other hand, the qualitative data for the report entails the marketing reports presented by the ‘Manufacturing Market Research Ltd’ on these three subsidiaries of the Group. 3.0 The Underlying Problems The market research report revealed that the demand for the heavy gauge boards of the Glamorgan Group is increasing. Notably, six other prominent competitors share the market wherein the Glamorgan Group operates. The Glamorgan Group is determined to be amid the strong competitors operating in the market. Accordingly, the Glamorgan Group is ascertained to be amid the top three competitors in terms of turnover and assets. Nevertheless, the customers in the market are determined to be highly conservative in terms of board quality. The bargaining power of the users of the board in the market is observed to be relatively high, which implies that users are more inclined towards shifting to other suppliers in the case where continuous dissatisfaction is experienced by them with respect to the quality of boards delivered to them. Correspondingly, the quality of the boards became a vital factor for the companies operating in the market for sustaining their respective businesses in such a competitive landscape for longer period. In addition, each company operating in the market is determined to impose stiff competition to their rival companies, embracing homogenous price related strategies. This eventually makes quite difficult for these companies including Glamorgan Timber Mill to take the advantage of price competitiveness. The increased level of business market competition and the conservative attitude of the users of the boards have created significant pressure on the companies to produce and supply superior quality of boards. Nevertheless, Glamorgan Timber Mill, in recent years, has faced the radical challenge of constantly deteriorating quality of the boards supplied to the customers. The reduction of the fibreglass content over the years has certainly resulted in producing and supplying poor quality of boards to the users. Consequently, the poor quality of the boards supplied by Glamorgan Timber Mill has negated impacted on its future growth. Furthermore, due to the poor quality of the boards supplied by Glamorgan Timber Mill, there has been a considerable increase in the complaint rates from Swansea Board Supplies. In addition, the supply of poor quality of boards has further unfavourably influenced the ability of the Group to attract new customers and retain the existing ones. The Group is imposed with the constant threat of losing its customer base over its competitors due to large-scale dissatisfaction from the users end. Subsequently, the Group is occupied with the threat of sustaining its business profitably in future. Hence, there has been a greater requirement for the Group to improve its quality of boards, so that the threats of losing customers over its competitors are mitigated. Besides, it is equally important for the Group to take immediate decision on this matter to maintain its competiveness as well as to secure its future growth. Another major challenge faced by the Group can be apparently noted as less focus of Glamorgan Mill on the production of heavy gauge boards. Due to the greater profit margin associated with the supply of light gauge boards than the heavy ones, Glamorgan Mill seems to be tempted towards concentrating more on the production and the supply of light gauge boards with the intention of attaining more profit. However, the increased focus on the production and supply of light boards and less concentration on the supply of heavy gauge boards is likely to impose negative impact on the overall competitiveness of Glamorgan Mill. Moreover, the higher price for the heavy gauge boards may eventually result in losing its market share as compared to chief business market competitors. Evidently, it has been apparently observed that Smooth Finish has been purchasing heavy gauge from Laver Brothers because of lower prices. Notably, Laver Brothers is identified to charge £1.12p less than Glamorgan Timber Mill. Correspondingly, the difference in the prices of the heavy gauge boards is anticipated to hamper the ability of Glamorgan Timber Mill to attract new customers and retain the existing ones. Thus, Glamorgan Timber Mill needs to lay equal focus on the production and supply of both the light and the heavy gauge boards. In addition, the users in the market are identified to be highly conservative in nature. Thus, the strategy of the company to charge high price for the supply of heavy gauge boards may not be an ideal approach particularly in long run (Swansea University, 2014). Besides, the market report demonstrated that the customers within the market who are engaged in dealing with the prefabricated kitchen and bathroom furniture trades remain extremely conscious regarding the delivery time. In this regard, it can be often found that these customers place request for a range of delivery times. Due to strong focus placed by the customers on the delivery times of the products, the supply chain within the market plays an imperative role for the companies to attract potential customers and retain the existing ones. The effectiveness of supply chain procedure espoused by the companies in the market is regarded as a strong determinant for their market competitiveness. The majority of orders require delivery in less than three weeks and the failure of Smooth Finish to deliver according to the aforementioned standard delivery time may hinder in competing with its chief business market competitors. Nevertheless, Smooth Finish is identified to face certain difficulties in the delivery process of the boards. In this regard, the company is although been capable of delivering smaller orders within the three week cycle, faced significant challenge of delivering the boards in long run. This is mainly because the technologies used in the board producing industry are deemed to be static and no developments are anticipated in future that certainly reduced the flexibility of the company to ensure effective and timely delivery of boards. Besides, the competitors like ‘Starboard, a subsidiary of Laver Bros, is noted to develop new business process, which is anticipated to reduce the competiveness of Smooth Finish in future. Thus, in order to ensure greater market competiveness and timely delivery of boards, there lay an urgent requirement for the company to strengthen its supply chain process. In this regard, acquiring new machinery is anticipated to increase the efficiency of Smooth Finish to deliver the boards in timely manner (Swansea University, 2014). Swansea Board Supplies is a dynamic expanding organisation but certain challenges seem to influence its profit earning capacity. One of the major challenges faced by the company is associated with increased complaint from its customers. The poor quality of boards supplied by Glamorgan Timber Mill is recognised to have negated impact on the performance of Swansea Board Supplies. In addition, 55% of the company’s throughput is delivered to four major customers including English Lily’, ‘Elizabethan’ as well as ‘Ramply’ – for kitchen furniture construction and ‘Bathroom Beauty’ for bathroom units. Hence, it has become quite essential for the company to ensure timely delivery of finished products to these customers. Currently, the mean lead time associated with placing of orders to receiving of boards from Smooth Finish is 16 working days, which resulted delay in the delivery of the finished products to the customers. Hence, the company intends to increase its stock to 20 working days level, so that the customers are delivered with the finished product from the stock in hand. This intention of the company has certainly created a greater requirement for constructing warehouse in order to keep proper stock of the boards received from Smooth Finish. More importantly, the company faced massive financial loss in the form of compensation paid to the customers due to the result of delivering poor quality of boards to them. Notably, the company during the year 2002 was required to pay £10,000 as compensation to its customers for the supply of poor quality and in the corresponding last year, the amount increased to £40,000. Thus, the constant increase in the amount payable to customers as compensation is anticipated to adversely influence the financial as well as the operational performance of the company in near future (Swansea University, 2014). 4.0 Glamorgan Mill 4.1 Analysis of the Strengths and Weaknesses of Investing In a New Oven It has been earlier mentioned that Glamorgan Mill is faced with serious challenges of quality due to which the risk exposure of the company towards losing is customer base and profitability has increased. In order to deal with this problem and also for raising its oven capacity, an investment of around £50,000 in the form of new oven costing has been proposed specifically for lighter gauges. However, the investment in the new oven has certain strengths as well as limitations for the company. In this regard, the overheads associated with the production process of the same have been recorded as £100,000 p.a. per pulping line and £20,000 p.a. per oven. These figures include the labour charges, depreciation and other fixed costs associated with each item of the plant. It is anticipated that the new oven would also carry an overhead of £20,000 p.a. Currently, there are five ovens and three frames per oven installed in the mill that include one frame for loading, one for firing (on a one hour cycle) and one for cooling as well as unloading for final curing. Ovens are worked on 2 x 8 hour shifts for 250 days per year (Swansea University, 2014). In this regard, the potential strengths of buying a new oven can be related with the increased capacity of the company to meet the demands of the users. Moreover, it has been anticipated that the acquisition of a new oven specifically for lighter gauges would facilitate in raising the profit, as the company acquires maximum earnings from the supply of light gauge boards. Besides, the purchase of a new oven would also result in eliminating the challenges of constantly deteriorating product quality by a greater extent. This might facilitate the company to retain its existing customer base and attract potential customers towards its products. In addition, the company is currently ranked among the top three competitors in the respective market in terms of turnover and assets. Correspondingly, the acquisition of a new oven will further improve its ranking in the list by contributing towards increased turnover and assets. Nevertheless, certain weaknesses can also be ascertained with regards to the acquisition of a new oven. More importantly, it will increase the overhead costs of the company at large. Currently, the overhead expenses associated with the company are recorded as £638,400 annually. Correspondingly, the acquisition of a new oven would lead towards additional overhead of £20,000, thereby increasing the total overhead of the company to £658,400. In addition, the maintenance costs associated with the machineries and equipment will also rise. It can be affirmed that the acquisition of a new oven may have little impact on resolving the issue of deteriorating product quality (Swansea University, 2014). 4.2 Capacity and Demand of Product/ Focus on Capacity Planning Decisions Currently, Glamorgan Mill produces 85,000 light gauge boards (6 gauges) and1, 15, 000 heavy gauge boards (8 and 9 gauges) per annum. The investment for acquiring a new oven is proposed specifically for increasing the capacity of the firm to produce light gauge boards. Nevertheless, the company already has strong turnover with respect to its light gauge boards. On the other hand, the company is influenced seriously particularly by shift in the customers as compared to its competitors for heavy gauge boards. In this regard, the company is identified to lose its customers for heavy gauge boards. At the same time, the market survey revealed the demand for the heavy gauge boards to be increasing amid the customers, which is a potential prospect for the companies to secure substantial market share and profitability by increasing their capability to produce heavy gauge boards. Correspondingly, the long-term prospect for heavy gauge boards is ascertained to be higher than the light gauge boards. Hence, the capacity planning decisions of the company need to be focused on improving its capacity to produce heavy gauge boards rather than focusing on the production of light gauge boards for ensuring its long-term growth and success (Swansea University, 2014). 4.3 Production Technique Evaluation of Pulping Process The production process within Glamorgan Mill is divided into five major sequential steps that have been depicted in the following: Steam pulping of wood Add resin and pour into mould Press Oven firing Final Cure Based on the above discussed steps, it is to be affirmed that Glamorgan Mill has installed pulping and steam injection equipment, which is capable of handling 108lb per year on 2 x 8 hour shift working for 250 days per year. The company has constructed the three pulping lines and each line can pour any gauge. In the subsequent step, resign is added to the pulp, which varies according to the thickness required for making boards. The next step involves moulding of pulp. During this step, the resin is mixed into the pulp, which is then slid onto a frame, holding ten moulds irrespective of gauge. Curing is the final step wherein drying and resin bonding is performed for the period of three days (Swansea University, 2014). Analysis of the Quality of Glamorgan Mill Boards Glamorgan Mill, for the past twenty years, has produced a high quality Mill Board with excellent waterproofing and fire resistant qualities. It uses long fibre soft woods imported from Scandinavia and shipped into Hull, together with special resins. However, in recent years, the company has witnessed severe quality concern, which eventually resulted in raising customer complaints regarding quality of products. In this regard, reduction of the fibreglass content over the years has been perceived to be one of the reasons for deteriorating the quality of the boards. Cost of 103lb of the Board The costs associated with the production of boards mainly vary according to the gauges. In this regard, Glamorgan Mill is primarily involved in producing light as well as heavy gauge boards. The costs associated with the production of boards can be segregated under three heads including wooden cost, resin cost and overheads. Correspondingly, the costs associated with the production of 103lb with 1” thickness board entails wood cost of £100.00 per 103 lb board, resin Cost of 21.20 per 103 lb board and overhead cost of £11.20 per 103 lb board. Thus, the total cost associated with the production of 1” thickness board may amounted to £132.40. Likewise, the company incurs wood cost of £100.00 per 103 lb board, resin cost of £19.60 per 103 lb board and overhead cost of £11.20 per 103 lb board for the production of 0.75" thickness board. The total cost associated with the production of 0.75" thickness board amounts to £130.80. In this similar context, the cost associated with the production of 103lb with 0.5"thickness board entails wood cost of £100.00 per 103 lb board, resin cost of £18.00per 103 lb board and overhead cost of £11.20 per 103 lb board. Thus, the total cost associated with the production of 0.5" thickness board amounts to £129.20. The slight differences in the total cost of production 103lb of the board can be determined that tends to vary according the thickness of the boards produced (Swansea University, 2014). Glamorgan Mill currently installed five ovens with three frames per oven, including one frame for loading, one for firing (on a one hour cycle) and one for cooling and unloading for final curing. Ovens are worked on 2 x 8 hour shifts for 250 days per year. The company currently produces 55,000 103 lb board with 1" thickness, 60000103 lb board with 0.75" thickness and 85000 103 lb board with 0.5" thickness per annum with the use of five ovens. Correspondingly, it has been calculated that the one oven produces 160 lb board per day irrespective of the thickness of the boards (Swansea University, 2014). 5.0 Smooth Finish Smooth Finish faced the problem of meeting the increasing demand of the heavy gauge boards. Though the company has proved to be quite efficient enough to deliver small batch order within the standard 3 week cycle, difficulties have been witnessed with respect to delivery of the bulk orders placed by the customers. It is expected that the acquisition of the new No.2 machine would increase its ability to meet the growing demand for heavy gauge boards efficiently. It is further anticipated that the acquisition of such machine would result in reaping several significant benefits. In this regard, it is anticipated that the purchase of the new No.2 machine would double its output from no2 machine without any increase in the labour force and might prove to be ideal for higher volume larger batches. The company currently loses 35 mins for a change of gauge and 15 mins for a change of finish. Besides, the start up of the machine takes 35 mins a day and cleaning of the machine at the end of the day takes 15 mins, which indeed consumes huge time annually. The works in the company are identified to work 2 x 8 hours shifts per day. Accordingly, the company has installed five covering machines, each with a throughput rate of 350 ft. / hour, which signifies that each machine is working to its full capacity, but still improvement can be brought to enhance the efficiency of the machines (Swansea University, 2014). Smooth Finish firmly believes that its experienced and skilled workers are the prime asset. To a certain extent, this statement can be justified in a sense that without experienced and skilled personnel, it is quite difficult for any company to perform its business efficiently. Besides, the skilled workers are also important for efficient and judicious utilisation of the valuable resources. In other words, it can be affirmed that no machine can yield increased productivity unless the workers employed in the companies are competent enough to make the best use of the available resources. On the other hand, importance of increased capacity machinery is extremely central to the ability of the companies to meet the demands of their customers in effectively and timely manner. Notably, without the usage of appropriate machinery and equipment, it is difficult for the companies to sustain their respective businesses in this competitive landscape. Thus, both the workers as well as machinery installed in the company are equally important for attaining the broad organisational goals and objectives as well as to meet the demand of the customers. Thus, it would be inappropriate to state that only the workers are deemed to be the major assets of the company. In this regard, it can be affirmed that the success of any company increasingly relies in the competency of its workers as well as efficiency of the machinery and equipment used for producing products (Swansea University, 2014). 6.0 Swansea Board Supplies Swansea Board Supplies has also been challenged with the problem related to the timely delivery of boards to the customers. In this regard, the delay in the delivery of boards from Smooth Finish has unfavourably influenced its ability to meet the rising demand of the boards on behalf of the customers. Currently, the lead-time associated with the placing of order to its actual delivery from Smooth Finish is ascertained to be 16 working days. Thus, in order to reduce the negative impact of increased lead-time on its ability to deliver boards to customers in a timely manner, the company is inclined towards increasing its stock to 20 working days level. This might eventually lead towards increasing its stock holding volume by approximately 30% (Swansea University, 2014). It is anticipated that the four-day additional stock will facilitate the company to deliver boards to its customers from the available stock. Furthermore, it is reckoned that the additional stock will enable the company to place larger economic orders with Smooth Finish. Additionally, this will also strengthen its supply chain process and will ensure timely delivery of boards, which would facilitate in the reduction of complaints particularly with regards to the delay in the delivery of boards to customers. However, the major problem associated with the operation of the company is identified to be constantly increasing complaints from the customers, which caused massive financial loss over the previous few years. Thus, the reduction in lead-time will also strengthen its supply chain process and will ensure timely delivery of boards to customers that would facilitate in the reduction of complaints particularly with respect to the delay in the delivery of boards to customers. However, in order to ensure strong supply chain for making timely and efficient delivery of boards to its customers, two solutions were proposed that included construction of a new warehouse and investing in developing a new handling system. These two proposals can be ascertained as viable options from the company’s standpoint. Nevertheless, the major differences between these two investment options can be felt associated with storage capacity of the company. In this regard, the construction of a new warehouse is ascertained to increase stock holding of the company by 30%. On the other hand, investing in introducing a new handling system is observed to increase the stock holding of the company by 20%. The significant difference of 10% can be identified with respect to stockholding capacity between the two proposed solutions. Notwithstanding, the other major difference between the two investments proposal can be determined with respect to actual costs required for executing these two solutions. Accordingly, it is estimated that the construction of new warehouse would require the investment of £642,000, which is almost double than the estimated investment needed for developing a new handling system. In this regard, the estimated investment for developing a new handling system is reckoned £326,000. Thus, these differences need to be considered while deciding the most feasible investment solutions (Swansea University, 2014). 7.0 Conclusion The report introduced the problems faced by The Glamorgan Group, which resulted in underperformance of its three subsidiary companies namely Glamorgan Timber Mill, Smooth Finish and Swansea Board Supplies. The performance of these three subsidiaries of the Group is ascertained to be interdependent. Correspondingly, the flaws in the operation of any of these companies have significant impact on the performance of other two companies. Notably, Glamorgan Timber Mill has faced the challenge of poor quality of boards supplied to Smooth Finish. Accordingly, the reduction of the fibre glass content over the years has contributed towards the emergence of quality related concerns, which dramatically influenced the financial and operational performance of Smooth Finish and Swansea Board Supplies by a considerable extent. Besides, increased focus of the company on the production of light gauge boards has also resulted in losing its customer base as compared to its chief business market competitors. Likewise, Smooth Finish is ascertained to face problems with respect to supply of boards to its customers including Swansea Board Supplies. It has been apparently observed that the company has not been able to meet the rising demand of customers in an efficient manner. The failure of the company to incorporate new technology and machinery is anticipated to reduce its operational capability. Similar to other two subsidiary companies of the Group, Swansea Board Supplies not left untouched with the problems. Correspondingly, the company faced the challenge of rising customer complaints that accompanied with increased level of financial loss in the form of compensation. Correspondingly, certain effective solutions were proposed for these three companies to deal with the above stated challenges faced by them during the conduct of varied operational functions. In this regard, proposal has been made about purchasing a new oven for Glamorgan Mill in order to increase its capacity to produce light boards. However, it can be argued that the demand for heavy boards is rising in the market and purchasing a new oven specifically for light gauge boards can impose little impact on future growth and prosperity of the subsidiary company. Thus, it is recommended to purchase a new oven, which would be primarily allocated to production of heavy gauge boards. This recommendation might not probe to quite appropriate for the company in short run, but in long run, the company might able to generate substantial revenue from the supply of heavy gauge boards. With respect to Smooth Finish, the proposed solution of acquiring a new No.2 machine can be recommended, as the competition is increasing in the market. Thus, it is projected that raising the production capacity, the company can attain immense growth and greater success. As far as the proposed solution for Swansea Board Supplies is concerned, it is recommended to invest in developing a new handling system. The alternative solution of developing a new handling system is recommended over the construction of a new warehouse owing to the fact that this proposed solution will require less investment, further saving space for the company to make any development in future. Reference Swansea University, 2014. Operations Management. School of Management. Appendices Glamorgan Mill Conversion Factors             Gauge 9 8 6                 Thickness 1" 0.75" 0.5"       Cu.ft per board 13.33 10 6.67 Wt. (lb) per board 400 300 200 Surface Area (sq. ft.) 160 160 160       Density of board lb/cu. Ft 30               Product Profitability             Gauge     9 8 6       Thickness 1" 0.75" 0.5" Wood cost (£ per 103 lb board) £100.00 £100.00 £100.00 Resin Cost (£ per 103 lb board) £21.20 £19.60 £18.00 Overheads (£ per 103 lb board) £11.20 £11.20 £11.20             Cost to us (£ per 103 lb board) £132.40 £130.80 £129.20 Sells at (£ per 103 lb board) £139.60 £140.80 £145.60 Percentage profit 5.44% 7.65% 12.69%             Number of boards produced (000) 55 60 85 Smooth Finish Product Profitability   Heavy Medium Light Gauge Gauge Gauge   9 8 6 Income:       Sales price (£/board) £79.64 £66.56 £53.96       Costs:     Board (£/board) £55.84 £42.24 £29.12 Glue & Surface (£/board) £10.56 £10.56 £10.56 Total materials (£ per board) £66.40 £52.80 £39.68       Contribution (Income-Costs) £13.24 £13.76 £14.28 Swansea Board Supplies Product Profitability   Heavy Medium Light Gauge Gauge Gauge   9 8 6 Income:       Selling price (£/board) £92.86 £75.56 £61.75       Costs:     Purchase price (£/board) £79.64 £66.56 £53.96       Contribution (Income-Costs) £13.22 £9.00 £7.79 2013 Forecast Demand from Swansea Boad Supplies (coated board x 000)   Heavy Medium Light   Gauge Gauge Gauge   9 8 6 Finish       1 3 2 2 2 7 3 1 3 5 7 10 4 13 25 40 5 12 15 25 6 10 8 12       Total 50 60 90 Read More