Operational Management Techniques and Outsourcing in the F&B Industry - Case Study Example

OPEARTIONAL MANAGEMENT TECHNIQUES AND OUTSOURCING IN THE F&B INDUSTRY By Introduction The food & beverage industry is keen to enhancing their processes and business functions in order to achieve efficiency and effectiveness in their manufacturing activities with the aim of minimizing their operational costs. The different companies in the B&F industry are using different operational techniques such business process re-engineering, lean techniques, total quality management (TQM), process redesign and outsourcing to improve their efficiency. Conversely, companies in the industry have gone a notch higher to improve their human resources in the industry to ensure their staffs offer quality service by being responsible and reliable. The essay examines the whole idea of operational efficiency techniques and outsourcing, in the F&B industry, to improve operations and operational costs. Outsourcing and operational improvement techniques are cost saving techniques that enable organizations to maximize profits as they cut down on their expenses. A couple of challenges and trends such as increased technology advancement competition, quality and the changing consumer tastes and preferences have forced the B&F industry to change or redesign their processes and functions in order to reduce their operational costs, to improve quality and reduce wastage (Garbie, 2014). For this reason, many companies have restructured themselves and redesigned their processes e.g. by automating manufacturing and other processes to reduce their dependence on transfer tasks and human. Conversely, the companies have optimized their systems and logistical infrastructures; are using energy saving techniques in their production facilities by using the new advancing technology and materials, new efficient production methods and better practice implementation (Garbie, 2014). Total quality management (TQM) TQM and BPR share a common cross-functional relationship with TQM, which is often called continuous improvement, which has penetrated into the B&F industry (Strugnell, 1992). TQM has enabled many companies in the food and beverage industry to improve the quality of their products and services. Through its elements, management in the food and beverage industry have been able to focus on customer satisfaction, product design, communication and leadership commitment, supply chains management and processes in order to achieve efficiency and reduce operational costs (José Tarí, 2005; Luning, Marcelis & Jongen, 2002). Lindmark-Månsson, Fondén & Pettersson, (2003), through their research on the Swedish dairy processing sector, found out that TQM is an important tool for improving the operational efficiency and reducing operational costs. They go on stating that the quality in the Swedish B&F industry is a continuous process, which involves everyone in the supply chain, that is, from the farmer, producer to the stores. Conversely, they also note that the F&B is an industry that is the most regulated and thus faces challenges often due to change or introduction of new regulatory measures. For this reason, they concludes that TQM has been an imperative tool for many companies in the Swedish dairy processing industry that has enabled many firms to maintain quality and better service delivery to customers, in addition to, to enabling them focus on customer satisfaction through improved products and quality services. Conversely, since the introduction of TQM in the 1980s, leadership and commitment has received great attention in the Swedish F&B industry an implication that quality is being emphasized in the organizations. For this reason, there is increased attention and organizations had started to train and educate their workers unlike in the 1980s before TQM had found its way into the business world. For this reason, through their findings in the Swedish dairy processing industry, they conclude that organizations are now focusing more on building quality to be able to produce quality products using efficient processes that minimize the costs of operation (Lindmark-Månsson, Fondén & Pettersson, 2003). Moung Yin CHAN, Wai Wa CHU & Kwong YUEN (2000), argues that, the total quality management has enabled food industries to make standard products. They goes on to state “The B&F industries have now began using quality management as a standard for the manufacturing of the given products, which has resulted in the proper flow of quality products to the ultimate customers”. Therefore, through TQM companies in the food and beverage industry can now be able to improve their process and products to deliver quality products to the consumers, in addition to creating competitive advantage in the industry (Belén Escrig-Tena, 2004). Business Process Re-Engineering Business process re-engineering processes play a critical role in the F&B industry since consumers are always demanding highly proven quality products as well as protection from unsafe and low-quality products. BPR is the fundamental radical redesign of businesses process and thinking to achieve greater improvements in the crucial, contemporary performance measures of the business such as quality, cost, service, and speed. They go ahead to state that the food industry requires new technology to assimilate it into its processes to enable the business produce high quality and innovative products at lower costs. Therefore, businesses need to incorporate the new technology such as high-tech sensory tools, measurements in their quality assurance departments, in addition to, supervising the processes of production to ensure the desired quality of products is met (Harrison, 1998; Ahmed & Simintiras, 1996). A good example of the BPR application in the food and beverage industry is the case of Taco Bell, which re-engineered almost all operational process jobs and eliminated all management layers in the organization (Pete Chong, Chen & Chou-Hong Chen, 2001). Taco Bell to redefine its processes established a kitchenless restaurant and shifted its activities from production to retailing restaurant. The organization then went to ahead initiating a new concept of alternative distribution, in addition to, applying new technology. Thus by redefining itself, Taco Bell was able achieve greater quality control, fewer employee injuries and accidents and better workers’ morale, more time to concentrate on customer satisfaction and most importantly bigger savings in operational costs (Pete Chong, Chen & Chou-Hong Chen, 2001). Therefore, from the example of Taco Bell, it is evident that BPR is an efficient and effective operational management technique for companies in the food and beverages industry to use to realize operational efficiency and be able to cut down on their costs of operation as well as to achieve quality (Hamdar, 1999). The Six Sigma This can be defined as a strategy that is meant to improve processes quality by identifying and eliminating the causes of errors or defects in the process, in addition to, reducing the variable that is inherent in business processes and manufacturing (Grima et al., 2014). According to Hsiang-Chin and Ming-Hsien, (2011), six sigma is the perhaps the most efficient technique of all operational management programs, which have organizations have used to detect flaws in their improves, reduce operational costs and improve the quality of products and services, especially in the food and beverage industry. For this reason, these researchers defines six sigma as “a statistically-based quality improvement program, helps to improve business processes by reducing the waste and costs related to poor quality, and by improving the efficiency and effectiveness of processes” (Hsiang-Chin and Ming-Hsien, 2011, p. 541). From this definition, they conclude that these measures thus, result in improved organizational profitability and consumer satisfaction. From the research using the six sigma technique on a Taiwan-based food eel exporting Producer Company in 1970s, the researchers were able to identify defects in the products of the company that would often shrink after production (Hsiang-Chin and Ming-Hsien, 2011, p. 582). However, after successful introduction of the six sigma program in the company to identify the errors that compromised the quality of the company’s products; despite a number of challenges, the defects were successfully identified and appropriate measures were taken. For this reason, from the year 1985 the company was, however, certified as one of the country’s Good Manufacturing Practice (GMP) food producer and since then the company has received a couple of other international certifications for food processing (Hsiang-Chin and Ming-Hsien, 2011, p. 582). Another research to demonstrate the effectiveness of six sigma was also done in the UK SMEs food and beverage industry to determine if six sigma can lead improved service delivery, quality of products or improved processes. The research findings demonstrated that a combination of six sigma and JIT can enable food and beverage manufacturers to improve their supply chain management vis-à-vis supplier and customer development that is a crucial component of SMEs’ distribution of products (Nabhani & Shokri, 2007; Shokri, Oglethorpe & Nabhani, 2014). Therefore, from these studies it is evident that the use of the six sigma in the food and beverage industry is an efficient operational management technique for identifying errors and flaws in the businesses processes, which ultimately enables management to take corrective action to improve product and service delivery, improve processes or make them efficient to prevent wastages, thus enabling the company to cut down on its operational costs (Chowdhury, 2001; Firka, 2010). Just In Time (JIT) Other operational management techniques that have been applied to improve the quality of products and services and reduce operational costs in the food and beverage industry is the just in time technique. A study of sampled hotels in London revealed that JIT can enable the companies in the food & beverage industry to make significant cost savings in their operations, in addition to, improving the quality of products & services offered to consumers. For instance, by implementing JIT, the food and beverage industry companies will not maintain cellar stocks, which thus enables them to cut down on their operational costs (Lai & Baum, 2005). However, it is important to note also that critics argue that the application of JIT to the food and beverage industry is irrelevant because companies in this industry are not engaged in continuous operation such as the hotel sector and, therefore, applying JIT to their SCM is impractical. However, there is little research supporting this notion and thus, due to the benefits that accrue due to its implementation, it is justifiable to credit the method as an efficient operational management technique (Canel, Rosen & Anderson, 2000). Outsourcing in the Food and Beverage Industry Outsourcing refers to when an organization enters into an agreement with an alternate firm to provide services that can be performed in-house personnel (Hughes, 2013; Mattheakis, 2013). It can be conducted with an organization in the same nation, or outside of the companys nation. Words that are regularly utilized as a part of the spot of outsourcing are sub-contracting, adaptable staff, worker renting, and offshoring. The food processing industry is keen to embrace outsourcing in their operations in order to cut their overall operational expenses as well as enhancing their performance (Nordin, 2006). The food and beverage manufacturers can outsource a number of functions and process such as the following: • Production of products • Manufacture of input components for the production process • Product packaging and design such the coca cola example above • Information technology and R&D (Varadarajan, 2009). However, before outsourcing the food and beverage manufacturers need to institute several measures or take various actions to safeguard themselves against inherent risks that underlie outsourcing because the food and beverage manufacturing is a sensitive, volatile and competitive industry. Thus, management should do the following: Exercise though due diligence concerning the outsourced function or process Vigilant management of outsourced functions or processes Have a clear and precise agreement that governs the outsourced functions or processes to avoid instances where quality can be compromised There is a couple of advantages that the food and beverages companies have gained through outsourcing some of their business functions and processes. Research has demonstrated that outsourcing some of the services of the company services can enable the company to cut down on its operational costs (Agndal & Nordin, 2009). Therefore, just like in any other industry companies in the food and beverage industry outsource their services because of the various factors that limit them to achieve competitive advantage and efficiency in the industry. A business’s bottom-line frequently is faced with increased operational costs that are brought about by fluctuating commodity prices, economic recessions, regulatory changes, natural disasters and changing consumers’ demands, preferences and tastes. For instance, the regulatory frameworks governing the food industry impose a host of requirements on food safety in the food and beverage industry, which are often costly and thus necessitate companies to outsource services to cut on operational costs (ONeill & Sohal, 1998). A good example is the U.S. Food Safety Modernization Act (FSMA), which was signed into law in 2011 to ensure that food offered by manufacturers is safe. Garbie (2013), argue that in order to protect their bottom lines from such high costs of operations, food companies regardless of their sizes often outsource their business functions such as human resources, capital assets, and information technology; manufacturing operations such as R&D, packaging, and testing to outside companies that specialize in the outsourced function or process. For instance, due to the changing consumer tastes, preferences and demand patterns, and the rising risks of obesity in the U.S., consumers in future are likely to change their eating patterns from the three meals a day to eating when they are hungry. For this reason, the methods of food delivery are probably going to change. Thus, food companies are forced to turn to convenient, friendly and portable food packaging, which will come at a cost and thus (Elizabeth, 2010). To avoid such costs, especially for the small and start-up food companies, they have decided to outsource such services to package manufacturers and packaging companies to cut down on their operational costs. Moreover, outsourcing enables food and beverage producers to expand their businesses, execute many functions of the business such as R&D and production efficiently and effectively and fill niche lines of products at lower operational costs. Surveys indicate that as measured by sales revenues, nearly one-third of B&F producers (32%) articulate that not even one of their manufacturing is outsourced while 54% state that one-quarter/less of their sales is outsourced; just 11% have a significant number of their productions outsourced, and finally, 6% outsources all productions.” Thus, those companies that do not outsource their services do so only to maintain control over their products in terms and not because of high operational inefficiency or costs. Therefore, it’s evident that outsourcing has a positive correlation with costs of operations and can enable food and beverage producers achieve better returns and efficiency (Hsiao et al., 2011). A good strategic example of the B&F industry, outsourcing is the case of Coca-Cola Company. In the late 1980s, Coca-Cola was growing at a tremendous rate and penetrating into other markets. However, because of the desire to expand into new markets, the company decided to outsource its bottling segment to external producers even though bottling was emerging at the time as a source of gaining competitive advantage in the market. The management recognized this fact the company did not have sufficient capital to acquire the bottling technology or produce its bottles. Therefore, to be able to focus on the core objectives, the company went ahead and outsourced its bottling segment to independent specialist manufacturers and licensed them to manufacture bottles for its soft drinks, but ensured they used syrup from the company. For this reason, the company was able to improve the quality of its products, decrease operational costs and focus on its core strategic functions of bottling soft drinks and strategic objectives of maintaining its growing market share and high product quality. It is important to note that opponents of outsourcing in the food and beverage industry claim that it is impractical to outsource some of the core activities of the company to outside producers like the case of Coca-Cola, which outsourced one of its emerging division that was meant to give the business a competitive advantage in the soft drinks industry. However, it is important to note that, by outsourcing the services to the outside independent producers coca cola was able to focus on its strategic core activities and objectives. Moreover, the assertion that by not outsourcing the businesses can maintain the quality of their processes, products and services is subjective because, by outsourcing the bottling segment of the company, Coca-Cola was still able to control the producers by licensing them and supplying them with the required raw materials for the production of the bottles and hence was able to maintain the quality of its products. The opponents also argue that outsourcing does not always lead to operational management efficiency or cost savings as the proponents contend (Nordin, 2006). Moreover, they also that sometimes if the management does not supervise be vigilant, the service providers can compromise the quality of the outsourced processes and function (Hsiao et al., 2011). This is likely to lead to low-quality services and high wastage that can be costly to the company. Conclusion It is evident from the above that the food and beverage industry over the years has used a couple of operational management techniques such as the TQM, BPR, sigma six and JIT as well as outsourcing to improve their business processes and functions in a bid to reduce their costs of productions, improve service and product quality. Ultimately, it is evident that with efficient processes, the F&D can be able to improve their productions and operations. Bibliography Agndal, H., & Nordin, F., 2009. Consequences of outsourcing for organizational capabilities: some experiences from best practice. Benchmarking: An International Journal, 16(3), 316-334. Ahmed, P. K., & Simintiras, A. C., 1996. Conceptualizing business process re-engineering. Business Process Re-engineering & Management Journal, 2(2), 73-92. Barendsz, A. W., 1998. Food safety and total quality management. 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