Analysing Operations Management Tools in the UK - Case Study Example

Analysing Operations Management Tools in UK Name Institution Date Analysing Operations Management Tools in UK Part A Introduction The contemporary business planet is characterized by dynamic changes that have rapidly transformed the operability of both service and manufacturing industries globally. For instance, the increase of technological inventions has elevated efficiencies of production of commodities and delivery of service. This trend has significantly spurred stiff competitions. As a result the survivability of the organizations is largely dependant on an organization’s competitive advantage. This implies that the planning processes and organizational performances of both service industry and manufacturing systems of various business organizations have at one point been subjected to transformation, are or have to be so as to gain competitive advantage or relevance in the contemporary world. This section outlines a comparative analysis between economic order quality (EOQ) policy which the company is currently using and just-in-time (JIT) inventory management system which it refers to adopt. The paper aims at analysing the vital elements of JIT implementation as well as how the system will benefit the organization. Economic order quantity (EOQ) and the just-in-time (JIT) inventory management system Both the EOQ and JIT systems are distinct approaches that organization can undertake to manage their inventories. Inventory refers to detailed records or list of materials that are possessed by an organization. This entails both the raw materials that are required for production of finished products as well the finished products. Effective management of inventories is very fundamental in assisting organization that deal with physical products such as manufactures and wholesalers to combat the fierce competition. It is, therefore, very crucial to critically analyse the different inventory management systems so as to determine the most efficient strategy that increases the organizational value. Although most small and medium sized organizations are employ the traditional methods to determine the logistics of their purchase, Just-in-Time inventory management system is lauded as the most effective system, especially when companies’ purchasing activities are oriented to match high and consistent levels of demand. Costs Both EOQ and JIT manufacturing systems are significantly associated with a number of benefits. One of the advantages of employing these systems is that they reduce the cost of storing inventory. EOQ inventory management system is based on formulae that aim at reducing the costs and optimizing value when repurchasing inventory. This inventory management system aims at minimizing the total costs of inventory such as shortage costs, holding costs and purchase costs. The shortage costs refer to the costs incurred when the demands surpass the available stock. Holding cost is the total value of inventories that are in store which are awaiting sale or usage. This also include the costs of the capital invested in the materials or the finished products, the costs of insurance, the costs storage or space, taxes and protection of the inventories. In other words, holding costs represents the costs of maintaining inventories. Ordering cost is the cost incurred to place and purchase orders. On the other hand, rather than just focussing on cost reduction, the JIT programmes take into account other vital aspects of inventory management such as quality and flexibility of operations. Additionally, JIT merges the conflicting objectives of achieving high quality and low costs as well as enhancing flexibility of manufacturing processes and delivery dependability (Gunasekaran & Lyu, 1997). Implementation phases and cost of JIT There are different factors that determine the implementation of JIT concept. It requires the interaction of all the departments to ensure that targeted objectives are attained. The implementation phases include the following: The top-most management has to accept the idea of JIT There is need for employees to comprehend the significance of the concept of JIT The third phase involves setting up of ERP. ERP will integrate all data and processes of an organization into a single, but most efficient system. Testing for the system after implementing JIT is the next phase Phase 5 which is the last phase involves and controlling the successful existence as well as the development of JIT system. Quality and quality management Retain excessive inventory in the warehouses can have negative impact on the quality of the products. Intuitively, it is to note that keeping excessive inventory can hide inventory management defects that are associated with supply and quality. Implementing both JIT and EOQ systems is focused on improving the quality of the products. However, JIT system more effective in enhancing quality compared to EOQ system. According to Jaggi and Mittal (2011), enhancing quality through EOQ model is based on the assumption that the order quality must be perfect. However, this assumption may not be valid since it can be deterred by a number of unavoidable factors. Whereas EOQ model focuses on maintain a certain level of inventory that is deemed as manageable, the JIT system aims at eliminating or keeping little inventory. As a result it is easy to manage quality of orders while using the JIT model. The concept of JIT According to Ibanichuka and Oyadonghan (2014), JIT system is defined as a management philosophy that is designated to eliminate waste. Ideally, JIT system operates on the basis of sell one make one principle. Paliwal, Varshney and Awana (2013) point out that JIT is basically the extension of the concept of organizing material flow so as to reduce the levels of inventory at every stage. Similarly, it can be described as an inventory management approach that is driven by demand, and simplifies the manufacturing mechanisms to enable detection of problems along the production line and force immediate counteractive solutions. The main ideology underlying the concept of JIT is to highlight the hidden problems and engage the entire workforce to pluck them so as to eliminate the necessity of higher stocks. According to Paliwal, Varshney and Awana (2013) waste elimination techniques are of JIT can be enhanced through various strategies which include reduction of batch size, scientific design of factory and machineries, diverse models of production, reduction of set-up time and orienting vendors to JIT manufacturing. Benefits of JIT Management System Substantial literature point out that JIT manufacturing is the best approach of managing inventory in the face of the rising numbers of competitions (Moreira and Alves 2006; Gunasekaran and Lyu 1997 and Qureshi et al 2013). One of the major benefits associated with implementation of JIT system is the reduction in customer response times. This advantage is arguably the major pillar that holds the name of the policy. This suggests that goods are produced to be sold or consumed in an opportune time. In this case, goods are readily available and can be delivered to the customers immediately they place the orders. The term waste in this case is used to refer to production of goods that exceed the ordered amount and basing production on the quantity demanded by the customers. Waste elimination is the first essential element of JIT and it can be enhanced through efficient flow of production process whereby parts, sub-assemblies or products are availed at the production line when and how they are required. The rate of flow of production is often in line with the rate of demand of the finished products. Flexibility of the operations In essence, adoption of JIT policy helps organizations to eradicate stressful circumstance that are associated placing too much order which in tern raises the holding costs. For this reason, JIT system eliminates activities that do not have positively impact on the value of product or services. Too much emphasis in this case focused on simplification and improved visibility to point out activities that do not add value to the products or services. Therefore, this implies that employing this strategy in any organization will significantly help in reducing costs associated with storing raw materials or finished products. Since the policy eliminates the need for bulk production, it is arguable that the quality of production will go up as well. Companies that produce goods precisely to meet the demands of their customers generate products that are of higher quality compared to those that produce goods in bulk in anticipation of future increase in demand. JIT crates efficiency and effectiveness (Qureshi et al 2013). It elevates levels of communication both within the organization and also with distributers and vendors. For instance, producing goods that meet the demands of the customers can motivate the workers since they can visualize the results of their performance. Advantage and disadvantage of Economic order quantity (EOQ) Advantage One of the major advantages associated with economic order quantity is that it minimizes both ordering costs and holding costs of inventory. Harbour (2015) point it out that EOQ model provides recommendation for the concerning the most economical number of units to be ordered in a given order. For instance, the model may recommend purchasing large quantities in fewer orders so as to capitalize on the discounts associ8ated with bulk buying. In essence, this helps in minimizing the ordering costs. In addition, EOQ model provides particular number of inventories that is efficient to a given business. The system provides model for estimating appropriate order thus ensuring instant replenishment of inventory. In this way, it ensures that the price of each unit remains constant. Disadvantage The EOQ inventory management technique requires good mathematic skill. One needs to be good at solving algebraic expression in order to understand how the EOQ formula works. For this reason, it is not appropriate for small business owners who lack mathematic skills. Furthermore, the model require requires detailed data in order to calculate multiple figures. For instance Harbour (2015) notes that the formula calculates the square root of 2DS/H. In this case, D represents the number of units purchased yearly; S is the rate of fixed ordering charge while H is the storage cost of a single unit. In addition, in order to calculate element H, the detailed data of the mortgage payment or rents, costs of utilities and property taxes are needed. Additionally, EOQ model is based on assumptions. In this instance, the model fails to consider economic or seasonal fluctuations by assuming that the demand is constant all year round. Such assumptions limit its effectiveness and sometimes it may fail to achieve its intended purpose. Part B Suitable Manufacturing Tool in Finding System Constrain There are wide range of manufacturing tools besides JIT and EOQ systems. Although JIT system has significant impact on cost reduction and elimination of waste, implementing the system can be strenuous. As a result, it can be unsuitable for small and medium sized organizations in some cases. However, other tools such as soft systems methodology (SSM), Theory of constraints (TOC) and materials requirement planning (MRP) can be employed to manage inventories as well. When dealing with elimination of ambiguity and constraint in the production line, Theory of constraints (TOC) is the most preferable. Watson, Blackstone and Gardiner (2006) observe that over the years, TOC has evolved from simple production software to manufacturing management tool that entails three interrelated aspects which include measurement of performance, solving problems or thinking tools as well as logistics or production. The thinking tools are also referred to as thinking processes. The Process of Ongoing Improvement The process of ongoing improvement refers to the ability of an organization to ensure consistent success without losing the momentum. TOC policy enhances process of ongoing improvement by eliminating stagnation in the workflow. Basically, TOC provides a set of holistic methodologies and rules which are all based on mechanisms that exploit inherent in organizations with complex systems. TOC makes this achievable through focusing on the few leverage areas as a methodology of synchronizing all parts to achieve ongoing improvements in the performance of the entire system. Essentially, this system is based on the ideology that regardless of the complexity of any system at any given time, there are only few aspects that are refrain the system from optimizing most of its goals. These are the problems that block any organization from achieving a certain goal. The theory helps in improving workflow processes and elevates the bottom line. According to Goldratt (1997) improvement is enhanced by anything that improves bottom line performance. More assertively, Khan (2013) argues that TOC can be applied to manage bottlenecks. Implementing the system helps in understanding processes that are faced by bottlenecks and provides better mechanisms of controlling these bottlenecks to elevate efficiency of workflow. TOC is systematically and logically applied to answer three fundamental questions which include what to change, how to change it and what to change it to. Deployment of TOC solutions has enhanced significant improvements in various multinational organizations such as Delta Airlines, Boeing, Ford Motor Company, Lucent Technologies and Amazon among others (Watson, Blackstone and Gardiner 2006). Advantage and versatility of TOC TOC techniques have more positive impacts on organizational performance compared to any other manufacturing system. The system improves the levels of output. TOC challenges compels managers to rethink to re-visualize some of the vital assumptions associated with their mechanisms of achieving organizational goals, about how they view productive actions as well as the actual purpose of cost management. In this way, TOC increases the throughput of an organization. According to Dettmer (1997), throughput refers to the total revenue that is being pumped into the organization through sales or delivery of products or services. TOC aims at understanding and constraints that block an organization from attaining its objectives by putting a lot f emphasis on the importance of maximizing the throughput income geared through sales. . In addition, in traditional accounting, a lot of emphasis is put on reducing expenses. On the contrary, TOC prioritizes increasing throughput rather than cutting expenses. It is worth to note that though both techniques aim at maximizing the profits, there is a limitation to cutting experience, which is getting the expenses to a zero level, while increasing the throughput is limitless. Theory of constraint offers efficient techniques that effectively manages the inventories and allows a firm to maximize the profits. Basically, the traditional accounting regards inventory as an asset that can theoretically be converted into cash by being sold. This viewpoint attracts undesirable organizational behavior and cultures such production of goods that lack necessity. This implies that from this perspective, companies may tend to overproduce in readiness to serve the customer base. In the process they may end up manufacturing products that are not truly needed. In addition, continued production results in cumulative inventory which inflates the assets of the organizations. This generates paper profits that are merely based on the sale of the inventory which in some cases may not occur at all thus increasing the costs of storage. This is where TOC comes in handy as the most effective manufacturing system. Firstly, it considers inventory as a liability. The inventory ties large amounts of money that could be use on other productive venture that would elevate organizational revenues. In the long run, this allows the turnover to inflate without additional staffs or space. In management of complex organizations integrating teams using self driven workforce to solve organizational problems is the most efficient way of milking the best potentials of the human capital. This is a vital strategy which helps in generating new ideas and concepts. Similarly, this provides platform for fostering and implementing such concepts and ideas and perpetuates the cooperation between the managers and the employees. Theory of constraint employs a team approach to seal the interface that exists between the functional discipline and elimination of the natural antagonism that is aroused by various work procedures and functional goals. This implies that TOC engages group forums to support both short time and long time planning through rigorous deployment of problem solving tools. According to Stein (1997), some of the groups that are integrated into finding and solving constraint by the TOC manufacturing system include the executive council, council that manages quality, project teams, multifunctional management teams and employee involvement teams. Limitations of the Theory of Constraints The process of implementing TOC is also faces by a number of significant challenges. The process is in most cases difficult to implement especially if the constraint is not constant. For instance, this happens in cases where it is difficult to anticipate the nature of demand of various products or production resources. Additionally, TOC is viewed as not able to represent the dynamic which is inherent in the contemporary systems (Sanjika 2010). This is often due to the fact that TOC is a liner and static representation of the coexistence between the system components. Furthermore, the system requires considerably plenty of time so as to implement fully. A lot of time is invested in training programs which allow the success of the mastery of the theory. Similarly, a lot of time is consumed in determining the constraints and implement the intervention measures (Sanjika 2010). Comparison between materials requirement planning (MRP) and just in time (JIT) The implementation of JIT system is often geared towards striking a balance between certainty of a stable supply chain and financial performance as determined by the cash flows. As Nordmeyer (2014) observes, JIT system is demand driven rather than forecast driven. This implies that both production and distribution of products is based on their demand rather that future anticipations. At the same time, MRP system is similarly based on the demand of the materials required for the completion of the scheduled requirements. MRP system is centralized on discretion of manufacturing environments that operate on the batch basis and in which outputs are produced in identification with serial number. On other hand, the major pillar of JIT system is the current usage of various production parts in the productions system. Essentially, both systems, significantly aim at managing material requirements and usage. Therefore, both systems can be used at the same time to initiate long term planning processes thus enabling the companies to plan for both labor and material availability. Conclusion The paper has critically examined the concepts of just-in-time and theory of constraints. Both are manufacturing systems that can be effectively deployed to manage inventory logistics in organization. In essence both approaches have almost similar advantages to the organizational performance. They both aim at eliminating waste, reducing costs and minimizing customer response time. Both JIT and TOC can be used to manage complex problems that other manufacturing management tools cannot offer. However, TOC is the best and most preferable manufacturing tool when it comes to identifying and solving bottlenecks in the production process. References Dettmer, W. H. (1997). Goldratt's Theory of Constraints: A Systems Approach to Continuous Improvement, ASQ Quality Press Gunasekaran, A. & Lyu, J (1997). Implementation of Justin Time in Small Company, Production Planning & Control Vol. no 4 pp 496-412. Goldratt, E. M. (1997). Critical Chain, Great Barrington, North River Press Publishing Corporation. Ibanichuka, E. L. & Oyadonghan K. J. (2014). Just-In-Time Cost Accounting System and Social Economic Factors Affecting Its Adoption by Nigerian Firms, Journal of Empirical Economics Vol. 2,No. 3, pp 116-128 Khan, K. (2013). Applying Theory of Constraints to Manage Bottlenecks, Retrieved on February 17, 2015 from Moreira, M. R and Alves, R. (2006). How Far From Just-in Time Are Portuguese Firms? A Survey of its Progress and Perception, Retrieved on February 17, 2015 from http://wps.fep.up.pt/wps/wp215.pdf> Paliwal, S., Varshney, A. R. & Awana, D.S (2013). JIT Implementation: Concepts, Benefit and Obstructions in Indian Industries International, Journal of Emerging Trends in Engineering and Development Vol.4 no 3, pp 440-447. Qureshi, M. I., Iftikhar, M., Bhatti, M. N., Shams, T. & Zaman, K. (2013). Critical Elements in Implementations of Just-in-time Management: Empirical study of Cement Industry in Pakistan, Retrieved on February 17, 2015 from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3858593/pdf/40064_2013_Article_690.p df Sanjika, T. M. (2010). An overview of the Theory of Constraints and Related Literature, Retrieved on February 17, 2015 from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact =8&ved=0CEIQFjAF&url=http%3A%2F%2Fefwe.ukzn.ac.za%2Flibraries%2Fresearchs eminars%2Fsanjika_t.sflb.ashx&ei=K_vjVPCwFaLTygP- p4HwAg&usg=AFQjCNEjsOuDmWO440vS4rHpDjXu1cYqNA&sig2=BlMyW9QFGot uFt4lmkx_OA&bvm=bv.85970519,d.bGQ Stein, R. E. (1997). The Theory of Constraints: Applications in Quality Manufacturing, Second Edition, CRC Press, USA. Watson K. J., Blackstone, J. H. & Gardiner, S. C. (2007). The evolution of a management philosophy: The theory of constraints, Journal of Operations Management 25 pp 387– 402 Read More