The Operation Management - Case Study Example

Operational management Student’s Name Course Professor’s Name University City (Sate) Date Case study name: Finding a location for electronic component manufacturing in Asia. Operations management is a field that revolves around the very aspect of control and design of the entire production production. It also redesigns business operations in the production of products. In this whole process there exists operational issues and problems that may render a business unprofitable or less profitable, drain the business energy and resources and also impact strategy execution. In this case study AMC, an electronic component manufacturer happens to have operational issues that have pushed the manufacturer to think of possible relocation. Increasing pressure from manufacturers located in other countries may be a form of a death sentence to AMC by rivals as they may be enjoying an array of advantages: substantial financial resources, advanced technology, superior products, powerful brands and management skills. Such pressures from other manufactures in other countries may prompt a company such as AMC to look for countering moves aimed at reducing the pressures. Manufacturers in such a situation such as AMC respond in different ways like calling on the government to provide support or reinstate trade barriers. Launching international expansion strategies after building themselves back in their countries is also a way that manufacturers like AMC can adopt to counter pressure from rival manufacturers in other countries. Despite labour remaining quite inexpensive in Singapore, there has been a relatively steady increase in labor costs. This cost is the cost of wages paid to workers during an accounting period on a daily,weekly,monthly,or on basis of the job, plus payroll and other taxes related and if any, benefits. Rising wages for example could have an impact on the calculus of a company’s margin of profit. The reasons for increasing labor costs in companies could be: Government regulations through rules and regulations standardize the amount to be paid to its employees. It might appear in form increased basic salary or just other benefits like health insurance and such. Where companies require a certain level of skill which then falls short, there arises a shortage that pushes the labor costs up in order to secure the people with the required skills. In a case where the company hires the not required people then it incurs the cost of training them. In the case where there exists a higher demand of labor in the market then labor costs go up in an attempt to secure the employees. This high demand for labor can result out of increased competition in the industry and things like labor union go slows. The rising labor cost can be controlled and reduced for the benefit of production and the company in general. One way of doing that is for a company to automate its manufacturing so as to improve productivity, improved productivity means reduced labor costs. Automation of processes reduce the time used in producing a unit good and also the decisions made are implemented quickly and therefore there is efficiency in the company management and production. Utility costs notably, water and energy costs are what drive ACM into contemplating on moving operations to another country. Energy and water regulations in each country differ and if regulations are not favorable then the costs of both might not be that favorable to the operations of such a manufacturer because it keeps the company operating at high costs and not being competitive enough in terms of producing cheap and affordable products and of good quality. Other companies in such situations may come together to push the government to change regulations and laws that seem unfavorable to the growth and development of companies. Also they may decide to leave the country and go to countries that have well established regulations which favor manufacturers. ACM’s is still profitable but their margins have shrunk, the reasons for such could be a combination of the following factors: Higher supplier costs, can lead to declining margin. This happens when the cost of goods go up as a result of your suppliers’ cost going up and therefore may decide to charge or negotiate with you. If the cost of goods remain high then the margin will eventually be affected as it will decline. To reduce such kind of utility costs then you can decide to negotiate with the suppliers or look for other suppliers so as to have a smaller effect of suppliers’ costs on the profit margin. Lower prices in order to generate sales tends to reduce the profit margin. Such moves tend to reduce the gross profit and also maintaining low stable price becomes hard and also raising prices becomes hard. Competition and increased rivalry from competitors makes it hard to get the customer to pay desirable prices for your products. This indirectly reduces the sales transactions and in the long run the manufacturer’s purchases from the supplier declines and it is for this reason that he cannot gain the economic advantages of buying in large quantities. The approaches to handling the shrinking margins of ACM is to have a prudent pricing strategy that will take into account what the market will bear in terms of price and supply. Operating expenses can be reduced by accessing much cheaper offices, adopting new, cheaper and efficient technology that will see the cost of production and labor cost come down. Finding cheaper sources for the raw materials needed to manufacture the goods. Locating nearer to where raw materials are is one way of accessing the raw materials at a cheaper price. Negotiating with suppliers is one way to have a company access raw materials at a fairly cheaper price. Companies enjoy economies of scale when they buy raw materials in bulk which means that after production the unit costs comes down and therefore able to make more profit. When profit is increased then the margin also increases and the margin issue is kept in check to avoid a decreasing margin. The other issue is the company’s inability to handle competition which if not acted upon will force the company out of business as they are no match to competitors. ACM should automate all its functions to speed up processes and keep the management of the company ahead in terms of efficiency and effectiveness. Adopting a new and cheap technology would be a game changer as the other companies that have done this have either improved greatly in their own business environment. If ACM makes a move like such then processes will be quick and also efficient, the cost of production will come down and its prices for the product will reduce placing them at par, closer or even ahead of the competitor. Discussion questions. Question one. Advantages for each location offer. In the case of Hong Kong, it is known that since independence its labour costs have decreased and the labor access increased. That means that the company can produce at cheap labor costs and still manage to offer employment. The availability of Honk Kong’s large sea port and a massive and good transportation infrastructure which is good for any company to ship or bring in raw materials and ship and take out finished components to its destines customers. It makes it even better because the customers are dispersed geographically and for that reason sea transport becomes extremely important in the delivery of goods and services to customers. The sea port being a massive one and being able to serve the dispersed customers, container ships frequently service the area and for that reason the cost of shipment reduces making the port a suitable place for movement of components to original equipment manufacturers. Honk Kong has seen the transfer of original equipment manufacturers from other regions to its territories in the past few decades and therefore making this a good thing for it creates the attractiveness of Hong Kong to such manufacturers. The other location that the committee proposed was Kuching which is located in Malaysia, its attractiveness to the relocation committee was among others, access to natural resources and also inputs used in production process. Just like Honk Kong, Kuching has a good transportation infrastructure and also happens to host a deep sea port, despite being smaller than that of Honk Kong and Singapore, and that would enable the shipment and movement of raw materials and finished products. In Malaysia labor is considered relatively stable and inexpensive. In this case it is favorable for a company as it can produce goods at a fair price because of its low labor costs. Disadvantages for each Location offer. Kuching’s sea port that is to be used in shipment and movement of raw materials and finished product is much smaller than that of Hong Kong and Singapore raising concerns of the frequency at which ships will be visiting which will subsequently lead to increased shipment costs of components to original equipment manufacturers. In both locations, that is, Hong Kong and Kuching their respective governments do not have incentive packages like what the government of Singapore is willing to offer for ACM to stay. In this case the government of Singapore is offering a five-year tax free incentive. Question 2 Other factors not present in this case study yet play a role in the committee’s decision are: The national literacy rates could influence greatly the demand and the supply of labour and this determines the labour costs a manufacturer is going to incur if he or she relocates to another country. Political and economic Stability of a state is also an important factor for it determines the type of government and also the regulations. Economic stability of a state also determines the business environment which greatly influences management and the company as a whole. Technology on the other hand differ from country to country, this same technology influences decisions, processes and costs incurred in production. If a country has state of art technology and is used in production processes then costs are reduced immensely, profit increases and growth is recorded. For ACM it has to consider technological differences between Singapore, Hong Kong and Kuching. Question 3 Transportation infrastructure is of importance in this decision as transport play a key role in ensuring raw materials reach the plant and final goods reach the customer. Therefore if the infrastructure is good then it would mean raw materials arrive without delay and final products reach the consumer at the intended time. It also reduces the cost of delivering raw materials and delivering final goods which reduces the operational costs and lowers the price, increasing the sales. Question 4 Factors like increasing technological levels will eventually change in the coming years and therefore if a country at the moment is having a technological revolution then it means in the future it will have better and cheaper technology for companies. Cheap technology means cheap production costs, it means efficient processes and cheap-quality products. This same technology is what equips a company with a competitive edge in the industry and puts the company ahead. One other factor would be Educational levels. If the population is educated with required skills and are in large supply it means they will work at the provided salary levels and it would mean low labor cost as also the company will not incur any costs to train individuals. Question 5 Going to Hong Kong would be a good alternative because of the following reasons: Good transport infrastructure and a large sea port which makes it easy for the transportation of raw materials and finished products at a low expense, which also impacts the price of the product and eventually the sales. Hong Kong has seen the movement of companies to that place which means the environment there is very conducive for businesses and also a speculation that more companies will move there is enough indication that the country is business friendly. References William, J.Stevenson . Production/Operations Management , Irwin/McGraw-Hill. Crainer , Stuart . (2000). The Management Century. New York: Jossey-Bass. Nigel Slack, Stuart Chambers, and Robert Johnston. (2010). Operations management, sixth edition. Albert, Porter . (2009).Operations management.ISBN 978-87-7681-464-9 Read More