Expansion Blues of Gail Country Classics - Case Study Example

Expansion Blues of Gail Country Classics This case study talks about practical usage of Production and Operations management in the Gail’s Country Classics by pointing out number of problem solving methods and techniques .The areas covered will be from areas of productivity, management, facilities management, quality control and project management. The key questions that will be addressed are 1. What types of daily decisions must Gail Beaumont make for her company’s operations to run effectively? 2. How did sales and marketing affect operations when they began to sell standard pieces to retail outlets? 3. How has the move to producing standard furniture pieces affected the company’s financial structure? 4. What might Beaumont have done differently to avoid some of the problems she now faces? About Gail Country Classics Based at Albury NSW, Gail Country Classics is a designing and manufacturing timber furniture company. The company was founded by Gail Beaumont. The company started their production base by producing customer-made –timber furniture for private ski lodges and holiday cabins. Gail Country Classics grew to become a company that sold furniture to retail outlets and diversified into standard furniture pieces. The company operates a manufacturing facility in Albury, where custom and standard furniture pieces are made. Background Note The company has developed a solid reputation as having high quality workmanship and highly creative designs. Sales were fast to pick up in the Australian region and that reputation was the backbone in diversifying to standard line along with custom line. Business Model Gails Country Classics follows a high quality design and product development with a highly people intensive process. (The Academy of Management Review) Product Development Gails Country Classics started by developing products with the customer specifying the kind of wood from which the furniture piece should be made. The growth of company reputation meant diversifying of the company in new format. The company started selling most popular type of furniture pieces to retail outlets. The standard line furniture customers were highly price sensitive and were strict on delivery requirements than the custom line clients. Production The company operates a single manufacturing facility .The equipment maintained here is more of general purpose keeping in mind the flexibility needed to produce custom pieces of furniture. The quality of the finished product was entirely dependent on the quality of the wood and the craftsmanship of the individual workers. The processing time for making both the standard and custom line furniture on the same equipment by the same craftsman has to be decided. Sales and Marketing The last few months saw the company selling more of standard line and that has meant that regular scheduling of this line was taken care. The usual procedure is that custom furniture was always given priority when compared with standard line. There was an influx of orders on both standard and custom line and the organization had trouble in meeting these orders. Custom line was the preferred line of production always because of higher sales and profit margins. The sale of the customer sales has remained strong and the sales of standard pieces are increasing. Delivery times have increased for both standard and custom line production due to increased lead times. Production capacity is pushed to the limit and the scope for expansion is nil. When the companies take more time on processing orders and ensuring timely delivery, customer satisfaction can minimize even if the quality of the product is very high. The worth of the company from now onwards is to spend money on anything that can help to increase and enforce the responsiveness of the organization as a whole. The production side of the organization will be covering the supply side while the sales and marketing team ensures the demand side. Marketing team should understand the problems faced in meeting the demand and when they take orders they should keep in mind the constraints needed in meeting it. In short it is knowledge of the limitation of demand and supply system in lieu of the organization. (International Journal of Operations & Production Management Journal of Operations Management) Finance The profits are not what are expected of the sales figures. Costs of standard line furniture are increasing. When the schedule is custom line, standard line inventory gets stacked up and in that process dollar gets stuck up. The inventory volume is getting stacked up in expensive warehouses that are rented driving the costs up. From the finance side, the scope of expansion of the organization is low. But that does not mean that they should not keep something ahead for future requirements like new machines, new plants, labour, materials, energy and all types of overhead. The financial side of the organization could learn or implement computer based production and inventory control system. The system should provide information about capacity utilization, inventory valuation, cost of goods produced, cost of goods sold, information about any internal controls, and knowledge about implementing various stock ratios and so on. (Journal of Developmental Entrepreneurship) For example in this organization the cost of goods sold is 180 million and total average inventory is 45 million. The total average inventory is production material work-in-process. The inventory ratio is 180/45 or 4. If the average inventory ratio is 8 then we can assume that inventory is not turning fast.(Hau Lee)Inventory levels can lead to inventory turn cost.( Ballou ,Ronald.H)High inventory level may be due to high sales or ineffective buying. Low inventory level show less sales.( Ellram, Lisa M. and Ed Feitzinger) This organization should try to stay efficient and competitive by keeping inventory levels down and speeding up keeping their stocks down by selling fast. The organization should try to not to create a lifetime supply of standard line product. Generally speaking, by keeping the number of days small, the more efficient this organization can become and by making sure that inventory is held for less time and less money is tied up in inventory.( Chase, R., Jacobs, R. and Aquilano, N) The organization should keep letting inventory build only when they are planning to pile stock in anticipation of bust season. The real issue for the founder Gail Beaumont will be to undertake decision making that will help her company run effectively. The first phase is to prioritize the work appropriately. Should standard line be given more priority when compared with custom-line? From the organization point of view, Custom line brings in more money but standard line does give more diversification. The first priority is to improve the organizational misalignment. A strategic direction has to be ensured keeping in mind the organizational objectives and the functional considerations, cost optimization and result orientation. The employee involvement has also to be met when taking decision. (Journal of Retail and Leisure Property ) Operational strategy should be in such a way that organizational design is lean and revolving around the core principle of extending raw material to final consumer. (Journal of Strategic management) The relationship between strategic management and organizational practice has to be seen in full detail. The company should have the ability to use precise utilization of various operations management activities, along with human resource development in the manufacturing segment of their organizations to make sure that the organization does not come down in the finance and other areas. It is in with this context that a decision has to be made by Gail Beaumont (Journal of Small Business Management) The way that would have been ideal The management should have understood the requirements before the change was implemented. The allowing for anticipation of changes in cost should have been understood more before stepping into standard line,. The problems of using the same machine for both sets of product should have been understood. The options and limitations of the standard line to custom-line should have been understood more before implementing the value package. That would have given more insight to day-to-day management issues and the changes that can bring more income. The question that the organization needs to address was whether customer participation will increase the value of the product?(B Joseph) It has been found that the answer is yes as the custom line has brought the reputation for the company. In fact, that is the brand valued product. In a world of market segmentation, there should have been an effort from the part of the organization to understand the value of services segmentation. A company or organization should target the real or right customers who are likely to gain business or do business for a long time. There has been nothing wrong in giving individual product or standardized core product. The basic thing was that it should have been done in fool proof manner. The rectification efforts should take place fast as the company is in danger of losing out to competitors. Looking Ahead A new approach has to be done by the management to ensure that the timely delivery and production are met. It is an overhauling of developing, planning, system that can improve the situation. Combining goods with services is a good idea like done in custom line where the user can choose the material. The profit margins are also good in this system. The organization should look the whole concept from the frame work of practicality (Lovelock).The organization can be divided into sections where each section understand the value of stock ability, intensity of interaction, simultaneousness of consumption.(Smith) The market segmentation for services goods is different from manufacturing goods in two aspects. Services will ensure that the market segmentation is in compatibility in one market segment. There is more opportunity to customize service offerings. (Ziethamal and Bitner) The message is that the company should concentrate more on custom –line and marketing team should be tuned for it. The standard line should be taken in more earnest by making arrangements for timely delivery and for that a new plant will have to be implemented. Company has to match goods and services that provide value to the customer and organization.(Reis and Peria,2000)The company should try everything that increase the option of non stock and should have extra or flexible capacity to meet potential needs. Step should be taken to increase the degree of interaction between clients and company so that positive image of the company is presented. (Boudreau, J). An honest reason of the problem why the stock is not delivered should be addressed to the client. The master of arts of listening and responding should be made of organizational culture and marketing and sales personnel should be tuned for it. (Collier, D. 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