Production and Operations Management: Hudsons Furniture - Case Study Example

Running Head: Production and Operations Management: Case study of Hudson’s Furniture Name: Course: University: Date of Submission: Lecturer: Production and Operations Management: Case study of Hudson’s Furniture This paper shall discuss some of the most important production and operations management issues facing the Hudson’s (Hudson’s Alpine Furniture). The Hudson’s is a small furniture manufacturing company based in Australia. The company was established primarily to produce high quality, custom-made timber furniture, which are supplied to private ski lodges and holiday cabins around the New South Wales. Although the company initially focused on manufacturing custom-made pieces of furniture, it was later compelled to produce furniture for commercial ski lodge operators. This was necessitated by a steady growth in the company’s reputation. As the company expanded the range of its products, more responsibilities and issues emerged in respect of production and operations management. The paper discusses these issues and how the issues will affect the company’s production management. By definition, operations management is the process of effectively planning, controlling and coordinating the production. It entails careful control of the resources required for production so as to produce specified product through optimal utilization of resources. The main objective of production and operations management is to produce a specified product using the specified or desired methods so that optimal utilization of resources is met. As such, operations and production management is responsible for producing the desired product, which meets marketability standards at the cheapest cost. This is achieved through proper resource and manpower planning. According to Morden, (2007), it is the responsibility of operations and production manager to ensure that the right products are delivered in a timely manner. When this objective is met, then the production management system is said to be effective. For instance, the production manager at the Hudson’s has to ensure that the right amount of furniture and of the right quality is delivered to the clients at the right time. Otherwise, the company may lose lucrative orders, which can be detrimental to the company’s growth objectives. Essentially, any organization must adhere to the principles of production and operations management in order to survive. Primarily, production and operations management deals with planning, selection of materials and process, routing, scheduling and coordinating of activities. Efficient production and operations management can be of immense benefits to an organization and its stakeholders. For instance, customers benefit from increased productivity through increased value in the products they purchase. Efficient operations management ensures that products are always valuable to consumers in the desired quality and quantity. On their side, investors and owners get increased security for their investment, credibility, adequate market returns and a positive image in the industry and society in general (Murthy, 2007). Effective operations management also ensures that employees get increased wages, improved working conditions, job security and increased feeling of job satisfaction. It also ensures that suppliers get increased confidence in an organization because their bills can be realized without any delay. While focusing on the product lifecycle, the main focus of production management is on driving product development and marketing. In most cases, product management often bridges the gap between different functional departments in an organization. There are important operations management issues that are evident at the Hudson’s (Murthy, 2007). These issues are, however, related to the need to integrate the organization’s different functions so as to save on costs and increase profits. By addressing these issues, the company can effectively develop strategies and plans for dealing with the opportunities and challenges that arise in its business environment. As such, the company should design a system for producing quality products in the right quantities and in acceptable timeframes. The most important issue that the Hudson faces relates to designing the system. This is all about product development and involves determining the most appropriate characteristics and features of the product to be produced for each class of customers (Murthy, 2007). Currently, the company serves two classes of customers: commercial ski operators and those requiring custom-made furniture. The company has to meet the demand specifications of each of the two classes of customers. This should be begin with an assessment of each customer’s needs and then the development of a detailed product design. The resources, facilities and equipment required to produce each customer’s desired product, as well as, the information systems needed to monitor performance should be part of the system design process. Of all the structural decisions that the production management at the Hudson’s has to make, one with the greatest impact on the company is technology and process choice. This decision is important as it helps address the question of how production can be achieved. According to (Kang, 2007), product development is an important cross-sectional decision-making process, which relies on communication and teamwork to install the operation plans needed to successfully develop a product. System design is critical to the operation management at the Hudson’s in that it directly influences the design characteristic features of the products and how the product should be marketed. In addition, system design determines the product’s quality and cost, as well as its performance features with regard to the customer expectations (Kang, 2007). Therefore, system design is an important consideration when making production decisions. This can be critical even though design costs at the Hudson’s are a small part of the total cost of the product because processes which waste raw materials or duplicate efforts can have a negative impact on the business’ profitability. According to Kumar, (2007) system design can be divided into two categories: process design and facility design. The former (product design) describes how the products should be made and has two components, namely, scale economy component and technical component. The technical component includes a selection of production equipment and sequence for various phases of production management. The scale economy component entails application of the right amount of technology (equipment and tools) to make the production work fruitful (Kumar, 2007). As regards Hudsons, this involves determining if the demand for the furniture (product) is large enough to justify mass production. It may also involve determining if there is reasonable variety in customer demand to require installing flexible production systems. Facility design, on the other hand, involves determining the location, capacity and layout of the production facility. This is an important measure in an organization’s capability to provide the required products in the quantity demanded and in a timely manner. Capacity planning takes into account the demand for the product, capacity of the facility and deciding how to change a company’s production capacity to meet the demand. According to Kumar, (2007) facility planning is all about placing an organization or production facility in line with the expectations of its customers and suppliers. This is a vital consideration for a company like the Hudson’s. Since the company produces skiing facilities, it is imperative that it locates its production units close to the customers. This will not only help the company reduce production costs but also be more responsive to customer needs. Because of the nature of its business and customers, facility location is an important strategic decision because it is a long-term commitment that can otherwise not be easily changed. When evaluating the location of the production facility, an organization’s management should consider initial investment required to secure facilities and, operating transport costs and customer convenience (Kang, 2007). In addition, qualitative factors such as transportation infrastructure, employee welfare and labor environment should be taken into consideration. All these factors collectively form an important issue that directly affects the Hudson’s operations management decisions. The other important issue that the company faces is system planning. Planning the system describes how the management utilizes the existing resource base created through the product’s system design. An important outcome of the planning process is the change of the system design to cope with environmental changes (Kumar, 2007). As an example, the operations management at the Hudson’s may make decisions to decrease or increase capacity to cope with increasing demand caused by commercial buyers. Any decisions made by the production planners depend on the time horizon. Long-term decisions should include the size of the production facility required to study how technological changes may affect production or the number of facilities and employees required to meet customer demands. The length of time horizon for long-term planning varies between industries and is dependent on both the size and complexity of required production. However, long-range planning typically involves determining the appropriate workforce size, developing appropriate training programs, improving delivery systems and working with suppliers ad customers to improve product quality, as well as, determining the amount of material to order on an aggregate basis (Kumar, 2007). On the other hand, short term scheduling involves planning for specific job orders. This takes into account who will do the work, the kind of equipment to be used, the resources which will be consumed and the mode of transport to be used in delivering the product to the customers. Managing the system is another important issue that faces the Hudson’s. System management involves working with stakeholders constantly to improve organizational performance and encourage participation. In any organization, teamwork and participative teamwork are critical to the success of production operations, as are culture, training and leadership( Kumar, 2007). System management encompasses material management, which includes making decisions regarding procurement, handling, controlling, storage and distribution and utilization of materials. Material management is important because it directly affects production costs. Issues regarding quantity, quality and timing of materials need to be addressed at this point and also when companies weigh the qualities of suppliers. Treacy (2007) has explained in his book that in order for organizations to understand issues affecting operations management and how they contribute to success for an organization, it is vital to understand the strategic nature of operations management and the impact of technology on operations management. Essentially, efficient operations management is vital in achieving competitive advantages in the contest for clients. Therefore, by linking operations management strategies with the organizations’ overall strategy, synergy can result (Treacy 2007). Operations management becomes a positive factor when equipment, facilities and employee training are an important means of achieving organizational objectives, rather than a departmental objective. In any business environment, a key component of operational flexibility is the incorporation of technological knowledge. Advances in technology facilitate the production of better products using few resources (Cieslak & Bob, 2006). Technology has the fundamental effect of changing the product and cause the product’s quality and performance to dramatically increase, making it more valued in the market. Having discussed the main operations management issues apparent at the Hudson’s and how they influence production decisions, it is important to discuss the effects of new commercial furniture orders on the company’s operations (Cieslak & Bob, 2006). In any organization, increased demand has a direct impact on production capacity constraints, operations efficiency and the overall effectiveness of the organization. It is evident that the speed of change at the market place is creating stress on the Hudson’s to respond promptly and effectively. The basis that is required to effectively react to these dynamic changes in demand is dependent on the understanding the company’s supply chain process and operations management policies. This is critical in building appropriate infrastructure, which can provide the needed flexibility and speed for transforming the organization’s production processes (Dean, 2002). It is apparent that the effect of new commercial furniture orders will be felt throughout the Hudson’s’ and in every aspect of the company’s supply chain. First of all, the new orders will cause the company to work with suppliers in determining new supply volumes. Suppliers have the capacity to bring production to a standstill. If the supply capacity is not sufficient enough to guarantee optimum production and meet peak demand at the Hudson’s, inventory building cannot be properly planned and some customer demands may go unfulfilled. The new orders will also affect the company by creating the problem of storage and distribution capacity management. Storage and distribution are important aspects of operations management in that they influence timely delivery of the product. Distribution, on its own right concerns all elements of the supply chain and hence its capacity issues influence the on-time delivery performance and service levels (Dean, 2002). The new commercial orders at the Hudson’s will no doubt create a need for constant adjustment and monitoring of production levels and policies. This means that the increased demand created by the new orders will cause external pressures which will challenge the organization’s current business practices. The impact will be felt in terms of price pressures, availability of raw materials and the company's capacity to respond positively to the increased demand (Cieslak & Bob, 2006). Additionally, the company’s internal production dynamics can also be affected by the increased demand created by the new orders. Partnerships and acquisitions and moves into new market areas will create opportunities for the Hudson’s to leverage its asset base and spend its capital wisely. But without proper planning and coordination, these opportunities can easily become costly challenges and liabilities since synergies cannot be exploited. No matter how efficient capacity planning at the Hudson’s is conducted, production management decisions must be revisited periodically to ensure that they are always aligned to the organization’s goals (Moreton, 2003). The other important effect that the new commercial orders will have on the Hudson’s will be change of dynamics and nature of relationship between different supply chain elements. The increased demand will create product-mix changes necessitate hiring of more workers and creation of new information management systems (Dean, 2002). Undoubtedly, the new orders will have a pervasive influence on the company’s operations management policies and create a need for accurate flexibility. The ability of the Hudson to quickly react to these effects while making informed decisions will directly impact on its financial health and success. The decision to start manufacturing commercial furniture will have important ramifications on Hudson’s financial structure. The ramifications are primarily related to the economies of scale. By definition, economies of scale are the costs advantages exploited when a company expands its scale of production to meet long-term needs. The main objective of striving to reap economies of scale is to reduce the long run average costs associate with the production process. The reduced costs represent improvements in production efficiency and can be channeled through to consumers in reduced prices. As Kaplan & Norton, (2000) explains economies of scale give companies competitive advantages in the market place which is achieved though reduced prices and which leads to high turnover rate and increased profits. Clearly, they are the benefits that the Hudson’s will achieve by moving to the production of commercial furniture. The production of commercial furniture will lead to expansion the company’s production capacity and this will lead to an increase in the company’s returns to scale. The Hudson’s will be able to sell more output and with time, it will be easier for the company to sell even more of the products and reap the financial beneficial of large scale production (Dean, 2002). Although the initial overhead costs of investing in the production of the new type of furniture will be great, the marginal cost of producing the furniture will be considerably small. Therefore, if the company can establish itself in the commercial furniture market, positive feedback from its consumers will cause the customer base to increase. This will give the demand of commercial furniture and hence encourage the company to increase production capacity. Because the marginal cost of production is significantly low, the increased production will reduce the average cost and give the company the scope to exploit economies of size. Low costs normally mean high profits and increasing financial returns for the company (Halevi, 2001). It is important to note that the move to production of commercial furniture will affect not only the company’s financial structure but also its position in the market. The effect on market position will to a great extent depend on the nature and extent of economies of scale available to its suppliers and by the size of market demand for the furniture. References Cieslak, D.and Bob G. (2006). "Programs Provide Extensive Tools For Adaptability And Customization." CPA Technology Advisor 16 (December 2006). Dean, P. (2002). Production management: making shows happen. Ottawa: Crowood. Halevi, G., (2001). Handbook of production management methods. New York: Butterworth- Heinemann. Jagdev, H., (2005). 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