Hudsons Alpine Furniture Company - Case Study Example

Production and Operations Management Case Study Essay Name Institution Date Production and Operations Management Case Study Essay Introduction Operation management is process through resources utilized in the production subsystem of a firm are combined and transformed into value-added services or products in manner that is controlled; and adhering to organizational policies. In production management, inputs are transformed into finished products following the required quality (Dul, Hak, Goertz & Voss, 2010). Management activities which are interrelated and involved in the manufacturing of certain products are referred to as production management. This case study involves Hudsons Alpine Furniture Company that specializes in custom-made products for its customers. The company developed as a result of the passion of its founders. The Hudsons loved skiing and woodworking, consequently they came up with something where their passion was turned into potential. Job shop production system has been widely utilized in the company as it seeks to satisfy the needs of their customers. The good reputation of the company leads to increased sales and unprecedented orders from commercial customers. The company has to wake up to the challenge of dealing with commercial customers. This paper gives the analysis of the current situation of Hudsons Alpine Furniture Company giving an insight into operation management concepts applied at Hudsons. The venturing into commercial customers presents a different challenge to the company. Hudsons Alpine Furniture Company begun its business by specializing in timber furniture which is custom made. The business was founded on the passions of skiing and woodworking that existed in the owners. The company is located in Queanbeyan, NSW. The initial structure of the organization is founded on simple structure of operations that target private users of furniture that is custom made. The initial setting of the organization does not encourage mass production and the business targeted individual users. High quality custom-made furniture produced by Hudsons Alpine Furniture Company was designed for a specific market. Owners of holiday cabins and ski lodges which were situated high country and snowfields of the New South Wales Alps. The original passion of the owners, Della and Ralph Hudson, was the driving force that laid down the rules for operations within the organization. They operated on simple methodologies and procedures that coped well with the production of custom made products for private owners of ski lodges. The beauty of the area was reflected in the works of the company. Customers were the bosses since they had to choose the type of wood to be used in the manufacturing of the desired products. The customers specified what they wanted before it was prepared for them. The procedure of securing an order and getting the product delivered to the owner was long and hence longer lead times than anticipated. Simple management procedures and models were used to run business in the custom-made furniture product company. The company has utilized a production system that is known as job shop production. Job shop production features the manufacturing of few or one quantity of product produced and designed as per the specified directions of the customers in the prefixed cost and time. A job shop is made up of general purpose machines organized into various departments. Each job requires unique requirement of technology and requires processing machines to be arranged in a certain sequence. Job-shop production is adhered to when low volume of high variety products are produced. The machines used are for general purpose just like the facilities used (Lau, Yam & Tang, 2010). This is the case in Hudsons company since the equipment used is for general purpose in nature with an aim of providing flexibility required for the production of pieces of furniture that are custom made. The factory layout puts together equipment in groups according to function. The cutting department stores saws and various groups of equipment for cutting. Jointing equipment belong to one section while lathes are also grouped in a single section. Finished products’ quality has a reflection of the type of wood and craftsmanship of the worker who offered the art. There is number of assembly stations positioned strategically around the facility. Job-shop system of production is also composed of highly skilled operators who can take up as an imminent challenge due to the uniqueness demanded by the customers. It is the customers who demand what should be designed and how it should be done. This is exactly what happens at Hudsons Alpine Furniture Company since the furniture produced is custom made. The production system adheres to the specification made by the customers. Job shop system of production is also characterized by inventory of tools, materials, and parts. The types of woods required by the customers have to be found regardless of the circumstances. Regardless of the needs of the customer, all his requirements have to be met. Alpine Furniture Company has to stock a wide range of wood types that the customers have to choose from. If what is stocked by the company does not meet the desire of the customer, the company management has to look for whatever means to meet the needs of its customers. Consequently large inventories and parts have to be stocked to cater for the wide needs of the customers. The company needs various tools for designing the specified format by the customer. In job-shop system production, detailed planning is required for outlining the requirements of every product, each job capacities, and order meeting the delivery requests. The company has to have skilled manpower that has the required expertise to deliver what the customer needs. Alpine Furniture Company uses job-shop system of production and that is why it cannot cope with the mass production that is needed by commercial customer. The private customers have no hurry in getting their product delivered and instead they prefer all the needs to be met before the product is delivered. Commercial customers have to get their goods as soon as possible due to the short lead time that exist between one order placement and delivery. The customers have to assess the product designed before accepting it. They can also suggest some changes on the product. The materials used by Hudsons Alpine Furniture Company were sourced for locally and the management tried as much as possible to maintain a harmonious relationship between the environment and the business. The owners value the contribution of the environment towards the growth of their business. It is reported that Hudsons created a reputation that is solid for its high-quality workmanship and creative design. The sales grow to encompass the region that covers the entire Australian Alps. The imminent growth was accompanied by enormous opportunities. It was the tradition for the customer to specify the type of wood they preferred and it was pure custom made furniture products. The reputation of the company propelled growth in sales. Job-shop production system used by Hudsons Alpine Furniture Company has several advantages. Owing to the general purpose of facilities and machines a variety of products can be designed. Repetitive actions carried out in the company have an advantage. Operators grow to be more competent and skilled as every job provides them with learning experience or opportunity. In job-shop system, operator’s full potential can be put to use. The same environment fosters opportunities for innovative ideas and creative opportunities. Individual workers develop their full potential. However, job-shop system of production has its own disadvantages. This system of production results into higher cost owing to frequent changes to meet the specifications of the customer (Vignes & Etienne, 2011). The system requires inventory levels that are high at all departments hence increased inventory costs. Planning for production is complicated as it entails various individual activities that are geared towards production of certain design of a product. The sales department commenced receiving orders from the region’s commercial ski lodgers. The orders normally comprised of a number of furniture items that are similar for use in the concerned ski lodge. Orders of furniture from commercial customers presented a departure from the traditional course of business. In order to meet the demand of the commercial customers, the company commenced tried to process products in batches (Zhou, Li & Tang, 2009). Batch production is a type of manufacturing whereby the job goes through the department of functions in batches or lots and every lot may directed to a different routing. It is normally accompanied by the manufacturing of limited number of products which are produced at regular intervals and stored as they wait for sales. The batch system of production is applied where there are existence production runs that are short. In batch production, the plant and machinery need to be very flexible (Moon, Yao & Park, 2011). Batch production is also used in circumstances where the set up of plant and machinery is applied for the production of items in a batch and set up change is needed for next batch processing. Batch production is also applied in circumstances where manufacturing cost and lead time are lower than the job order production. Batch production system also has a number of advantages. Batch production ensures there is efficient use of plant and machinery. Batch production system makes further investment into plant and machinery unnecessary. Since items are produced in batches, cost per unit is low than job order production (Ngai, Moon, Riggins &Yi, 2008). Batch production enhances functional specialization. Batch system of production encourages job satisfaction for operators which will lead to high productivity. Finally there is increased flexibility to care of and process the variety of products. Nevertheless, batch production has its own limitations. Material handling in batch production is complex owing to longer and irregular flows. Batch production makes control and planning to be very complex. In batch production, work in progress inventory is normally higher as compared to continuous production. The high changes in set up also lead to high costs. Additional opportunities to Hudsons Alpine company brought with it the need for changing the system of production. The batch production system was also utilized in the company. The commercial buyers presented a new product line where stringent delivery requirements were imposed and customers were more sensitive to price (Paulos & Dahab, 2010). The private buyers who needed custom-made furniture were more liberal and less demanding as compared to commercial buyers. The similar items ordered by the commercial buyers had to be produced in batches to meet the delivery time. The new business growth showed potential of being profitable but could not overtake custom made and designed furniture which dominated the company’s sales. The custom made furniture accounted for around 75 percent and 60 percent of the total revenue. The production system had to be adjusted following the growth of commercial furniture items demand. The steady rise in commercial buyers or demand led to regular scheduling of daily operations and strategic functions. The company has to balance between the custom made furniture items and commercial needed items. According to company statistics, custom made furniture items are prioritized owing to higher profit margins and sales. This creates congestion in the commercial furniture production. Components for commercial components scheduled for lots are left laying around in the plant in various completion stages. The production of commercial furniture items is left lagging behind as the company gives priority to furniture items that are custom made. Presently the company owns a single facility for manufacturing in Queanbeyan (near Canberra). Commercial furniture pieces that are more standardized and custom made are produced at this facility of manufacturing. The production system of the company is more inclined to job shop production system as compared to batch system of production. The management is contended with the production of custom made furniture items with a steady support of the commercial items. Both the commercial furniture pieces and custom made compete for processing time by the same craftspeople and same equipment. The company as to apply job order production system and batch production systems in the production of customized furniture and commercial furniture. The company has a bias toward the custom made furniture items owing to high profit margins. Informal review conducted by the Hudsons in the company on its performance has made them to be pleased by the production and growth. Mass production of the commercial items would have given the company more revenue as compared to custom made furniture items. Sales of custom made items are stronger than the commercial furniture items. Demand for commercial line is rising steadily (Stein & Choi, 2011). Despite the observation by the Hudsons, the accountant of the company indicates that profits fall behind of where they should be. The accountant explains that costs accompanying commercial furniture items production are going up. Leaving commercial items in various stages of competition as the company concentrates on custom made furniture items lead to huge sums of money being tied up as work in progress inventory. Finished products inventory create the need for increased space for warehouse leading to increased costs. Stocking up the finished furniture items increases contingency risk for the company. Increased lead time occasioned by delay in delivery of finished items lead to increased expenses for the organization. It is noted that public warehouses that are expensive have been rented to accommodate increased volumes of inventory. The apportionment of time between custom made and commercial furniture items has resulted into increased lead time for both products (Faridimehr & Niaki, 2006). Whereas the business could appear as doing well adoption of inappropriate systems of production can lead to inability to meet organizational goals and objectives. The production space with the company’s plant and machinery has led to congestion. The decision to venture into commercial furniture production items has led to straining of the company’s capital structure. There could be shortage of adequate working capital to cater for daily operations of the company (Shoude & Mengdi, 2010). The liquid cash to run the daily operations of the company will run out as the money of the company get tied in work-in-progress inventory and finished product inventory. Eventually the operations of the company will be grounded to a halt if the current situation is not solved. Delay in delivering of finished products increases the costs for warehousing and other contingencies risks. Conclusion Hudsons Alpine Furniture Company is a production crisis that requires immediate remedy. The company initially specialized in custom made furniture items. Growth in reputation led to increased sales which were accompanied by extra opportunities. Commercial buyers got interested in the products and hence placed their orders. The entry of commercial buyers brought confusion as the company juggled between commercial furniture items and custom made items. Biased allocation of processing time between custom made and commercial furniture items has disoriented the company. Increased work-in-progress inventory of commercial furniture items has led to huge sums of money being tied in inventory. Superficially, the management celebrates the growth of their company sales, but they are blind to the fact increased costs of operation as pointed out by the accountant. The maintenance of two systems of production within the same plant is not easy. Batch production systems and job shop production system are expensive if maintained within the same plant and machinery. The strategic management of the company has to make a decision concerning the conflict in the systems of production. The observation by the accountant is very important to the decision arrived at by the management of the company. References Faridimehr, S. & Niaki, S.T.A., 2006, Erratum to “Determination of price and warranty length for a normal lifetime distributed product”, International Journal of Production Economics 102(1) 95–107 Ngai, E.W.T. ,Moon, K.K.L.,Riggins, F.J., & Yi, C.Y., 2008, RFID research: An academic literature review (1995-2005) and future research directions, International Journal of Production Economics, 112 (2), 510-520. Stein W. W. & Choi T.M., 2011, Robust Supply Chain Management, International Journal of Production Economics, 134 (2); 283-466. 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