Operations Management Case Study

 

 

OPERATIONS MANAGEMENT: MANAGEMENT: A Case Study of CLASSICS CABINETS Pty Ltd MGMT20085 Operational Analysis and Effectiveness Effectiveness

Bob Green Assessment item 1 Due Date: 1:00 AEST, Thursday, Week 7 Weighting: 50%

Marissa Adraincem Student Number: S0189609

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OPERATIONS MANAGEMENT: A CASE STUDY OF CLASSICS CABINETS PTY LTD

Local or domestic manufacturing businesses, however large or small, are always under  pressures of local competition and the need of additional capital for sustainable growth. There is an incremental change of the development of its production system overtime for the reasons either financial or operational. This change gives gives rise to the evolution of a hybrid transformation system which is a combination of one or more production production systems. This situation in the business environment changed the manufacturing industry significantly. The company that has been chosen chosen for this case study is Classics Cabinets Pty Ltd. Ltd. This company originally designs and produces produces customised kitchen cabinets. The company was founded by Chinh Chu and Anh Chu in Springvale, Melbourne in 2001. 2001. As the company grew their clients became more diverse and they began accepting low volume contracts to supply builders with high quality standardised kitchen cabinets. As the company accepting more orders for customised and standardised cabinets its production system also changed and consequently encountered encountered production problems. problems. These operational problems problems in return affect the overall organisational financial performance. At first, Classics Cabinets Pty Ltd manufactured mainly custom-made kitchens designed  purposely for the customer‟s requirement. In this case, case, the production system was basically make-to-order.

In this system, a cabinet was manufactured set by usually by just one

customer and was delivered to the customer upon completion completion of the product. In general, the  business was producing unique products in low volumes. Every item was different therefore the products cannot be stocked (Meredith & Shafer 2010). At this point in time, the business was clearly customer service oriented since it produced highly customised cabinets in which it was aimed to manufacture products on time and efficiently. In the make-to-order workplace, a higher level of uncertainty, variability and variety was visibly present in effect made the  production systems and processes relatively difficult compared to other systems (MartinezOlvera 2009). Manufacturing companies that is associated with outputs that are make-tomake-toorder, belong to the type of intermittent production systems. Intermittent production systems are designed to manufacture in small batches. Since the business does not stock completed  products inventory, the advantage of this system is resources are not wasted in i n finished goods

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that are sleeping in the warehouse. When the customer order is taken, design and production will commence and the time needed for completion is high. high. Generally, make-to-order items  belong in this group and the time element is a great disadvantage. Every output is unique and not identical by nature or in terms of of design for cabinets. As a consequence, there is also the variability of manufacturing and technological requirement and other constraints as a result will put this system to its disadvantage. Overall, because because of the higher level of unpredictability and uncertainty with regards to customer orders will make the production control and planning very difficult.

Typically this type of production system is money

intensive since long lead time is required taken into consideration the unpredictability of the customer‟s specifications and requirements. All these situations made this ty type pe of production system difficult and a disadvantage compared to other systems (Babu 1999). In the case of Classics Cabinets Pty Ltd, the production system at this point was customer driven in which customer orders are the primary concern. The business called for the pro production duction of the items upon the receipt of the end user orders in order to meet the specific needs of the customers in return giving highly customised products. products. To offer customers a reliable service and on time delivery date, this production system required a detailed and realistic production planning and control (Yeh 2000). As with any other successful businesses, the sales of Classics Cabinets Pty Ltd increased and resulted in the opportunity to accept several low volume contracts from builders for standardised kitchen cabinets. This in effect had changed its original production system as a make-to-order cabinet manufacturing business.The decision to take these contracts required Classics Cabinets Pty Ltd to produce a limited range of standardised kitchen cabinets in small  batches. To manufacture these standardised cabinets, the production system that Classics Cabinets Pty Ltd adapted is what is called job shop. In this type of production system, the  product is processed in small batches and sometimes manufactured differently, differ ently, consequently consequentl y the flow of the job through the production system usually is intermittent same with make-toorder system. In this case, the batches are considered too small since it ranged from a single to five or more kitchen cabinets. Furthermore, each operation took a different direction or operations and required different materials and takes unpredictable time to finish each  batches. Clearly, this put the system to its disadvantage and will put the management of Classics Cabinet Pty Ltd the difficulty to manage its operation efficiently (Meredith & Shafer 2010). It is illustrated in the part of of the production system system of this business as a job shop that it machine limited and labour limited considering that it has a relatively short cycle 3

 

 

manufacturing time. Although this type of system is characterised by a layout of equipment  based on its function and will call for a high flexibility of manufacturing equipment to accommodate the small unique batches of kitchen cabinets (Babu (Babu 1999).

A job shop

workplace is generally difficult and complicated from an outsider‟s point of view because the  business will cater to meet requirements for a wide range of standardised products which in this case is the delivery time requirement and cost sensitive cabinets for the builders (Newman &Maffei 1999). On the whole, the Classics Cabinet Pty Ltd since was using make-to-order and job shop  production systems in the transformation of outputs for customised and standardised cabinets, it can be considered as a hybrid shop. Hybrid shops combine combine two or more forms in the transformation of outputs (Meredith & Shafer 2010). As Classics Cabinets operates operates as a single entity, the production layout of different types of equipment is grouped together. Assembly lines are located located strategically in the production area. Overall this system reflects a hybrid manufacturing workplace workplace environment. In this work environment, environment, tactical and logistic considerations as well as cabinet design are involved involved in the factory layout. Operational issues of job schedules and sequences are considered in a hy hybrid brid shop. As Classics Cabinets grew, mainly for operational reasons the development of a hybrid manufacturing system gave rise (Huq&Huq 1995).The production line of Classics Cabinets which can be considered c onsidered as a oneof-a-kind company can be generally generally considered as a hybrid shop shop.. In a hybrid shop, almost all  jobs are different because of the customisation of the cabinets and the smallness of each batch of the standardised cabinets. Accordingly, the production equipmen equipmentt and employees employees in a work group is not definite and should be flexible in order to have higher production efficiency (Luo et al. 2010).  Numerous production problems were encountered upon the introduction of the new builders‟ kitchen on Classics Cabinets Cabinets operations.

Although, the new builders‟ cabinet are

standardised, these are manufactured in a relatively smaller batches sometimes even just a single kitchen. kitchen. It is also evident, the effect to the production production system the the client builders imposition of more strict delivery time requirements not mentioning that builders are very  price conscious. As the sales of the builders kitchen increases there is consequently and increase of job schedules and and volume of of work in process. process. Job shop scheduling is considered as the most difficult or complicated in production problems compared to other manufacturing environment (Zandieh&Ghomi 2009). 2009). In this case, the production production of the builders‟ kitchen as

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a job shop and the make-to-order customised kitchen contributed to a more difficult job scheduling. As a result, a determined job schedule schedule will become inefficient and will lead to a  production problem that will require a great deal of work to spend in the development of other methods to come up with an efficient production schedules (Gomes, BarbosaPovoa&Novais 2010). Scheduling problems came up in job shop floor that will involve job assignment decisions, staffing decisions and production sequencing like in this case. Machine scheduling is one the most difficult difficult problems that is presented in the increasing production of the builders‟ kitchen. Assuming that specific equipment cannot process more than one kind of cabinets at same time, a classical hybrid job shop problem is presented in this case (Aytug, Khouja&Vergara 2003). The addition of the builders‟ kitchen to the production created a competition for the  processing time with the customized cabinets on the same equipment. This is a classic hybrid shop problem. The production problem can be illustrated in the processing of each job by one only one equipment at every work station doing works for both the standardised and customised cabinets at the same time. Moreover, the processing of this type of jobs at each work station will change rapidly and considerably from one builder clients order to another (Luo et al. 2010). Subsequently, the new builders‟ kitchen line lead to an increase in volume of work in process that resulted into a factory space congestion with partially finished products. This situation creates a production bottleneck due to the fact that there is a shifting of workload from the existence of the builders‟ kitchen operation to the customised cabinet operation without  pattern. Classics Cabinets is having the difficulty in predicting the workload clogged up  because of the nature of the different clients orders which are very variable and flexible (Salegna& Park 1994). Since there is an increasing and diverse demand of standardised cabinets, it is appropriate to adapt the hybrid shop transformation system. A large warehousing or or storage facility is required is required and the demands of the standardised cabinets is relatively low but higher inventory cost to carry. Moreover, the additional workload automatically created a slower  production output because the manufacturing capacity was distributed to the increase in work volume (Sarker& Pan 2001).

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The coordination and integration decisions of production, inventory  and distribution functions are among the daily operational decisions that Chinh Chu will take into consideration to achieve an effective operation management strategy in order to minimise total costs and maximise production efficiency. Chinh Chu should address the the production  problem in coordinating a system wherein a facility production like in Classic Cabinets manufactures different products that are distributed to a varied set of of clients. Chinh Chu decisions should aim in minimising the total production to prevent bottle neck problems and also minimising inventory costs (Shiguemoto&Armentano (Shi guemoto&Armentano 2009). The primary production problem in this case is the hybrid job shop scheduling in the  production of the two different cabinets. Chinh Chu should make decision that will develop a  production of several different designs of cabinets on a single machine in a work station. As this problem is commonly found in any small shop manufacturing, it is mainly a concern in  job scheduling decisions (Brander &Segerstedt 2009). On the other hand, Chinh Chu should also make decisions in the daily production planning. Although, there will be a master production plan which illustrates what Classics Cabinets will expects to produce, a series of daily production planning decisions that Chinh Chu has to make.

This will reflect the the material, time and other resource requirements.

The daily

decisions will take into consideration the builders‟ and customised kitchen demands, pending customers‟ orders, raw material material availability, inventory levels, production capacity and other objectives.

Generally speaking, speaking, production production businesses businesses are geared to maximise customer

satisfaction level and resource optimisation and minimise inventory levels. Chinh Chu will make decisions that will ideally operate Classics Cabinet on a point next to the production capacity on a daily basis and an inventory level next to none or zero and maintaining a customer satisfaction at its highest level. Chinh Chu should have a daily production production plan with operational decisions that will operate Classics Cabinets in a consistent production rate or pace, developing the minimum inventory level and take into consideration the ever changing production pace due to the nature of the company‟s prod uction system. Despite having some level of inventory is acceptable to meet builders‟ and other customers‟ satisfaction, nevertheless this will increase costs. This is one of the day-to-day operational issues that Chinh Chinh Chu will consider. Furthermore, to complicate the operational operational issues, Classics Cabinets production is basically a multi-task process that involves varied operations which is distributed to the whole operation (Vieira &Ribas 2008).

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Daily production plan, schedule and control should be done by Chinh Chu to monitor  production activities and will allow Chinh Chu to manage a bigger part of Classics Clas sics Cabinets operations and also to diminish uncertainty. Its production p planning lanning and control should aim at reduction of clogging clogging up the production line. One operational decision is to hold back selected cabinets and not to process them to the production line. This will reduce work-in progress volume and process time in the system s ystem with a minimum effect on the overall output and delivery performance. Different kinds of of job sequencing heuristics or or just plain plain job  prioritising were established operational move to reduce processing time and work-in progress inventory. Although, Although, delivery time will be greatly affected but still the advantages of this approaches can be taken into consideration (Newman &Maffei 1999). Obviously in this case that the well-designed cabinets as its products is the main criteria for Classics Cabinets distinct competitive advantage, manufacturers are now offering other service products to accommodate accommodate the sale of their items. Chinh Chu needs to decide the configuration of the company‟s operations strategy to support and maintain  maintain  effective  production.

On the other hand, the several low volume contracts from builder clients

 provides a long-term steady revenue, however, such situation can have benefits if the  production and operation strategies are effectively and properly applied on a daily basis. Chinh Chu needs a deeper understanding on the day-to-day operational strategies to successfully deliver the combined production of standardised and customised cabinets (Datta & Roy 2011). In the development of the operations strategy, several factors can be considered as influences in its generation. In this case, because Classics Cabinets operates by producing standardised and customised cabinets simultaneously, it created a complicated demand to its production system. Customisation of cabinets reflects the trends in mo modern dern consumer age that reflected a society in search of individualism and the breaking up of conventional social classes. Products are not anymore with values but reflect images, status and statement of differences. It is very clear, in this case that operation strategies will illustrate the end user‟s demand and  production concerns. In order for Chinh Chu to best organise its processes, one should analyse the key resources and skills. Based on the resource analysis, Chinh Chu Chu will make his operations strategic choice by focusing on the importance of resources in the development of his operations strategy. strategy. The fundamental nature of this position it is importance on the

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Classics Cabinets resources, capacity, capability and competency instead of a market driven operations strategy that is very common with others (Lowson 2002). This is also asserted by another article that operational effectiveness should be based on the company‟s capability capability in its operators and processes. It is crucial for Chinh Chu to configure and manage the the operation to support support overall Classics Cabinets business business strategies. In a small  business like Classics Cabinets usually will implement operations management theories that include total quality management (TQM), just-in-time (JIT) and theory of constraints (TOC). Total quality management (TQM) stresses producing the right outputs the first time while  just-in-time (JIT) stresses s tresses lean manufacturing. Moreover, in the ttheory heory of constraints (TOC), this will assist small business like Classics Cabinet to focus on production system constraints. It indentifies that the production system constraints limit the performance of the whole system and will learn to manage these said constraints. Accordingly, this theory argues that in a small business like Classics Cabinet, it should not customer requirements or quality of output and workplace become the constraints in a successful operational strategy (Kohli & Gupta 2010). Lean manufacturing has helped in different industries specifically specificall y in cabinet production industry to achieve operational operational and production success. This is achieved by the the increase of output and developing developing higher quality quality subsequently decreasing costs and waste. In lean manufacturing, there are fewer requirements of capital, labour, machines, production time and work space (Pirraglia, Saloni & van Dyk 2009). On the other hand, in the furniture industry, it is generally recognised to adopt the Lean Production system in order to compete in the highly competitive furniture manufacturing world. In this system, it basically uses less of everything everything compared to the job shop o orr hybrid  job shop transformation system. This means less labour, less work space, less capital for equipment and also less time for the designing designing of the furniture outpu output. t. Chinh Chu should consider this kind of system since this will lessen the work-in-progress inventory on hand to address the Classics Cabinets production problem of higher level of work-in-progress inventory due to the additional workload for the builders‟ kitchen. kitchen.

In this type of

manufacturing system which will fit Classics Cabinet due to the fact that there are less rejects in the mean time manufacturing a wide range of different prod products. ucts. Each level in this system, the process is activated by the requirement of material at the nest level. In this regard, a stage makes a “pull” “pull” system for production and control. 8

In the current production system of

 

 

Classics Cabinets, typical of a usual job shop system system adopted “push” production control wherein operations was was activated by the presence of labour and material. The advantage in this kind of system is its flexibility and its design to manufacture high quality output, just-ontime at a very low cost (Hunter, Bullard & Steele 2004). The move to manufacture manufact ure builders‟ kitchen in Classics  Classics   Cabinets change the production system from plain make-to-order to hybrid hybrid job shop. This created production problems problems that affect the overall company‟s financial structure. struct ure. Although the size of the company has grown overtime and sales figure shows an increase in both the customised and standardized kitchens. On the contrary Classics Cabinet‟s revenue is way below what is expected.  expected.   Several production problems can be attributed in this phenomenon. phenomenon. Although sales in the  builders‟ kitchen cabinet are going up, consequently the cost of manufacturing ma nufacturing the increase went to higher higher level that will affect overall overall profits in operating this line.

Furthermore,

 performance evaluation of a hybrid transformation t ransformation of output is i s complicated by nature. It is very evident that rise costs of manufacturing the builders‟ kitchen contributed to the stagnation of the company‟s company‟s revenue. Cost and profit related operational operational objectives should be taken into consideration from the economic points of view (Venkatesh & Dabade 2008). On the other hand, the capital that is tied up in the raw materials inventory, increased also in inventory for work-in-progress as well as finished finis hed products contributes to the overall revenue. This situation was the result in the production production of the standardised builders‟ kitchen. It is is generally accepted that the performance of a hybrid job-shop is usually assessed in terms of the level of work-in-progress work-in-progress (WIP) inventory inventory and its on-time performance level. These issues of production in a hybrid job shop such as in Classics Cabinets affect the revenue  performance of the company (Hug & Hug 1995). There is an influence of any of the operational issues of the company‟s performance.   The conception of a business strategy like in the case of Classics Cabinets in accepting the contracts of the builders‟ kitchen influences its company‟s operational strategy which in turn affects the company‟s profit performance.

Although, Classics Classic s Cabinets has taken into

account to make trade-offs by setting priority customised kitchen since it has larger profit margin, it was still pushing manufacturing capacity to the limit. Basing on this argument, in order to benefits the opportunities of the company‟s business strategy it should be implemented with appropriate operations strategy which in this case it did not harvest any  benefits in terms of profits (Oltra & Flor 2010). 9

 

 

Despite that the move to produce the builders‟ kitchen in Classic s Cabinets was at first viewed in achieving the company‟s business and organisational organisational goals. The most common company‟s goal of of course is profit. Whereas this action, increases volume of in inventory ventory which in return pushes the company to spend for additional wareho warehouse use space rental. It is very clear, that this strategic move made an impact on the outcomes of the organisation (Ahmed & Montagno 1996). In today‟s highly competitive market even locally, manufacturers are under pressure to improve their operations management to sustain its organisational growth performance and competitive advantage. Well-designed products like in the case of of Classics Cabinets are not not only the criteria to achieve organisational goals goals such as profits. Effective operational strategy in conjunction with its business strategy can be viewed as one way in obtaining these goals. Manufacturing businesses like in the case of Classics Cabinets along the way will always face challenges.

Unfortunately, some of of these production problems that usually usually exist for

manufacturers cannot be easily solved but there are still several choices in improving  processes. There is still an implication that it is important to develop an effective operational strategy that will result to a positive organisational performance.

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Reference List 

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Meredith, J & Shafer, S 2010, Operations Management for MBAs, 4th edn, John Wiley & Sons Australia, Milton.  Nazim, UA & Ray, VM 1996, „Operations strategy and organizational performance: an empirical study‟,  International Journal of Operations & Production Management , vol.16, no.5, pp.41-53, (online Emerald).  Newman, W & Maffei, M 1999, „Managing the job shop: simulating the effects of flexibility, order release mechanisms and sequencing rules‟,  Integrated Manufacturing Systems, Systems , vol. 10, no. 5, pp. 266-275, (online EBSCOhost). Oltra, MJ & For, ML 2006, „The moderating effect of business strategy on the relationship  between operations strategy and firms‟ results‟,  International Journal of Operations &  Production Management  Management , vol.30, no.6, pp.612-638, (online Emerald). Pirraglia, A, Saloni, D & Dyk, HV 2009, „Status of lean manufacturing implementation on secondary wood industries including residential, cabinet, millwork, and panel markets‟,  Bio  Resources,, vol.4, no.4, pp.1341-1358, (online EBSCOhost).  Resources Salegna, G & Park, P 1996, „Worlkload smoothing in a bottleneck job shop‟ , shop‟ , International  Journal of Operations & Production Management , vol. 16, no. 1, pp. 91-110, (online EBSCOhost). Sarker, B & Pan, H 2001, „Design configuration for closed-station, closed -station, mixed-model assembly line: a filing cabinet manufacturing system‟, International system‟,  International Journal of Production Research, Research, vol. 39, no. 10, pp. 2251-2270, (online EBSCOhost). Shiguemoto, A & Armentano, V 2010, „A tabu search procedure for coordinating production, inventory inven tory and distribution routing problems‟,  International Transactions in Operational  Research,, vol. 17, pp. 179-195, (online EBSCOhost).  Research Vankatesh, J & Dabade, B 2008, „Evaluation of performance measures for representing operational objectives of a mixed model mod el assembly line balancing problem‟,  problem‟,  International  Journal of Production Research, vol. 46, no. 22, pp. 6367-6388, (online EBSCOhost). Vieira, G & Ribas, P 2008, „Fractional factorial analysis to the configuration of simulated annealing applied to the multi-objective optimization of master production scheduling  problems‟ ,  , International Journal of Production Research, Research, vol. 46, no. 11, pp. 3007-3026, (online EBSCOhost). Yeh, C 2000, „A customer -focused -focused planning approach to make-to-order make-to-order production‟,  Industrial Management & Data Systems, Systems, vol. 100, no. 4, pp. 180-187, (online EBSCOhost). Zandieh, B & Ghomi, S 2009, „Scheduling job shop problems with sequence-dependent sequence -dependent setup times‟,  International Journal of Production Research, Research, vol. 47, n0. 21, pp. 5959-5976, (EBSCOhost).

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