CASE ANALYSIS

Farmers Restaurant Sarah Lubbers and Chris Rusche

Farmers Restaurant is a full service restaurant offering a variety of breakfast, lunch, and dinner items. Currently, Kristin Davis is the general manager for the Farmers Restaurant located in the Grand Rapids/Wyoming metro area of Michigan. Since becoming manager, Kristin has faced some difficulties with ordering the amounts of food items for the restaurant. Because of this, there are some weeks the restaurant has a surplus of menu items that are no longer fresh, and must be discarded. At other times, the restaurant has experienced shortages of some items. The fact that inventory accounts for an average cost of 26% of the restaurant‘s total revenues underscores the importance of managing inventory. Kristin would like to find a way to ensure that she is maintaining the proper amount of inventory. Customer counts at Kristin‘s greatest focuses are to current customers and attract new customers. She believes that a key aspect of this is having all of the items on the menu in stock.

The restaurant industry is competitive. In the Grand Rapids/Wyoming metro area alone there are over 1,600 restaurants. Some of Farmers Restaurant‘s most serious competitors are IHOP, Applebee‘s, and Big Boy, all of which are located within 20 miles of the Farmers Restaurant, so customers have many alternatives from which to choose.

Online inventory systems are used to assist restaurant managers in determining on-hand inventory and gauging how well the restaurant is controlling food costs. The fiscal week for Farmers Restaurant starts on Thursday and ends on the Wednesday of the following week. Each Wednesday, the manager physically counts the inventory on hand and enters the data into the online inventory system. The computer software system then compares the on-hand inventory for that week, the amount of food ordered, and the inventory on hand for the end of the previous week with the sales for the current week. By doing so, it is able to determine a total food cost. The manager compares this cost with the benchmark cost to see how well the restaurant has been managing inventory. This is one of the most important

CASE ANALYSIS

numbers to managers at the Farmers Restaurant for approximately 30% of total cost in terms of a store‘s cost structure.

The computer software system also compares the total cost of food on hand with the total amount of sales for that week and computes a percentage of on-hand inventories. As a guideline, the company has set a standard of having 29% and 36% for its on-hand inventory level. The company feels that this level of inventory is an appropriate average to ensure quality food that is fresh and within expiration. Lastly, it is better to keep the inventory at a minimum level to ensure the accuracy and ease of inventory counts.

The Farmers Restaurant Kristin manages has been running above average in terms of food costs. For this reason, her boss has become concerned with the performance of the ordering system she is using at her restaurant. Kristin has been using her intuition to decide how much product to order despite the fact that the product order sheets provides a moving average usage of each product. Kristin bases her inventory management on her intuition because she does not understand how to utilize the moving average forecasting technique when placing orders. An additional complication with ordering inventory is that each item is packed in multiple quantities, so she cannot order the exact amount that she needs. Her boss requested that she create a more accurate way of ordering food and to report back to him in one month. Kristin is worried that if she cuts inventory levels too low she will run out of products which may result in a decrease in customer counts.

After Kristin met with her boss, she began to think about what changes she could make. She knows that inventory has been a weak point for her, but she remembers one of her employees talking about inventory management from one of his college courses. Kristin decides to ask the employee if he would be willing to help her try and come up with a better way for her to order products. Kristin tells him how the ordering system works, shows him the ordering form, and relates the above information.

Suppose you have been asked to work with Kristin to improve inventory ordering.

CASE ANALYSIS

Questions:

1. Describe the importance of inventory management as it relates to the Farmers Restaurant. 2. What ordering system would be best for this situation? 3. Given the following information, provide an example of how much of Farmers Sausage Gravy Mix should be ordered. You are doing the order for Thursday. Also, Kristen would like a service level of 95%, and you have found that there is a standard deviation of 3.5 units per week, and a moving average weekly demand of 35 servings. The gravy mix comes in packs of two servings. There are currently three packs in inventory. 4. Given the above information and an on-hand inventory of 12, determine the risk of stock out at the end of the second lead time. 5. The supplier Kristen uses is located in Ohio. Why might Kristen consider dealing with a nearby supplier instead of the one in Ohio? What reasons might there be for not switching suppliers?

CHAPTER I Time Context Farmers Restaurant is a full service restaurant which means they must have an effective management with their inventories in order to serve their customers right. The ordering process is reliant on the stocks needed by the restaurant in order to cook the food in their menus. In this case, the problem occurs when Kirsten Davis, the manager, encounters problems in ordering their inventories. She does not enough experience in inventory management such as forecasting, ordering process, etc. that leads to problems. It affected a lot of aspects in the business. It affected their servings to their customers because when they experience shortage they will not able to give the orders

CASE ANALYSIS

while there are times they experience surplus that is why they have lots of excess. It also has a bearing on their revenue since ordering inventories involve expenses. In this line of business, the manager must be good in forecasting and must monitor the stocks they needed to maximize the order costs and carrying costs as well as maintain that they have always enough goods to serve the dishes on their menus. The must control the variations of demands and know how to adjust with it. Chapter II Viewpoint (Manager) Just like any investment in business, inventory needs to serve the purpose of maximizing profit. However, in many cases inventory has turned into a major cash flow constraint thus making it necessary to optimize inventory using analytical and statistical methods in an integrated approach. One of the biggest challenges in optimizing inventory is the fact that it is merely an output of many interorganizational processes. All too often organizations attempt to lower inventory using non-analytical approaches which lower service levels. Farmers Restaurant is one of the restaurants in Grand Rapids/Wyoming metro area. The business is involved in food services. In this case, they must ensure that the foods are fresh, avoid left-overs and spoilage. Therefore they must use an effective system for the inventory management. Also, since there are so many competitors, the restaurant must make sure that they are satisfying the customers so that their regulars will increase and still patronize the restaurant. The restaurant is facing problems regarding with the inventories and it affected a lot the business in terms of maximizing the profit, increasing the number of customers and the improvement of the business.

CASE ANALYSIS

As a manager, Kirsten must do perform her duties since she is in the one in charge with this. She must know how to deal with problems such as forecasting the amount to be ordered, the right time intervals, adjustments when there are unexpected problems and lastly maintain that everything is properly and simultaneously working. CHAPTER III Statement of Problem Running a food service operation is not that easy compared to other business. Since it involves food, they must maintain an effective management in order to maintain a good service. In this case study, Farmers Restaurant is facing the following problems: 1. the main causes why they are encountering difficulties regarding the ordering of inventory of the restaurant from its suppliers 2. the utmost solution for Farmer‘s Restaurant in order to uphold accurate stocks of inventory and avoid the occurrence of surplus or shortage 3. the consequences to the restaurant as a whole of the problems mentioned 4. how would the restaurant implement its alternative plan of action in inventory management to make sure of its attainment Further analysis, these are other problems that Farmers Restaurant must resolve:   The manager does not have enough knowledge in the system used by the business. In relation to second problem states, ordering of products is not well-managed. There are times their stocks are in surplus at other times they are short. In result, when there‘s surplus there‘s a problem in storing the food and when they have shortage, there is a decrease in their customers.  The supplier is in Ohio, which means they have larger ordering costs. (in relation to Problem #5)

CASE ANALYSIS

CHAPTER IV Objectives Inadequate control of inventories can result in both under- and overstocking. To resolve the complications in the business here are the intents to be met:  Implementation of appropriate inventory management models to minimize cost given various real world conditions in the supply chain  Determination of inventory levels using economic and statistical methods in an integrated approach.    Revision of the planning process to support the order fulfilment process Training of manager to determine the appropriateness of forecast models To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. (Includes increasing service level, reduce carrying and order costs, increasing sales & profit, etc.)   To maximize the profit of the company by fixing their inventory systems. To implement new strategies that could help to increase the number of customers. CHAPTER V Areas of Consideration / Analysis In this case analysis, it involves significant details that show the problems faced by the restaurant. These are the ensuing facts in the case study: “Since becoming manager, Kristin has faced some difficulties with ordering the amounts of food items for the restaurant. Because of this, there are some weeks the restaurant has a surplus of menu items

CASE ANALYSIS

that are no longer fresh, and must be discarded. At other times, the restaurant has experienced shortages of some items.‖ This summarizes the main problem of this case. This is the origin why the restaurant is facing difficulties in the business. Stevenson said, ―Poor inventory management hampers operations, diminishes customer satisfaction and increases operating costs.‖ Since the restaurant is a food service, they must have an effective inventory management so that they could maintain freshness of their food as well as sustain that they have stocks for them to serve all the orders in their menu. They must have a good plan in order to upkeep the completion procedure in ordering their goods. They must consider a lot of factors such inventory levels, costs, etc. that has a bearing on the business operation. “Kristin has been using her intuition to decide how much product to order despite the fact that the product order sheets provides a moving average usage of each product. Kristin bases her inventory management on her intuition because she does not understand how to utilize the moving average forecasting technique when placing orders. An additional complication with ordering inventory is that each item is packed in multiple quantities, so she cannot order the exact amount that she needs.” The manager does not have enough knowledge in managing the inventories. Instead of using the proper system of making orders, she is using her intuitions. Because of these, the restaurant is having surplus that causes spoilage of food and at other times, shortage that decreases their customers. Since the manager does not enough knowledge in inventory management, forecasting of how much and what to order becomes a problem. A forecast must be based on facts in order to meet the objectives. If the manager will not make a good forecast, they will encounter problems regarding their inventory that could lead to excess or unavailability of goods that could result to waste, shortage etc. and this could affect the cost that will decrease the restaurant‘s revenue. “Online inventory systems are used to assist restaurant managers in determining on-hand inventory and gauging how well the restaurant is controlling food costs. The fiscal week for Farmers

CASE ANALYSIS

Restaurant starts on Thursday and ends on the Wednesday of the following week. Each Wednesday, the manager physically counts the inventory on hand and enters the data into the online inventory system.” This stated the lead time used by the company. Intervals are important in making an order especially in this type of business. This is one point to be considered in improving the inventory system to be used. Also, they are using periodic system in order to reconcile what is recorded on the files and the actual number of the stocks. This must be monitor properly because this will help on controlling supplies to be ordered and meets the demands needed. “The fact that inventory accounts for an average cost of 26% of the restaurant‟s total revenues underscores the importance of managing inventory.” Costs are also important in making orders. They must minimize these costs so that i will maximize the profits. of business. CHAPTER VI Alternative Course of Action In order to have an effective management, a) there must be a system to keep of the inventory on hand and on order, b) a reliable forecast of demand that includes an indication of possible forecast error, c) knowledge of lead times and lead time variability, d) reasonable estimates of inventory holding costs, ordering costs, and shortage cost and e) a classification system for inventory items. To meet these factors to be considered these are some alternative solutions. There are two types of ordering system (how much to order): Single-Period Model and FixedOrder-Interval Model (Stevenson 2007). Solution A: Single Period Model In connection to this, the restaurant must look for a system that is appropriate for this type

CASE ANALYSIS

The single-period model is used in ordering perishables, such as food and flowers, and items with a limited life, such as newspapers. Unsold or unused goods are not typically carried over from one period to another and there may even be some disposal costs involved. This model tries to balance the cost of lost customer goodwill and opportunity cost that is incurred from not having enough inventories, with the cost of having excess inventory left at the end of a period. Solution B: Fixed-Order-Interval Model The fixed-order-interval model is used when orders have to be placed at fixed time intervals such as weekly, biweekly, or monthly. The lot size is dependent upon how much inventory is needed from the time of order until the next order must be placed (order cycle). This system requires periodic checks of inventory levels and is used by many retail firms such as drug stores and small grocery stores. Moreover, aside from choosing alternative systems, they must also consider the understanding of the manager and other employees to undergo trainings for them to manage and understand well the business operation and be always ready for whatever unexpected problems that may come.

CHAPTERVII Recommendation Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory. So, among the alternative solutions given, Solution A: Single Period Model is the best solution for Farmers Restaurant. Evaluating the advantages and disadvantages of the given solutions, single period model is

CASE ANALYSIS

appropriate since the business is involved in food services. The nature of goods is also considered. If the company uses the Fixed-order-interval (FOI) method, it cannot checked dependably for spoilages and stock outs, since the nature of the model does not correct constantly on the totalling of inventory of the goods. Contrasting with the single-period model, there is a proper distribution for shortage costs which happened as a problem in the case due to a high demand, and for spoilage costs which happened when a large number of goods are left unused and as a result, becomes expired. Aside from the fact that this model is suitable for business with perishable goods, its goal is to ascertain the order quantity or stocking level that will reduce the long-run excess and shortage costs. Analysis on this model generally focuses on shortage costs and excess. Shortage cost may include a charge for loss of customer goodwill as well as the opportunity cost of lost sales. It is simply unrealized profit per unit. On the other hand, excess costs pertain to items left over at the end of the period. This model tries to balance the cost of lost customer goodwill and opportunity cost that is incurred from not having enough inventories, with the cost of having excess inventory left at the end of a period.

CHAPTER VIII Conclusion / Detailed Action Based on the given facts in the problems and having analysis about the situation of the business, Farmers Restaurant must implement the Single Period Model. Kirsten as well as her subordinates must undergo training regarding the model, for them to be able to know the procedures in using this kind of model. The business must improve the system they are using in order to solve problems they are facing. PROCESS IMPROVEMENTS:  Single Period Model must be implemented in ordering inventories of the restaurants.

CASE ANALYSIS

Employees must still regularly reconcile physical and book stocks using the periodic inventory system.

Good forecasting of the inventories needed based on the product order sheets which provide a moving average usage of each product. Computing the forecast using consolidated orders.

Using statistical method under Single Period Model such as Continuous stocking level and discrete stocking levels.

Demand planning is made periodically.

CASE ANALYSIS

Hi-Ho Yo Yo, Inc. It was a little 9:00 on a Monday morning when Jeff Baker walked into your office with a box of donuts. ―I‘ve been talking with Anne about a problem we have with short-term capacity in our pad printing operations. You know, that‘s where we print our logo on the Custom lines of yo-yos. We have received more orders to pad printing in a way that will enable us to meet out due date commitments in the best way possible. Would you have time to look on the order list (attached) and see what kind of schedule we should follow to do that? By the way, you have established quite a reputation in your short stay here. You have a talent for really explaining why your recommendations are the best approach in a way that all of us ―over-the-hill‖ managers can understand. Please be sure to do that for me too. I want to understand why your recommendation is the best schedule and what the trade-offs are for other possible schedules – and none of that philosophical college mumbo-jumbo. Remember, I came up through the ranks. I don‘t have one of those sheepskins on my wall,‖ he says with a laugh. Since the schedule was back to normal after that MRP (Material requirements planning) report you did for Anne, you agreed to look at the information. After that compliment, how could you say no? ―Try to get back to me within a couple of days,‖ Jeff said as he left your office. After a few minutes with your old operations management text, you call the production control office to confirm the pad printing schedule. They confirm that pad printing runs one eight-hour shift per day. They tell you that due to a make-up day for flooding in June, pad printing will be running 23 days in July, beginning Friday, July 1 (they will work three Saturdays on July 9, 16, and 23, and take a one-day holiday for July 4). You thank them for the information and then you begin to develop your plan. Even though Jeff lacks a college degree, from what you have seen, he is very sharp. And obviously he knows good work when he sees it since he liked, and apparently understood, your past work. You resolve to cover all the bases but in a way that it as clear as possible.

CASE ANALYSIS

PAD PRINTING ORDER LIST Job Date Received A B C D E 6/4 6/7 6/12 6/14 6/15 2 hrs 4 hrs 2 hrs 4 hrs 4 hrs 6 days 2 days 8 days 3 days 9 days 11 July 8 July 25 July 19 July 29 July Order Set-up Time Production Time Due Date

Note: Setup time is to set up the pad printer at the start of the job. Setup includes thoroughly cleaning the printing heads and ink reservoirs, installing the new pad(s) and ink supply, and carefully aligning the machine. Setup at the beginning of a new day with the same job is insignificant. Examine the following rules and write a report to Jeff Baker summarizing your findings and advise him on which rule to use. Rules: FCFS, SPT, DD and CR.

CASE ANALYSIS

CHAPTER I Time Context Hi-Ho YoYo, Incorporation is an organization that customizes logos for yoyos. Currently they are beginning to see an issue with rising orders and they wish to continue to meet there order process deadlines. These are ordered on June but then they will only start on July due to a make-up day for flooding. So Mr. Jeff asked for what is the scheduling to be followed in order to meet the constraints. Several rules will be evaluated in order to determine the best method of inventory scheduling. The four rules to evaluate are: First Come, First Serve (FCFS), Shortest Processing Time (SPT), Earliest Due Date (DD), and Critical Ratio (CR) methods.

CHAPTER II Viewpoint Job sequencing is an important task to determine, because it is either going to slow down the production process or speed it up. An Operations Manager should determine the best method based off the needs of the organization, which in this case will require that all jobs are completed prior to their due dates. In this sense, having a job done before the due date is a priority rule of the organization. According to the book, Operations Management, ―Priority rules are simple heuristics used to select the order in which the jobs will be processed.‖ (Stevenson) Job processing times and due dates are very important pieces of information when applying these rules. If the sequencing rule takes in account when applying theses similar setups to other jobs, then this setup will lead to reduced setup times, which will save the organization time and money. Being able to control time, as far as controlling overtime within the production plant, will go far in enabling an organization to save by eliminating overtime paid to employees. Not to mention the customers will be satisfied to receive a product on schedule as well.

CASE ANALYSIS

CHAPTER III Statement of the Problem Sequencing is concerned with determining the order in which jobs are processed. Not only must the order be determined for processing jobs at work centres but also for work processed at individual work stations. When work centres are heavily loaded and lengthy jobs are involved, the situation can become complicated. In this case study, the main problem needed to address is how to meet the constraints such as due dates, delays, etc. and to satisfy the clients‘ wants despite of the increasing orders. The company experienced a delay due to a make-up day for flooding in the month of June which moves the production date of the order to July. In the month of July, it is stated in the given case that there are 3 Saturdays (July 9, 16 and 23) that the labours will continue working and they will have a holiday (July 4) aside from the weekends. So given the constraints, how will be the operation manager will choose the best scheduling on the given methods (First Come, First Serve (FCFS), Shortest Processing Time (SPT), Earliest Due Date (DD), and Critical Ratio (CR) methods). In addition, Mr Jeff also wants to have an understanding about the scheduling methods to be used in order for him to understand the process.

CHAPTER IV Objectives Job sequencing rules are used to determine the priority for processing jobs. They are applied to tackle scheduling problems that generally lead to inefficient performance in processing job orders. Of central importance is job flow time, which is the amount of time a job spends in a shop from order placement to its completion and release. The average turnaround time on job orders is its mean job flow time, which is one way of measuring a job shop's performance. The main objective in this case study is to find the best rule to be followed in order to solve the existing problem. The following are the other objectives to be met:  Defining the order in which jobs at a work centre will be administered.

CASE ANALYSIS

Sequencing decision to be made in order to meet all the due dates and satisfy the needs of the clients.

    

Educating staff in order to give then understanding about choosing the best schedule to be made. Meeting due dates of customers or downstream operations. Minimalizing the flow time (the time a job spends in the process). Reducing work-in-process inventory. Lessening idle time of machines or workers.

CHAPTER V Areas of Consideration/Analysis Scheduling relates to establishing both the timing and use of resources within an organization. Under the operations function, scheduling relates to use of equipment and facilities, the scheduling of human activities, and receipt of materials. In this case, there are facts given that will help in order to end up into a decision of what method to be used. “I‟ve been talking with Anne about a problem we have with short-term capacity in our pad printing operations. You know, that‟s where we print our logo on the Custom lines of yo -yos. We have received more orders to pad printing in a way that will enable us to meet out due date commitments in the best way possible. Would you have time to look on the order list (attached) and see what kind of schedule we should follow to do that?” In the paragraph above, it was clearly stated the problem of the Hi-ho Yoyo Incorporation. Their orders are increasing and they must find a way in order to meet due dates. “After a few minutes with your old operations management text, you call the production control office to confirm the pad printing schedule. They confirm that pad printing runs one eight-hour shift per day. They tell you that due to a make-up day for flooding in June, pad printing will be running 23 days in

CASE ANALYSIS

July, beginning Friday, July 1 (they will work three Saturdays on July 9, 16, and 23, and take a one-day holiday for July 4). You thank them for the information and then you begin to develop your plan.” Moreover, this information was given by production call office in order to create a plan and find a solution for the problem. The company needs to meet the orders within twenty-three (23) days in the month of July; twenty three days only because it was stated that the workers will have one holiday in addition to their weekends. But then, there are three Saturday that they will work. Each day the labourers will work for 8 hours. Given below is the illustration of the working calendar of the company: JULY Sunday Monday Tuesday Wednesday Thursday Friday 1 3 10 17 24 31 4 11 18 25 5 12 19 26 6 13 20 27 7 14 21 28 8 15 22 29 Saturday 2 9 16 23 30

Yellow Pink Red

Working Days Weekends Holiday

“Note: Setup time is to set up the pad printer at the start of the job. Setup includes thoroughly cleaning the printing heads and ink reservoirs, installing the new pad(s) and ink supply, and carefully aligning the machine. Setup at the beginning of a new day with the same job is insignificant.”

CASE ANALYSIS

In addition to the given table, the setup time is noted and the information about it is given. Because of this, this will be added to the processing time.

CHAPTER VI Alternative Course of action According to Stevenson, priority rules are simple heuristics used to select the order in which jobs will be processed. In this case study, there are four rules given to be analysed in order to resolve the current problem. The following are the rules: 1. First Come First Serve (FCFS): This is a service policy that is based on attaining the customers or clients, in order to their onset or demand. It means that, the one who comes earlier would be given priority in the sequence of their arrival. FCFS discipline of service delivery does not take any other parameter into consideration like quantity, monetary value of the order, etc. If we select this method of delivery to our clients, we are bound to release the order in the sequence of date. 2. Shortest Processing Time (SPT): This process of scheduling is used for completion of work within the due date. This method emphasizes on processing with the job which takes the least time. The division of the work is done on the basis of input, processing time and the due date for the completion of assignment. The flow time is calculated for the each part of the job, using the processing time, which helps in determination of the overall time for the completion of work. This method is useful in single machine environment. 3. Due Date Scheduling Technique (DD): This technique of scheduling can be used with the reference of time either forward or backward. When forward scheduling is used, it started with the date from which job order starts. It calculates the period of time, from the day on which first operation was performed to all the subsequent operation till the completion of the work. It determines the earliest time on which the work can be completed. When the

CASE ANALYSIS

technique of back scheduling is used for calculating the period of time of the completion of work, the resources are allocated in reverse order keeping in mind the deadline of the completion of work and come to the date on which must start the operation, so that the work can be completed within the due date. 4. Critical Ratio: Critical Ratio is an index number computed by dividing the time remaining until due date by the work time remaining. As opposed to priority rules, critical ratio is dynamic and easily updated. It tends to perform better than FCFS, EDD, and SPT on the average job lateness (delays) criterion. The critical ratio gives priority to jobs that must be done to keep shipping on schedule. It is used in conjunction with MRP systems and has broad industrial application. The critical ratio is measure of urgency of any order compared to the other orders for the same facility. The ratio is based on when the completed order is required and how much time is required to complete. These rules assume that setup time and setup costs are independent of the processing sequence. However, this is not always the case. Jobs that require similar setups can reduce setup times if sequenced back to back. In addition to this assumption, the priority rules also assume that setup time and processing times are deterministic and not variable, there will be no interruptions in processing, the set of jobs is known, no new jobs arrive after processing begins, and no jobs are cancelled.

CHAPTER VII Recommendation Comparing the four methods, SPT is recommended to be used by the company because it reduces average flow time for jobs. Since there are constraints such as they have to meet all the orders within 23 days and the working hours is eight (8) hours per day, using this method they will finished all the orders at the shortest period of time. Also, the flow time is calculated for the every part of the job, using the processing time, which helps in getting whole time for the completion of work.

CASE ANALYSIS

In First come/first served method (FC/FS) it could not be applied because in this rule, jobs are processed in the order in which they arrive. The orders must be finished in a shortest period of time and not on how when the order arrived since they did not started the production on June (arrival of orders) due to a problem. They started on July and this will not follow the rule. Next, under Earliest due date method (EDD), it places the highest priority on processing jobs with the earliest due dates. Job shop quality performance can be measured by the number of late jobs, the average tardiness across late jobs or the average tardiness across all jobs. This seems to work well if the firm performance is judged by job lateness. If this will be used, the process will follow a track based on due dates of the orders and maybe it will not meet the time constraints given. Lastly the critical ratio method (CR), in this rule one must calculate a priority index using the formula (due date–now)/ (lead time remaining). This rule is widely used in practice. However in this rule, the sequencing of the jobs is done first by getting the critical ratio of each job then selecting the lowest among them. Then it is repeated eliminating the job with the lowest CR point until one job is left. By choosing Shortest processing time (SPT), the job with the shortest processing time requirement goes first. This rule tends to reduce work-in-process inventory, average throughput time, and average job lateness. So this is the most appropriate rule to be used in order to meet the limitations.

CHAPTER VIII Conclusion/Detailed action Plan A report about the choosing the Short Processing Time method must be made and this will be used for the production. It must in detailed information so that the schedule will be followed. Other points to implement:  

Align demand and delivery; Increase flexibility and reduce response/lead times at key points in the supply chain;

CASE ANALYSIS

 

Enable lean operations: reduce inventories and costs while meeting delivery commitments. Cost reduction can be achieved by a schedule that considers all rules and constraints. Ignoring a rule/constraint usually results in increased cost due to reduced productivity, higher inventory, increased offline work, overtime etc.

    

Customer Relationship Management Dealer Order Management Material planning Scheduling of feeder lines Vendor supply chain management

Job A B C D E Job A B C D E Total

Date Order Set-up Time Received 6/4 2 hrs 6/7 4 hrs 6/12 2 hrs 6/14 4 hrs 6/15 4 hrs Processing Time Flow time (days) 6 6 2 8 8 3 9 28 days 16 19 28 58 days

Production Time 6 days 2 days 8 days 3 days 9 days Days to Due date 7 5 19 14 23 68 days

Due Date 11 July 8 July 25 July 19 July 29 July

Based on the given information and initial table above, each method will be used for the computation the criteria to be considered in choosing the best technique.   Sequence Average Flow Time / Average completion time

CASE ANALYSIS

  

Average Tardiness / delays Utilization / Average # of Jobs at Work Center Make span

CASE ANALYSIS

Solution using FCFS Method: In HOURS: FCFS Sequencing Total Production Processing Flow Time Time Time (hours) (hours) (hours) 48 50 50 16 20 70 64 66 136 24 28 164 72 76 240 240 660

Date Days Hours Hours Job Due Due Due Tardy A 11-Jul 7 56 0 B 8-Jul 5 40 30 C 25-Jul 19 152 0 D 19-Jul 14 112 52 E 29-Jul 23 184 56 68 544 138 Total Sequence A, B, C, D, E Average Flow Time / Average completion time (sum of total flow / no. of jobs) (660 hours / 5 jobs) 132.00 Average Tardiness / delays (total delays / no. of jobs) (138 hours / 5 jobs) 27.6 Utilization / Average # of Jobs at Work Center (total flow time / total processing time) (660 hours / 240 hours) 240.00 Make span 2.75

Set-up Time (hours) 2 4 2 4 4

Total Flow Time Time Job (days) (days) A 2.0833 2.0833 B 3.1667 5.2500 C 6.0833 11.3333 D 8.1667 19.5000 E 9.1667 28.6667 28.6667 66.8333 Total Sequence A, B, C, D, E Average Flow Time 13.37 Average Tardiness 8.833333333 Make span 28.67 Average # of Jobs at Work Centre 2.33

Set-up Time (days) 0.0833 0.1667 0.0833 0.1667 0.1667

Processing Time (days) 2 3 6 8 9

Date Due 11-Jul 8-Jul 25-Jul 19-Jul 29-Jul

Days Due 7 5 19 14 23 68

Hours Due (8 hours per day only) 56 40 152 112 184 544

Converted into Days 2.333333333 1.666666667 6.333333333 4.666666667 7.666666667 22.66666667

Hours Tardy 0 4 5 15 21 44

Solution using SPT Method:

CASE ANALYSIS

Job B D A C E Total

Set-up Time (hours) 4 4 2 2 4

SPT Sequencing Total Production Processing Flow Time Time Time (hours) (hours) (hours) 16 20 20 24 28 48 48 50 98 64 66 164 72 76 240 240 570

Date Due 8-Jul 19-Jul 11-Jul 25-Jul 29-Jul

Days Due 5 14 7 19 23 68

Hours Due 40 112 56 152 184 544

Hours Tardy 0 0 42 12 56 110

Sequence Average Flow Time / Average completion time (sum of total flow / no. of jobs) (570 hours / 5 jobs) Average Tardiness / delays (total delays / no. of jobs) (110 hours / 5 jobs) Utilization / Average # of Jobs at Work Center (total flow time / total processing time) (570 hours / 240 hours) Make span Solution using EDD Method: EDD SEQUENCE Total Production Processing Flow Time Time Time (hours) (hours) (hours) 16 20 20 48 50 70 24 28 98 64 66 164 72 76 240 240 592

B, D, A, C, E

114.00 22 2.38 240

Job B A D C E Total

Set-up Time (hours) 4 2 4 2 4

Date Due 8-Jul 11-Jul 19-Jul 25-Jul 29-Jul

Days Due 5 7 14 19 23 68

Hours Due 40 56 112 152 184

Hours Tardy 0 14 0 12 56 82

Sequence Average Flow Time / Average completion time (sum of total flow / no. of 118.40 jobs) (592 hours / 5 jobs) 16.4 Average Tardiness / delays (total delays / no. of jobs)

B, D, A, C, E

CASE ANALYSIS

(82 hours / 5 jobs) Utilization / Average # of Jobs at Work Center (total flow time / total 2.47 processing time) (592 hours / 240 hours) 240 Make span Another approach: Job JOB TIME (Set up and Date Order Due Run Time) (in hours) Received Date A B C D E 6 days + .083 days (2 hours) = 6.083 days 2 days + .17 = 2.17 days 8 days + .083 = 8.083 days 3 days + .17 = 3.17 days 9 days + .17 = 9.17 days 6/4 6/7 6/12 6/14 6/15 11 July 8 July 25 July 19 July 29 July Days to SPT Due date Sequence 36 days 30 days 42 days 34 days 43 days B D A C E EDD Sequence B D A C E

Job A B C D E

Set-up Production Time Time (hours) (hours) 2 48 4 16 2 64 4 24 4 72

A B C D E

4 2 4 4

16 64 24 72

CR Sequencing TABLE 1 Total Processing Time Date Days Hours (hours) Due Due Due 50 11-Jul 7 56 20 8-Jul 5 40 66 25-Jul 19 152 28 19-Jul 14 112 76 29-Jul 23 184 Job CR Ratio Computation A (56 – 0) / 50 B (40 – 0) / 20 C (152 – 0) / 66 D (112 – 0) / 28 E (184 – 0) / 76 CR Sequencing TABLE 2 (Hour 48) FINISHED (1st) 20 8-Jul 5 40 66 25-Jul 19 152 28 19-Jul 14 112 76 29-Jul 23 184

CR Ratio 1.12 Lowest 2.00 2.30 4.00 2.42

-0.50 Lowest 1.55 2.21 1.76

CASE ANALYSIS

Job CR Ratio Computation B (40 – 50) / 20 C (152 – 50) / 66 D (112 – 50) / 28 E (184 – 50) / 76 JOB B = The job is on schedule. JOB D = The job is ahead of schedule JOB C & E = The job is falling behind the schedule. And have some slack. CR Sequencing TABLE 3 (Hour 64) A B C D E FINISHED (1st) FINISHED (2nd) 2 64 66 25-Jul 19 4 24 28 19-Jul 14 4 72 76 29-Jul 23 Job CR Ratio Computation C (152 – 70) / 66 D (112 – 70) / 28 E (184 – 70) / 76 JOB C = The job is on schedule. JOB D & E = The job is falling behind the schedule. CR Sequencing TABLE 4 (Hour 88) A FINISHED(1st) B FINISHED(2nd) C FINISHED (3rd) D 4 24 28 19-Jul 14 E 4 72 76 29-Jul 23 Job CR Ratio Computation D (112 – 136) / 28 E (184 – 136) / 76 JOB D= The job is on schedule. JOB E = The job is falling behind the schedule. CR Sequencing Set-up Time (hours) 2 4 2 4 4 Processing Time (hours) 48 16 64 24 72 Total Time (hours) 50 20 66 28 76 240 Flow Time (hours) 50 70 136 164 240 660 Date Due 11-Jul 8-Jul 25-Jul 19-Jul 29-Jul Days Hours Due Due 7 56 5 40 19 152 14 112 23 184 68 Hours Tardy 0 30 0 52 56 138

152 112 184

1.24 Lowest 1.50 1.50

112 184

-0.86 lowest 0.63

Job A B C D E Total

CASE ANALYSIS

Sequence B, D, A, C, E Average Flow Time / Average completion time (sum of total flow / no. of jobs) (660 hours / 5 jobs) 132.00 Average Tardiness / delays (total delays / no. of jobs) (138 hours / 5 jobs) 27.6 Utilization / Average # of Jobs at Work Center (total flow time / total processing time) (660 hours / 240 hours) 2.75 Make span 240

Comparison of Sequencing Rules Average Flow Time 132.00 114.00 118.40 132.00 Utilization/ Average Jobs at Work Average Centre Tardiness 2.75 27.60 Worst 2.38 22.00 Best 2.47 16.40 Good 2.75 27.60 Worst

Rules FCFS SPT EDD CR

In the table above, it is clearly shown what method to be used. Based on the average tardiness column, it clearly presented that SPT got the lowest point followed by EDD and the methods that gain bigger average tardiness is under FCFS and CR method. Shortest processing time is generally the best technique for minimising job flow and minimising the average number of jobs in the system. Its chief disadvantage is that long-duration jobs may be continuously pushed back in priority in favour of short-duration jobs. Customers may view this dimly, and a periodic adjustment for longer jobs has been made.

CASE ANALYSIS

FAST HOMES – COURTESY OF PREFABRICATION

In a muddy building site in the flat Cambridgeshire coutryside, a crane swings a prefabricated concrete stab over a half-finished house and a team of workers slot it in to the form part of the ground floor ceiling. A three-storey house built using prefabricated methods employed by Bovis Homes in the new village of Cambourne can be weather tight within 10 days compared with the 5 ½ weeks required by conventional techniques. ―This allows electricians and plumbers to get to work sooner and means the house can be completed in less than half the 22 weeks normally needed,‖ says David Lowther, Bovis‘s research and development director. Bovis and a handful of other house builders see prefabrication as the way forward while the government is keen for the building industry to modernize its production techniques. But, despite years of trials and the use of timber frame construction methods in Scotland, Scandinavia and the US, prefabrication remains controversial. The home-buying public associates it with the post-war austerity and with the draughty, condensation-prone, system-built high-rise of the 1960s and 1970s. The verdict in the City is that prefabrication is a useful way of speeding up production and improving house-builders‘ return on capital. But the industry has yet to show that faster build times justify high costs, and prefabrication is not a reason for giving a company a higher rating. Malcolm Harris, Bovis chief executive, believes ―factory finished components‖ – a term he prefers to prefabrication – is essential to overcome the skill shortages among trades such as bricklayers and to boost quality. Units made in advance in a factory can be built with too much tolerance than are possible on a muddy, windy building site. This results in fewer complaints. After trials Bovis is using its modern techniques at Cambourne, a development that will grow to 3300 homes over the next 10 years. Houses are

CASE ANALYSIS

being built with inner walls made of ―aircrete‖ blocks that are stuck together with glue. The blocks made from relatively light aerated concrete, are the size of about 10 bricks, allowing malls to be built more quickly. Unlike traditional mortar, the glue can be used in freezing conditions, which means constructions can continue throughout winter. The selling points of concrete over timber are that it feels more solid and is fire-proof, rot-proof, and provides better insulation. Once the walls and floors are up, the roof trusses can be fixed and covered with waterproof felt, allowing work on installing the electrics, plumbing and internal finishes to be carried out. Bovis‘s plan is to build complete roof units on the ground – where work can go ahead faster and more safely than on the top of a house – and lift them into place. If the tiling-industry can develop a lightweight roof tiles, Bovis‘s aim is to fix the tiles as well before lifting the roof into position. With the roof in place, factory-made onepiece dormer windows are lifted by crane into position. Underneath, completed door and window units are fitted in the gaps left in the walls. Once the inner wall is up and work is going on inside, the bricklayer can be brought In to build a brick outer ‗skin‘ so the home looks just like a traditional counterparts. ―The beauty of this method is that it removes the bricklayer from the critical path of building the house,‖ says Mr.Harris. Bovis is not alone in shifting to prefabrication, although it buys the components rather than making them itself. Two other large house-builders, Westbury and Wilson Connoily, have in-house operations making timber frame units. But while Westbury is increasing production, Wilson Connoily is cutting back because it has not achieved savings. The problem with prefabrication is that it is more expensive than traditional methods – though cost should come down as more experience is gained and volumes increase. Faster build times means higher return on capital invested but, for companies with manufacturing arms, moving to factory production requires the house builders to forecast demand in a notoriously cyclical market, analysts warn.

CASE ANALYSIS

―Bovis is a good way of investing in new production techniques without absorbing all of the risks involved in manufacturing,‖ said Mr. Howson, analyst at ABN Amro. Bovis shares rose 12 ½ p to 329 ½ p after it unveiled its prefabrication plans to analyst last week, it has since risen to 336p, but there are no signs that a commitment to prefabrication is a guarantee of a premium over conventional house builders. 1. Discuss the strategies used in this case to reduce the project completion time of new homes.

CASE ANALYSIS

CHAPTER I TIME CONTEXT Prefabricated housing was popular during World War II due to the need for mass accommodation for military personnel; (Source: Wikipedia.org). Probably, the time when Bovis Homes operate is the period during World War II or time after the war because the demand for rapid building of houses, hospitals, or even other kinds of facilities increased. CHAPTER II VIEWPOINT In this case, the point of view of an analyst is being asked. To justify this, facts are listed in later discussion. CHAPTER III STATEMENT OF THE PROBLEM How does prefabricated building shorten the project completion time of new homes through Bovis‘s case? CHAPTER IV OBJECTIVES

 Show the differences between the strategies being used by traditional building and prefabricated building by observing the following:  Advantages that both the contractor and the customer get by using prefabricated building.

CASE ANALYSIS

CHAPTER V AREAS OF CONSIDERATION/ ANALYSIS

 Facts were collected through the problem itself and through thea website: http://wikipedia.org:

FACT 1: A three-storey house built using prefabricated methods employed by Bovis Homes in the new village of Cambourne can be donet within 10 days compared with the 5 ½ weeks required by conventional techniques

FACT 2: Units are made in advance in a factory, therefore can be built with too much tolerance than are possible on a muddy, windy building site.

FACT 3: McDonalds use prefabricated structures for their buildings, and set a record of constructing a building and opening for business within 13 hours (on pre-prepared ground works). Source: Wikipedia.org. This fact is considered as an evidence of the minimal time that it takes to build a facility by using prefabricated building. It is not only beneficial for residential building but also for commercial ones such as McDonalds.

FACT 4: Prefab classrooms were popular with UK schools increasing their rolls during the baby boom of the 1950s and 1960s. Source: Wikipedia.org. As we all know, baby boom was the period in UK when there was a sudden and

CASE ANALYSIS

large increase in their population. To cover up this increase and continuously provide education for every child, prefab was used as a solution.

FACT 5: The problem with prefabrication is that it is more expensive than traditional methods – though cost should come down as more experience is gained and volumes increase.

FACT 6: Prefabrication building shortens the time being consumed to build homes or other buildings in Bovis Homes case through:

 Being independent from factors such as weather which is a very crucial factor to determine or predict because manufacturing of the components that shall be used to build a home is being done inside a factory or indoor.

 Having an organized plan as to how and when shall a component be put into place so that the flow of production can be done simultaneously by the workers. For example is when the workers assigned in assembling the roof into its place, they are required to cover it with a water-proof material so that the electrics can be simultaneously installed without the worry regarding the safety of the workers when it rain.

CASE ANALYSIS

 The quality of materials that are used with this method are reliable enough as to being durable and not time consuming to give its benefit such as the glue being used to stick the bricks together that can withstand up to freezing point. Quality of the materials is being observed so that Bovis Homes can work smoothly without the need for any rework with defective materials being needed in the construction. CHAPTER VI RECOMMENDATION

As to recommendation, comparison between the traditional method of building homes shall be compared with Prefabricated method of building. Factors 1. Time-consuming 2. Weather-dependent 3. Costly 4. As to being feasible 5. Reliability as to quality of materials used CHAPTER VII CONCLUSION Costs are not only dependent as to monetary factors, because costs are also dependent as to the period and quality it takes to complete a job or an end-product. But then, in most cases, products having Traditional Method Yes Yes Not much Not much Doubtful Prefabrication No No Too Much Absolutely Assured

CASE ANALYSIS

good quality are costly, which also existed in Bovis‘s case. Though it is more expensive due to the high quality materials being used, assurance as to the reliability of the job is a guarantee because prefabrication not only finish building homes in shorter period of time through having more workers but then it is more on the quality that they are relying into to avoid rework which would consume more time. Good planning is also a big factor that contributes to the beauty of prefabrication‘s concept. Workers can work simultaneously without worrying for their safety because specialized materials and processes are being applied in the site that traditional method of building doesn‘t offer.

CASE ANALYSIS

IMPLEMENTING ERP

Despite the snail‘s pace at which some industries cottoned on to e-business, even the most conservative sectors eventually to see some potential benefit. Take the chemical industry. On the surface, the sector seems untouched by the new-fangled ways of the Internet. To a large extent, it is. But within that, there are pockets of progress. For Oxford Chemicals, a manufacturer of aroma chemicals for the niche food and fragrance industry, the decision to collaborate more closely with customers and agents was cemented 2 years ago, after its IT contractor at the time threatened to withdraw support for the manufacturer's ERP systems. With Nestle and ICI-owned Quest among its customers, Oxford Chemicals wanted to use technology literally to forge stronger links with its client base, and also to snatch a competitive advantage from rivals who didn't. For a company producing up to 450 products a year, with the capacity to produce 200 more, the existing ERP system had gone as far as it could. It would never be in a position to give the company the computing power it would need to win more international business, and had started to threaten the Teesside firm's growth. "The ERP system was difficult to interrogate, making it impossible to identify the root causes of problems," explains Oxford Chemicals' managing director, Dr. Richard Smith. "Basically, we were never 100% sure that our figures were accurate. And when we looked at our future plans, we knew the old system didn't have the collaborative features, like e-business with external partners, nor would it allow us to integrate other IT systems on the site," he adds. So the decision to upgrade was made, but it was never going to be straightforward. "Being a smaller company, we needed a system we could implement quickly and which would allow us to continue work as we implemented it," recalls Smith. The company opted for the SAP

CASE ANALYSIS

R3 system, after the vendor introduced a scaled down version of its ERP systems for SMEs. Implemented by SAP systems integrator Plaut Consulting, the system took 3 months to fully integrate into Oxford Chemicals' existing network, but it took orders, issued invoices and dispatched goods on the system the day it went live. The manufacturer had limited resources, and was able to negotiate with Plaut for an offthe-shelf SAP system pre-configured to the standard business processes of the chemical industry and around 70% pre-configured for Oxford Chemicals' specific requirements, at a cost of £200 000. The system now links the customer services department to inventory and manufacturing elements of the enterprise. "We now have a much clearer picture of what our customers require and how quickly we can meet those requirements," claims Smith. "Now, when a customer places an order by fax, phone or email, customer service staff can immediately give them a lead time for delivery, whether or not the material to produce the goods is in stock. In the latter case, the SAP can calculate the additional time needed by us to order materials and produce the goods. In short, it drives the placing and manufacture, and leads the scheduling of production in the company." Smith is loath to put any of the benefits of the new ERP system in financial terms. "One main improvement at Oxford Chemicals since we introduced the new system is that we've been able to lower the number of admin staff and increase numbers in the doing and making areas. In other words, we have more customer-facing staff and less who have to process admin. The system has made the tasks less arduous, allowing to improve customer service and make more products." He added that inventory had been cut, stock turns had been improved and the monthly reporting burden reduced by 50% in terms of the days required producing reports and accounts. The next phase of Oxford Chemicals' systems development will include linking directly into the SAP systems of customers and agents, here and abroad. So far, this has been successful with one client, the Duckworth Group, one of Britain's largest flavouring and fruit compound manufacturers. Duckworth now places

CASE ANALYSIS

orders from its purchasing system, which are electronically transferred directly to the sales order system at Oxford Chemicals using a tool from SAP called Business Connector. On receipt of the order, the sales order system automatically sends an acknowledgment back to the purchasing department. But other link-ups will be delayed until it is possible to integrate even more closely - right into the manufacturing process - by adding new SAP application modules to the ERP system. "When material is in stock to produce the requested goods, it automatically sends an invoice. But when it is not in stock, and it has to be manufactured, that information cannot as yet be sent back. The second half of next year should see other linkages," says Smith. Oxford Chemicals is also a member of Elemica, an online trading exchange for the chemical industry, and plans to integrate its ERP system first with the exchange itself, then with individual members. In a bid to offer more than the ability to place orders over the Internet, Oxford Chemicals is also trying out a Web-based link with an agent who has access to the manufacturer's customer and orders databases from its web site. Linked to the back office, the agent can pull up the histories and status of recent sales. "We'll roll this out to all our agents next year, and then offer it to our major customers, eventually allowing every customer to place orders directly over the Web," says Smith.

Required: Discuss the incremental approach to ERP described in the case study.

Source: Operations Management by Andrew Greasly (2006 edition)

Case Analysis

CHAPTER I TIME CONTEXT The situation usually happens in present times, where e-commerce and online transaction systems are now much evident than before. As technology improves over a period of time, it is not unusual to see the information technology systems used in the industry. This trend is very evidential for large-scale businesses that have an extensive experience with the changes of the system, specifically the enterprise resource planning (ERP) phase. However, for Oxford Chemicals, it has been stated that they wanted to use the technology to communicate with its clients through online systems, and at the same time to grasp an edge over its competitors. It means only that they are still inexperienced of the technology in the field of business, although there are already existing systems to shorten the burden in recording transactions in the business. It could been shown also that it happened when the company discovered that their existing systems do not conform with the needs of the business itself, like e-business with external partners of the company, and integration with other IT systems on the site. The company itself wanted a change by upgrading its IT facilities. It is based on an assumption that more and more clients are going to the company to order, and it has the need to connect and link with especially large-scale businesses like Nestle and Quest.

39

Case Analysis

CHAPTER II VIEWPOINT It could be seen that improving the enterprise resource planning (ERP) aspect of the company tend to be costly for the management itself. Implementation costs rise as time increases, and it depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. 1 ERP can cost more than less integrated and/or less comprehensive solutions, and since, Oxford Chemicals will switch its existing systems, it can also increase the ERP vendor's negotiating power which can result in higher support, maintenance, and upgrade expenses. Of course, the objective of the management in the business is to gain profit by increasing sales and reducing costs. It would tend to be more costly than in a traditional way and assuming there are also other factors that can affect the profitability of the business, it would lead to regrets that they have chosen to adopt the ERP systems and assume that the company would not continue anymore in a going concern basis. However, adopting changes and its possible consequences is only one of the concerns of the management in case the upgrade is implemented. Implementation of the ERP system can also benefit them, if adopted properly.

1

As stated by Wikipedia (Enterprise Resource Planning, Implementation section), http://en.wikipedia.org/wiki/Enterprise_resource_planning#Implementation

40

Case Analysis

CHAPTER III STATEMENT OF THE PROBLEM Judging from the concern of the management on whether the ERP systems should be upgraded or not in the viewpoint section of the case, problems have been left to be solved in this case: 1) what could be the advantages and disadvantages of Oxford Chemicals in adopting the better technology with their operations using ERP; 2) what could be the best decision of the company in implementation of the ERP– to upgrade its facilities to gain more access to its clients, or to stick to the existing, traditional way; and 3) if the answer in the second problem is to upgrade its facilities, what are the steps in ensuring that the implementation of the ERP is carefully done. The first problem discusses the possible consequences if the company has adopted the upgrading of the ERP systems in their company, and how it will affect the Oxford Chemicals as a whole. It also seeks to clear out the notions that the adaption of the system can lead to a huge effect on the chemical company, whether positive or negative. The second problem is based on the first problem wherein the consequences are weighed in order to come up with a best decision, while the third one discusses what will be the planned actions of the company in order to carry out its decision of upgrading the facilities of the ERP systems of Oxford Chemicals, if ever the decision to upgrade will be chosen as a best alternative.

41

Case Analysis

CHAPTER IV OBJECTIVES The main objective of the company in order to come up with the implementation of the ERP as stated in the case is based on the required problem stated, to discuss the incremental approach to ERP described in the case study. It should be assumed that the approach of the implementation of the ERP is incremental because it seeks to upgrade the existing facilities of the system of Oxford Chemicals. The basis of the improvement is based on the statement in the case that in the case the old system is used, it won‘t have the collaborative features, like e-business with external partners, nor would it allow us to integrate other IT systems on the site. In summation of the facts given, it should be assumed that the objective is to develop, maintain, and enhance the system of the Oxford Chemicals by any means. It is for the own company‘s good: if the system is uplifted to a new level, the chemical company will have a much clearer picture of what our customers require and how quickly they can meet those requirements.

42

Case Analysis

CHAPTER V AREAS OF CONSIDERATION The facts presented shall be considered in solving the case for the Oxford Chemicals. One of those comes from the following statement: “For Oxford Chemicals, a manufacturer of aroma chemicals for the niche food and fragrance industry, the decision to collaborate more closely with customers and agents was cemented 2 years ago, after its IT contractor at the time threatened to withdraw support for the manufacturer's ERP systems.” It has been shown that in the past, the company has tried to have its own computerized and information-based system for different transactions such as ordering, scheduling, and sales; however, they may have conflicts with the past IT contractor. It could be due to the low satisfaction rating of the company in using the system designed and provided by the prior IT contractor, i.e. the system is not anymore applicable to the growing needs of its clients and the system cannot improve anymore to meet its ends. Another consideration would come from the statement: “With Nestle and ICIowned Quest among its customers, Oxford Chemicals wanted to use technology literally to forge stronger links with its client base, and also to snatch a competitive advantage from rivals who didn't. For a company producing up to 450 products a year, with the capacity to produce 200 more, the existing ERP system had gone as far as it could. It would never be in a position to give the company the computing power it would need to win more international business, and had started to threaten the Teesside firm's growth.” It is shown at there could be more potential for the company to produce more than 450 products if only the company would adopt an improvement with the ERP systems such as upgrading the hardware used, updating the program

43

Case Analysis

definitions of the system, rewriting of the code to adopt in changes in the needs of the customers, among other things. Updating the ERP systems of the company can help minimize the occurrence of threat of not growing of the business, and maximize the probability that it could attract more large-scale clients. However, as stated in the viewpoint section of the case, it could cost a lot. This is also evidenced by the statement that: “The decision to upgrade was made, but it was never going to be straightforward.” Upgrading ERP system is complicated and costly. It could also hurt its operating costs since there would be more overhead costs as compared in the traditional system. However, it can be remedied if the direct labor costs would decline. It has been stated that the total manufacturing wages would have fallen and its drop is most dramatic for unskilled workers which form part of the chemical company due to technological change.2 If the effect is mutual, it could even benefit the company in reducing its costs. The statement: “The company opted for the SAP R3 system, after the vendor introduced a scaled down version of its ERP systems for SMEs… the manufacturer had limited resources, and was able to negotiate with Plaut for an off-the-shelf SAP system pre-configured to the standard business processes of the chemical industry and around 70% pre-configured for Oxford Chemicals' specific requirements, at a cost of £200 000.” explains the details of the contract made by Oxford Chemicals and Plaut Consulting, a Systems Applications and Products (SAP)3 systems integrator. Since Oxford Chemicals is considered a small and medium enterprise (SME) company, it is right to maintain a scaled-down ERP system for them. Maintaining,

2

As stated by David Popp in his lecture on Technology and Labor (2003), http://classes.maxwell.syr.edu/ppa730-05/lectures/scilct26.html 3 As defined by the website SearchSAP at: http://searchsap.techtarget.com/definition/SAP

44

Case Analysis

designing and improving a large ERP system is too costly for them, and it would lead to an increase in the costs of the company just for IT aspects and not on operations.

CHAPTER VI ALTERNATIVE PLAN OF ACTION Before deciding on which alternative plan of action to take, it is the opportunity to discuss first what is ERP and what are its benefits and disadvantages. A. Enterprise Resource Planning (ERP) Defined ERP (enterprise resource planning) is an term used by the industry for activities that helps a business to manage the important parts of its business. 4The information made available through an ERP system provides visibility for key performance indicators (KPIs) required for meeting corporate objectives. ERP software applications can be used to manage product planning, parts purchasing, inventories, interacting with suppliers, providing customer service, and tracking orders. ERP can also include application modules for the finance and human resources aspects of a business. Typically, an ERP system uses or is integrated with a relational database system. The deployment of an ERP system can involve considerable business process analysis, employee retraining, and new work procedures. B. Advantages of ERP The important advantage of ERP is that assimilating the uncountable processes by which businesses work saves time and expense. With ERP, decisions can be made more quickly

4

As defined by the website SearchSAP at: http://searchsap.techtarget.com/definition/ERP

45

Case Analysis

and with fewer errors, data becomes visible across the organization. The asks that benefit from this integration include: 1) sales forecasting, which permits inventory optimization; 2) chronological history of every transaction through relevant data compilation in every area of operation; 3) order tracking, from acceptance through fulfillment; 4) revenue tracking, from invoices through cash receipts; and 5) matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced) which is important in the field of auditing. ERP systems consolidate business figures, bringing the following benefits: 1) they eliminate the need to synchronize changes between multiple systems—consolidation of finance, marketing and sales, human resource, and manufacturing applications, bringing down into one system; 2) they bring legitimacy and transparency in each bit of statistical data; 3) they enable standard product naming/coding; 4) they provide a comprehensive enterprise view; 4) they make real–time information available to management anywhere, any time to make proper decisions; and 5) they protect sensitive data by consolidating multiple security systems into a single structure. C. Disadvantages of ERP There could be also setbacks in implementing the ERP. These include the following: 1) the customization for the different types of business is difficult; 2) re–engineering business procedures to fit the ERP system may damage competitiveness and/or sidetrack focus from other critical activities; 3) ERP can cost more than less integrated and/or less comprehensive solutions; 4) high switching costs associated with ERP can increase the ERP vendor's negotiating power which can result in higher support, maintenance, and upgrade expenses; 5) overcoming resistance to sharing sensitive information between departments can

46

Case Analysis

deter management attention; 6) integration of independent businesses can form excessive dependencies; and 7) extensive training requirements take resources from daily operations. Another main weakness of the ERP is that due to its architecture called On-Line Transaction Processing (OLTP), ERP systems are not well suited for production planning and supply chain management (SCM).

CHAPTER VII RECOMMENDATION Based on the given strengths and weaknesses of the ERP system, it is being recommended that their decision to upgrade is just right for Oxford Company. After all, though there are weaknesses that can cause for ERP to fail, the following factors stated in the case itself can support the effectiveness of the improved ERP systems: 1) the company would have a stronger linkage with other large companies which can result to an increase in production and eventually profit, and it would have an edge over its competitors; 2) it would allow them to integrate with the other IT systems of the site, bringing an organized system in the company, and it would eliminate or at least lessen the cost of wastage due to unorganized ways of doing the business; 3) it would took orders, issued invoices and dispatched goods on the system more quickly than in a traditional system, which would improve the turnover rate of inventory of the company; 4) it determines the placing and manufacture, and leads the scheduling of production in the company; 5) it will lessen the costs of administrative personnel due to the technology, because the costs are more designed on the technological costs of the company; and 6) it would benefit the company in a sense that due to the technology, it will increase the demand of the

47

Case Analysis

clients to their company, and although the technology costs are big, it would be compensated by the savings in labor and clerical costs.

CHAPTER VIII CONCLUSION & DETAILED PLAN OF ACTION ERP implementations can take a long time to complete and its development can be delayed by faulty planning and application. The ERP technology might work, but as for the ERP systems is concerned, the analysis of incomplete data always results in understated costs of ERP implementations. Infrastructure and integration requirements, if inadequate, can also result in hidden costs, and as said before, the management of time, scope and money is truly a challenge. For the ERP implementation to be successful, there are some suggestions as referenced by the website ZDNet UK:5 1. When ERP projects go wrong, the results can be disastrous. Doing it right can be rewarding; but failing can be devastating. Two best examples would be: Company A went millions into the red as a result of technical problems with the rollout of a supply chain system, leading to inventory shortages and incomplete orders filled; while Company B took a several million dollar hit on profits as a result of a product oversupply related to problems with an ERP system.

5

As stated by ZDNet UK in the article, “10 essential tips for implementing an ERP system”, http://www.zdnet.co.uk/news/desktop-apps/2006/09/28/10-essential-tips-for-implementing-an-erp-system39283716/2/

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Case Analysis

2. Understand the value proposal and the business case for your ERP system. Determine also the key deliverables and objectives in the business systems of ERP. 3. Make sure you have a strong sponsor for the ERP system. Your sponsor's level of commitment and support can have the greatest impact on the delivery of an ERP system. Issues and risks are likely to be escalated to the sponsor if they aren't resolved earlier. Your sponsor can also serve as the champion for the project when conducting status briefings and training across the enterprise. 4. Identify the functional and nonfunctional gaps between the existing and planned systems. There, the gap analysis can be reviewed and approved by the executive sponsor. 5. Use the standard off-the-shelf package with as little customization as is feasible. Once the enterprise has implemented the core modules (general ledger, accounts payable, accounts receivable, payroll, etc.), it can phase in new features and build things around the edges. 6. Socialize change across the organization with key stakeholders and those most affected by change. Organizations that focus on technology and ignore the human element of implementations often fail. ERP by definition is about people, not just technology and organizations. 7. Create a center of excellence — an oversight team in addition to the project management office (PMO). A key to the success of an ERP implementation is a strong tactical team that can manage change and drive toward stability. 8. Invest in business intelligence. Common data enables ERP software to support more detailed analysis and reporting. Business intelligence is the engine — the database of business rules that need to be defined for the benefits to be achieved

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Case Analysis

9. Manage risks. Many risks can be mitigated via thorough testing. Be certain to have a fallback plan for each implementation milestone where there are risks to mitigate. 10. Consider compliance. Because ERP systems are accounting-based, there are a number of areas to consider for audits and compliance. Specific IT controls affect ERP systems implementations as well as the ongoing management of those systems.

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Case Analysis

CHAPTER I Time Context From a single classified directory in Brighton in 1966, Yell has grown to become a leading international directories business operating in the classified advertising market in the United Kingdom, United States, Spain and Latin America. In the UK, the Group's products and services include Yell.com, Yellow Pages and 118 24 7 directory enquiries service. Yell employs a team of 3,250 in the UK, 5,750 in the US and 3,000 in Spain and Latin America. Strong and consistent revenue growth has been achieved through organic growth in existing markets, the development and launch of new products and services, and, internationally, through the acquisition of other directory companies. Being the number one medium of information between the sellers and the consumers is the goal of this organization. The organization doesn‘t mind whether how, where and when they can transmit information just as long as they disseminate it clearly and correctly to the prospective users. The company is actually one of the best

organizations that offer information dissemination. It gathers many prestigious awards that praise their undeniable great service to their customers and the public. The problem actually arose and observed during the operating days of the company as they identify the Areas for Improvement (AFIs). The company focuses on improving their services or initiative rather than introducing new trends to offer to the public. This is the approach used by the company.

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CHAPTER II Viewpoint Yell Company, as one of the best information disseminating operating business is establishing an approach that they are using in order to perfectly render the services they offer to the public. The viewpoint of the manager (management) in operating the business is to use an approach where they will be focusing on producing the best service that they can in order to become the best bridge of information between buyers and sellers, regardless of what is the medium, when and where it will be executed. In addition, the approach used by the company only tends to improve the weak parts or weak service of the company rather than developing new initiatives to the customers.

CHAPTER III Statement of the Problem The term quality management has a specific meaning within many business sectors. This specific definition, which does not aim to assure 'good quality' by the more general definition, but rather to ensure that an organization or product is consistent. In this case, the company uses an approach in their operations which suddenly give rise to the problem that is faced by the company currently. These are the following problems encountered by the company:  The company wants to improve the typical operation using techniques and strategies of Quality Management.  The challenge that the company is facing right now is that they are having a difficulties because of the proliferation of the Areas for Improvement (AFI‘s) which results to overwhelming number of the said AFI‘s.

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Case Analysis

The company chooses to focus more on improving the weak areas of the firm rather than innovating new trends to offer in the market.

And because of overwhelming number of AFI‘s, the company bears the difficulty in dealing with all of these and that‘s where the problem is observed.

CHAPTER IV Objectives Quality management is focused not only on product or service quality, but also the means to achieve it. Quality management therefore uses quality assurance and control of processes as well as products to achieve more consistent quality. It can be considered to have four main components: quality planning, quality control, quality assurance and quality improvement. This case deals more with the quality improvement component of quality management. And the main objective of this study is to determine the best approach that the company can apply to their operations in order to assure the continuity of the firm. The following are the other objectives to be met:  Determine the significant effects in the operations of the application of the current approach on quality management.   Identify the other approaches that can be use by the company. Make sure that the continuity and the achievements of the firm will be at least reasonably assured.  Pin point those activities that contributes to the success of the company and don‘t try to put it out in your operations.

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CHAPTER V

Areas of Consideration/Analysis

Yell wants to create value by putting buyers in touch with sellers through an integrated portfolio of simple to use, cost effective advertising solutions. And they want improvement that could help the operation to be easier, more effective and meets the needs of the valuable customers. These are some facts in the case study that explained problems and possible solutions to be applied. “Its vision is to be the best business information bridge between buyers and sellers, regardless of channel, time, or location in the markets which they operate.”

Yell wants further upgrading and renovation in their transactions with their customers. But then, they will make sure that they will not change the usual process in improving their services. They want to satisfy the needs of their customer in a more convenient way. “Yell started introducing quality management in the late 1980‟s by adopting TQM approach and this approach became integrated into the way Yell manages its business. “ The company used Total Quality Management (TQM) approach in 1980‘s. TQM can be defined as business management strategy that has been created to increase the quality of products and services from the company to provide and maintain customer satisfaction. It has been introduced since 1950s and this business management strategy becomes more known and famous to be adopted in large companies since late of 1980s. This strategy was made and provided to maximize customer‘s satisfaction regarding the services and products of the company. Thus, it

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can be defined as a continuous improvement strategy to achieve and maintain objectives from the company. So, in connection with the vision of the company, this type of approach is appropriate for continuous improvement and not engaging to new trends. “The company has used tools such as the EFQM Excellence Model, Six Sigma, ISO 9001: 2000, ISO 14001: 1996, OHSAS 18001: 1999 and investors in People (IiP) to review and refine its overall management approach.”

Yell began a company-wide quality improvement programme in the mid-1980s with the aim of improving customer satisfaction by reducing errors, improving levels of service and delivering greater value for money. This has led to Yell winning the European Quality Award on 2 occasions, the only company in Europe to have achieved this. These are the approaches used by Yell for them to establish the improvement they want for the operation. “Yell sets the scope and direction for its system of management through its vision and business purpose. It also defines the way this will be achieved through strong and clear values. Together, these provide the frame work for all their activities. Yell brings this alive for people, through a structured approach that focuses on both the process and the people:

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Alignment of goals and objectives through a systematic planning process Integration of policies and processes through a key process framework; Enablement of activity through effective leadership, involvement and

communication”

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The company put their focus on the said areas in these statements. They set a range that will meet the objectives of the company. They decide to focus more on improving the weak zones of the firm rather than remodelling new trends to deal in the market.

“In 1996 the Investors in People Standard was chosen by the senior team as a means of reviewing and further improving links between the desired quality culture and the leadership and people management practices. They also saw an opportunity to more closely align people management and development with business strategy and ensure that training and development activities clearly supported business, team and individual objectives.” Based on the research, Investors in People Standard was the chosen approach. In Chapter 5, further explanation about this technique is explained and why the management chose this over the other methods.

“One of the challenges the company has faced was the proliferation of Areas for Improvement (AFIs).”

In the corporate world, improvement is important to compete as well as to change for betterment. However, in these changes it could affect the operation of the business. It could help for improvement, other times it could degrade. Proliferation means to increase or spread at a rapid rate. Given the scopes for improvement, they encountered a problem that could lead to great changes in the operation. In this case, it was said that the company does not want to engage to new trends but rather for improvement only.

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“The company has also been very careful not to establish a “flavour of the month”. The focus of the approach was placed upon improvement and not introducing „another‟ initiative”.

Engaging to new trends open the company for a lot of changes. The company does not like to be currently but temporarily popular. They want to make these changes for better service to their valuable customers and also to attract new customers. Their goal is to lead these changes for a longer effect and not for a short term period only.

CHAPTER VI

Alternative Course of action

These are the following approaches to be used:

1. EFQM Excellence Model

The EFQM Excellence Model is a non-prescriptive framework for organizational management systems, promoted by EFQM (formerly known as the European Foundation for Quality Management) and designed for helping organizations in their drive towards being more competitive. Regardless of sector, size, structure or maturity, organizations need to establish appropriate management systems in order to be successful. The EFQM Excellence Model is a practical tool to help organizations do this by measuring where they are on the path to excellence; helping them understand the gaps; and then stimulating solutions.

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2. Six Sigma

Six Sigma simply means a measure of quality that strives for near perfection. It is a disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit) in any process – from manufacturing to transactional and from product to service. The statistical representation of Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect.

3. ISO 9001: 2000

ISO 9000 is a family of standards related to quality management systems and designed to help organizations ensure that they meet the needs of customers and other stakeholders (Poksinska et al, 2002). The standards are published by ISO, the International Organization for Standardization, and available through National standards bodies. ISO 9000 deals with the fundamentals of quality management systems, including the eight management principles on

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which the family of standards is based. (Beattie and Sohal, 1999; Tsim et al, 2002) ISO 9001 deals with the requirements that organizations wishing to meet the standard have to fulfil. Third party certification bodies provide independent confirmation that organizations meet the requirements of ISO 9001. Over a million organizations worldwide are independently certified, making ISO 9001 one of the most widely used management tools in the world today. Despite widespread use, however, the ISO certification process has been criticized as being wasteful and not being useful for all organizations.

4. ISO 14001: 1996

ISO 14000 is a family of standards related to environmental management that exists to help organizations (a) minimize how their operations negatively affect the environment; (b) comply with applicable laws, regulations, and other environmentally oriented requirements, and (c) continually improve in the above. It is similar to ISO 9000 quality management in that both pertain to the process of how a product is produced, rather than to the product itself. As with ISO 9000, certification is performed by third-party organizations rather than being awarded by ISO directly. The ISO 19011 audit standard applies when auditing for both 9000 and 14000 compliance at once.

5. OHSAS 18001: 1999

OHSAS 18001:2007 is the International Occupational Health and Safety Management Standard. It was published in July 2007, superseding OHSAS 18001:1999, and is intended to address occupational health and safety (OH&S) rather than product safety. It provides a framework to the effective management of OH&S including compliance with the legislation that

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applies to your activities and identified hazards. The standard is applicable to any organisation that wishes to eliminate or minimize risk to employees and other stakeholders who may be exposed to OH&S risks associated with its activities. Many organizations will have elements required by OHSAS 18001 already in place which can be supplemented to provide a more cohesive management system to meet the requirements of the standard. Organisations that implement OHSAS 18001 have a clear management structure with defined authority and responsibility, clear objectives for improvement, with measurable results and a structured approach to risk assessment. This includes the monitoring of health and safety management failures, auditing of performance and review of policies and objectives.

6. Investors in People (IiP) Investors in People UK was founded in 1993. Today, more than 30,000 UK organisations are recognised as Investors in People, covering a wide spectrum of UK industries. The Investors in People standard provides a framework to ensure that organisations improve the way they work. They have to meet the same criteria, or indicators, as other organisations, but the standard recognises that each one will meet them in its own way. Investors in People recognise that organisations use different means to achieve success through their people. It does not prescribe any one method but provides a framework to help them find the most suitable means for achieving success through their people.

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CHAPTER VII

Recommendation

Continuous process improvement takes place in incremental steps. It is a persistent effort. These are the following steps:

1. Quality development is for employees to look at their work and effort in terms of being part of a continuous business process. 2. To enhance the quality improvement process select an improvement project with a specific target. Selecting project with specific plan helps in improving the total quality management. 3. Assign an appropriate project team to improve it. Define the project steps using a flow chart, and define variability and problems in the project. 4. Locate the root causes of the problems and recommend improvements, and implement. 5. Measure the results and proceed to a final implementation. Then start the new project.

The continuous quality improvement process should be driven from the top management, but implemented from the core team member and other staff. The selection of improvement projects needs a pointed focus. The problem areas should be prioritized, serious processes selected for improvement, and improvement goals set for the projects team members.

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CHPATER VIII

Conclusion/Detailed action Plan

In connection, quality management has core concepts. These core concepts will be applicable on the plans of the company.

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Continuous process improvement Customer focus Defect prevention Universal responsibility

Everyone is a customer - External and Internal customer. The external customer is someone who purchases the product or service. Internal customers are those who make use of what another group providers. This has fairly profound implications. It means that every work group has to think about providing value to the people who utilize their product. This involves finding out exactly what the user requirements, and ensuring that the process provides it. The initial point for quality improvement is to determine the customer requirements. When the requirements are fairly simple, this can be done merely by talking to them.

When dealing with an external customer and the product is extremely complex, the determination of the customer requirements can be quite time consuming and requires a detailed analysis. A useful tool for determining the customer requirements and ensuring that these needs are incorporated into the product design is the Quality Function Deployment Matrix. Determining customer requirements accurately is an important aspect of quality control.

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Obviously, it is less expensive to rectify a mistake in defining customer requirements before a product is produced then it is afterwards. So spending the time and effort to figure out the needs correctly at the start is time well spent.

Defect prevention or avoidance saves money. Process for manufacturing a product begins with a specification. Drawings are created, parts are made and assembled, and the product is delivered to the customer. The cost of rectifying a fault increases by at least a factor of ten as the product moves through each of these stages. Defect prevention or avoidance is concerned with catching the errors as early in the game as possible or preventing them from happening at all.

Universal responsibility deals with the fact that total quality is not only the responsibility of the inspection department but is everyone‘s responsibility in the organization. Quality improvement should be totally pervasive. Every work group in the business should be concerned with seeking ways to improve the quality process.

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