PERALTA, Jasper Kenneth F.

Quality Time Management

33-05/MENG 504

Statement of the Problem

The economic recession is an external factor which caused a decline in demand of mufflers in the
Philippines. However, even with the financial difficulties, Arben continued to receive orders for their
products but now in smaller quantities and spread out volume. Hence, they are still getting revenue but
their internal costs have been high which caused the low profit, as noted by the owners. Despite the
smaller demands in each product, it is worth noting that Arben kept the same level of inventory. They are
allocating more costs on inventory more than their incoming revenue could pay off. Therefore, they are
currently having a problem on how they are managing their level of inventories and its turnover,
considering that they have various product lines. This poses the question for this case: What inventory
management measures Arben Manufacturing should do in order to manage their costs and increase their
profit?

Areas to Consider

The factors considered in this case will be subcategorized into two: external and internal factors. External
factors are those factors that Arben do not have control of but must be considered when planning a long-
term strategy for their business. On the other hand, internal factors are those Arben has the control of
managing and can be used to improve their variable and fixed costs.

 External Factors

To determine the external factors, PESTEL analysis is used. Due to limited information in the
case, only few factors will be applicable.

a. Economic

The great economic recession caused a huge decline in economic activity which affected sale of
luxury goods. Since customized mufflers and cars are considered a luxury in the Philippines,
demand for Arben’s product declined sharply.

b. Socio-Economic

Because of the decreasing consumer wealth, people are rarely buying customized mufflers and
might opt for cheaper ones that serve its purpose. This may be a new market they can consider
since they have been producing regular mufflers for years now.

 Internal Factors

In identifying the internal factors, strengths and weaknesses of the company were considered as
those will play a significant role in managing their costs.

a. Inventory Management

Even before the financial crises, demand for each Arben design was in low quantities because
the demand is spread out among their products. Thus, when the recession hit the Philippines,
demand for their products were now in even lower quantities. However, their inventory level has
been kept at the same way which resulted to more products sitting in the inventory and taking
more time to be sold in the market. This is causing the major problem for Arben as they are
spending more money to produce but it takes longer to be sold.

b. Supply Management

The case did not mention their relationship terms with their supplier Japan but considering the
longevity of their business, they must have built a good rapport. This is a factor as even with the
smaller demand orders, they are still purchasing raw materials in bulk orders which requires
higher financial capacity that they don’t currently have now. Aside from their raw materials
suppliers, Arben is a supplier to some big car companies which they can use to their advantage
as they are supplying them with quality mufflers over the years.

c. Manpower

Because of the rise in demand in the previous years, they have bought more equipment and hired
more people. They have more fixed costs now due to manpower which can also be a problem
 because they might not be utilizing their people now if they kept their schedule the same for all
workers (working 8 hours a day and six days a week).

d. Process

Another factor to consider is that they have a process “transportation of materials” which based
on their study, accumulated a costly amount of time. This means that their layout is not the best
one for their product lines. It was mentioned in the case that they kept switching their production
to favor what is in demand for the day and this process can also attribute to the increasing level of
work in process inventory which is an additional problem in the plant and additional cost that they
have to incur.

Possible Solutions

In listing down the possible solutions for Arben Manufacturing, SWOT Analysis Matrix was used,
considering the factors mentioned above.

Opportunities Threats
1. People may opt for cheaper mufflers due 1. Decrease in demand in customized mufflers
to financial crisis and this can be a market 2. Demand is spread out and in lower
they can enter quantities

SWOT Analysis/Matrix

Strengths
1. Contracted to some big car companies
all over the Philippines
2. Good rapport with supplier in Japan
3. They have enough machines and
people to cater different types of demands
S1O1: They can produced more regular
mufflers for car companies in the Philippines
and focus their market on that.
S3O1: Continue to produce mufflers that
suits their customer's preference
S2T1T2: They could create a system with
Japan supplier (Kanban) to order in smaller
quantities based on historical order data and
avoid bulk orders

Weaknesses
1. They have time consuming processes
2. Inventory levels are high despite low
demand
3. Manpower may not be utilized enough
being there are too many
W1O1: Produce more regular mufflers to
avoid more consuming/transportation
processes which is costly in terms of
manufacturing time
W2O1: Reduce the batch lot of their
inventory and focus on regular/generic ones
W1W2T1T2: Reduce order quantity and
reduce to smaller batch sizes and implement
a Kanban System
W3T1: Due to declining demand, they could
set up a work schedule where all manpower
will not be at the plant at the same time. They
could do shifting since demand for other
products are spread out in smaller quantities.

Based on the SWOT Matrix, the possible solutions for Arben Manufacturing would be:

1. Implement a Kanban system for their supplier and in their manufacturing plant

The Kanban system highly operates on a rationale that there is a visualization in the process and
limitation of goods produced at a given time. This is one of the principles of Just-in-Time inventory system
that aligns the orders of raw materials with the production schedules. This strategy is an effective method
to manage inventories and avoid using too much materials and storing them in inventories.

They could set up a board in the plant where they can easily see the progress of production. By
implementing a Kanban system, Arben will be able to visualize the productivity, improve their
communication thus avoiding more processes such as transportation of materials, reduce waste
production, and to manage their supplies and inventories well. They will be able to see the amount of
backlogs, requests, work in progress, and completed works. There is a need to limit their production to
address the high levels of inventory in the manufacturing plant and align their resources with their
production. Doing so would avoid unnecessary costs in the production line and would be more focused on
job satisfaction as it is very important to the different types of demand.

Aside from the Kanban in the manufacturing plant, they also need to implement a Just-in-Time inventory
system with their supplier in Japan. To avoid bulk orders that require more financial capacity, they needed
to adjust their supplies to what is only needed in their production. To save from freight costs, they could
look for local suppliers so they could limit their ordering quantity. This is to make sure that stock outs will
not happen.

2. Scheduling in manpower and production

Because of the high number of manpower, they could set up a work schedule for these employees to
avoid worker idle times and to spread out their production capacity. Also, this is to avoid from changing
production materials many times in a day. They should also monitor their machines and determine its
utilization so they could sell off those which are underutilized.

3. Focus more on producing regular mufflers

Because of the declining demand on customized products, they could focus more in supplying car
companies around the Philippines to limit the size of their inventory levels on regular mufflers. This way,
they will have a focus on one product. However, this may mean that they could lose their customization
market and it may be difficult to gain it back once the economy gets better.

Recommendation

The best recommendation for Arben Manufacturing is to implement a Kanban system. While other
solutions are reasonable, there are possible trade-offs from solutions 2 and 3 that Arben might not be
willing to compromise. In implementing a Kanban system, they will hit all the problems while maintaining
their product lines and will be able to manage their work-in-progress and finished goods more effectively.
By reducing their production batch size, it will allow Arben to reduce their inventory levels that caused
more costs. Products will not sit in their inventory longer than they expected thus improving their cash
conversion cycles. Inventory will be sold at a faster rate, thus quickly converting it to cash. This improves
their cash balance, financial leverage and capacity to order raw materials. This will also improve their
cash flows and lower their expenses by reducing the possible materials wastes in the plant.

Moreover, since they have been ordering in Japan for years, they could use their rapport and trust to
extend payment terms or asks for discounts. It is also advisable for Arben to look for other suppliers with
the quality that Japan offers (as a back-up) in case of possible stock outs. Having a secondary supplier
isn’t bad especially if they can deliver at a faster rate.

However, this recommendation will require them to invest on Kanban boards and training of employees to
familiarize themselves with the system. Fortunately, the costs will be minimal compared to the high
returns that it may bring to the company.
Statement of the Problem

Busy schedules of workers, lack of machine, and very small capacity for production are some of
the problems and limitations faced by the XYZ’s VCO production. Despite their product having such
distinctive, unique and luscious taste which made customers demanding for more, they were buried with
debts, they were having issues of improper management and also competitors have innovated new
alternative products and food supplements. This goes to show that the VCO business they are having is
facing a hard time maintaining and establishing the quality of their product that once enticed the
customers along with creating possible alternatives that could cement their name in the VCO business.
With that, what strategies would the new management implement on order to establish their product in the
virgin coconut oil industry?

Areas to Consider

There are things to consider in order for the VCO product be of quality:

a. Management

Improper management of the father brought about debts which will topple the business to
bankruptcy. With this, the turnover of management from the father to his sons is also inheriting
the business with the problems of debt and management woes which the sons need to address.
Furthermore, they need to allot tome and strategies that would enable them not only to maintain
the quality of their product but also utilize the other raw materials they are having to come up with
possible new and usable products for the market.

b. Manpower

It can be duly noted that the XYZ’s VCO business is of limited capacity that makes their workers
busy especially if they are trying to serve the increase amount of sure buyers that wants to try
their product.

c. Process

Another factor to consider is that their process needs to be of systemic flow so as to ensure the
quality and standard that they are known for.

Possible Solutions

In listing down the possible solutions for XYZ’s VCO, SWOT Analysis Matrix was used, considering the
factors mentioned above.

SWOT Analysis/Matrix
Strengths
1. Established their product as
one of the best virgin coconut oil
since 1969.
Opportunities
1. Customers will patronize
their product due to its
distinctive, unique and
luscious taste.
S1O1: They can be
established as one of the
standard quality of Virgin
Coconut Oil in the Philippines.
Threats
1. Decrease in quality of the
products
2. New alternative products and
food supplements were
introduced
S2T1T2: With already
established brand and system,
they can create various products
from the raw material (coconut)
that would also entice the taste to
consumers.

Weaknesses W1O1: Provide necessary W1W2T1T2: Provide the

1. Lacks necessary equipment
since they are keen to sure
buyers which used to be limited
trusted consumers
2. Manpower is overworked and
quality of the product is not
always attained
equipment that would address
the growing consumers of the
product noting its quality at
par.
W2O1: Train and introduce to
them the original recipe that
they would maintain and that
buyers of the VCO were used
to and what they've been
coming back for.
necessary brainstorming of
innovations (processing of by
products), training of manpower
and equipment to ensure the
quality of the product focus on
what they are known for.
Based on the SWOT Matrix, the possible solutions for XYZ’s VCO would be:

1. Improvement of the management and process

The head of a business would always need to be critical thinkers, adaptive to change, innovative, and
doers. Given this fact, they need to revamp the system with necessary information of the product, proper
training of workers, and systemic product line. With established customers, they can do more with what
they are capable of given that knowledge and equipped workers at hand.

2. Scheduling in manpower and production

Because of the high number of manpower, they could set up a work schedule for these employees to
avoid worker idle times and to spread out their production capacity. Also, this is to avoid from changing
production materials many times in a day.

3. Ensuring the quality of the VCO Product

Quality will always be one the reason why consumers keeps coming back and trust the product. Realizing
and maintaining that would help the product be well known especially that it was already a name and
brand established 1969.

Recommendation

The best recommendation for XYZ’s VOC would be quality control which starts with the proper handling of
management with their product so as to ensure that what the customer will get would be that quality that
they deserve and known for. Moreover, it will start with the proper knowledge and skills of the
management, effective and efficient manpower, proper flow of the process with assurance to its quality
and standard. It would also be a possible way to address the issue if after they have the money and right
skills and knowledge, they can decide the possible potential of the raw materials at hand because it could
be an additional profit for the company.
 Designed for
customers
MANPOWER having sure METHOD
orders

Lack of Effective
Limited and Management
Lack of Effective Busy Manpower and Trainings
Management and
Trainings
Lacks quality
assurance
MATERIAL
Change of
Management and
Sense of Newness
of Handling the
Business
QUALITY OF THE
VCO PRODUCT

Not properly Designed for

designed and customers
planned out having sure
orders Lacks necessary
equipment
Not Insufficient raw
enough materials
space
Not enough
funds and
innovative ideas

ENVIRONMENT MACHINE