Operations Management - Math Problem Example

Running Header: Operations Management First Names: Student Number: Institution: Course Number: Course Name: Assignment Due Date: Introduction In the current world of business it’s not common to mention that one is commercializing without operations management. Perhaps this is because of the nature of environment that the businesses operate in. It’s always obvious that any person that has worked or served in the operations management capacity must have applied one or two operations management tools. It is important to realize that operations management is one the critical functions of any business today that must be recognized and practiced by every firm. Operations management techniques are particularly important when a business is operating in a very competitive environment and more especially where the return on capital investment is relatively low. The primary aim of using operations management therefore is to ensure that the business is competing favorably and that is able to sustain its activities (Aksin 2006). Many of the world companies today are operating in very different environments which pose a little bit more complex challenges as opposed to the past. In order to survive, firms are expected to put their focus on how to improve quality of their service delivery, proper management of time, and at the same time ensure effectiveness and efficiency alongside creating good relationships with the customers. The new focus on operations management has placed businesses on the limelight because that is the only way high level of competitiveness can be attained. Let’s consider some of the world companies that have come out be very successful such as Wal-Mart, Southwest Airlines, and Toyota, Proctor and Gamble and many others. These companies have managed to expand from local status into global status because of the persistent focus on good operations management practices (Easton, and Goodale 2005). The purpose of this analysis is to critically evaluate, the problem that exists with Fred and Gillian Giles who have chosen to go beyond mixed farming to the paying public where individuals who enter the firm will have the entry fee of $4. At the same the partnership has gone a step further to start a dairy ice-cream just behind the firm. The aim of these changes is to increase the company’s returns and make it more profitable. The partnership between Fred and Gillian Giles was established in 2006 with the primary aim of working in mixed farming. However, following the low returns from the venture, the two had decided to expand their activities as part of the operations management in order to improve on their diminishing profits. Initially the two had put more emphasis on milk production and marketing of cereal produce which as time went continued to do poorly at the market and could not sustain the business. Following the new design by the operations, the duo decided to establish a farm viewing area where individuals who visit the farm can have the best place to view the activities within the farm at a price. The area was redesigned to allow for different parking by the customers. The area for parking was designed in such as away to allow parking for personal cars, coaches and trailers. The farm was kind of an exhibition and was aimed at improving the performance of the business. In addition, to the beautiful milking parlours, the site was also composed of the playground for children as one way of enticing people to come to the site. Further, the enterprise went further to establish a new dairy ice-cream factory as part of the company’s effort to boost its performance and general returns. This factory was also used by the duo for viewing by the visitors. Even though the business has made several efforts to realize its objectives of making good profits and sustain the business, it has not managed to achieve that following a number of challenges as discussed below. Demand forecasts for 2012 The chart below is a summary of what the company forecasts in terms of demand in 2012. According to the company report, it is expected that the demand for retail shopping will decline by around 15% even though the demand for demand for paying visitors is expected to increase by 50%. In addition, it is estimated the demand for local visitors in 2012, will rise by around 45%. These are all estimations, and possible fluctuations may influence this demand forecasts. Engaging in forecasting for demand, helps come up with actual figures that the company needs to work on to meet the prevailing market demand. The illustration below shows the overall demand and sales forecasts for 2012. The figures are derived from the case: 50% of the paying visitors purchase the ice-cream and the unit price is ￡2 per box (litre), The projected 2012 ice-cream demand is given as: Total numbers of paying visitors = total numbers of paying visitors in 2011 + total numbers of paying visitors in 2011 *50%=22,200 people Total ice cream sales of paying visitors= total numbers of paying visitor*50%* ￡2 per box= ￡22,200 Ice cream demand of paying visitors = 2012 total ice-cream sales of paying visitors/ ￡2per litre box=11,100, Total local ice-cream demand= (sales of farm shop-sales of paying visitors)/ ￡2.00 per box =8900 L Retail shop demand= Ice-cream sales of retail/￡1.5 per box= 43333 L Hence, Total ice-cream demand in 2012 farm= demand of retail shop+ demand of farm shop = 63333 L 2011 ice-cream demand: Total ice-cream demand of paying visitors= total number of paying visitors *50%* ￡2.00 per box=7400 L Total ice-cream sales of paying visitors=total number of paying visitors *￡2.00 per box=￡14,800 Total ice-cream sales of local visitors= total ice-cream sales of farm shop- total ice-cram sales of paying visitors = ￡12,400 Total ice-cram demand of local people= total ice-cream sales of local visitors/￡2.00 per box =6200L Total demand of retail shop= total sales of retail shop/￡2.00 per box=5000 L Therefore The total demand of ice-cream in 2011=total demand of paying visitors+ total demand of local visitors+ total demand of retail shop= 63600L Summary of the demand/sales forecast Customer Sales/demand Total ice-cream demand of paying visitors 7400 L Total ice-cream sales of paying visitors ￡14,800 Total ice-cream sales of local visitors ￡12,400 Total ice-cram demand of local people 6200L Total demand of retail shop 5000 L Key issues with capacity and utilisation. Capacity is the major issue with this enterprise. The company can only be able to process and preserve 350 litre boxes of ice-cream each day. This is to mean that the company is not in a position to produce extra ice-creams because it does not have extra freezer where the processed ice-cream can be kept. The implication of this situation is that any attempt to produce more than required, there is likelihood that the company will suffer huge losses from spoilt ice-cream. The freezing equipment currently held by the company cannot be used to ensure proper freezing of more than 350 litres in just 24 hours. On the other hand, the processed and finished goods’ freezer can only be used to store up to 10,000 litres of ice-cream without exceeding. However, if rotation strategy is used, the freezer can only be used to carry a maximum of 7,000 litres at any given time. In addition, the company is also limited in terms of employees who work at the ice-cream processing farm. For instance, the factory has employed only three workers, who in this case are wives to the employees to the farm. The time of operation is also limited. Even though the factory is run for greater part of the year, about 48 weeks, it’s evident that the number of days and hours the factory runs are very minimal. The factory runs for only four days in a week and eight hours in each day. Another element, that has demonstrated lack of enough capacity to expand the company’ processes and operations, is the commitment by Gillian who is now not able to continue with his commercial activities such as advertising and public lectures to different groups and institutions like women groups and schools in order to concentrate in running internal operations that pertain the management of the new business operations. Gillian had lacked enough time to attend to these important commercial activities as he was forced to look after the large number of visitors who had continued to increase over time. It is estimated that the number of the visitors had reached 15,000 on average per year. Given these circumstances, it’s evident that the company lacks the required capacity to work on and manage its activities as required. To start with, there is need as the company seeks to work on its performance to acquire new freezer facility so as to facilitate easy processing and storage of ice-creams. This is particularly important in trying to increase the daily produce to more than 350 litre boxes. In addition, there is need to address the issue of storage. This follows the company’s current ability to store only up to 10,000 litres at any given time. This is to imply that as part of the operations team, there is every reason to acquire more storage or even hire one if the implied cost of acquisition of the facility is enormous and cannot be contained by the business. In addition, as outlined above, important resources such as human capital and finances, are lacking the company. This follows low performance of the business for over years. The company has been making low returns to the investments which mean that it does not have adequate finances to run some of its operations. Finances are a very important resource in any business. This is because for any business to sustain its activities, it has to break-even and at the same ensures continuous growth in its cash flow. The other important resource that the company is expected to acquire, is the human resource. This will be very critical in ensuring that important commercial activities such as advertising and public education are not forgotten as they help develop new markets and at the same time ensure sustainability of the existing ones. Adequate number of workers at the factory could also see the company increase its capacity production as the company seeks to acquire more freezers and storage spaces. The company’s customers are composed of different personalities from different squatters. First, there are those who buy from the company for resale to the market. A good example for this is the departmental stores that are used by the company as supply chain to reach that customer that cannot make it to the firm. This is a very important customer segment as it provides the company with the largest share of sales. The retail shops customers have continued to record enormous growth since 2006. For instance, the retail shops recorded £75,000 sales of ice-cream despite the total sales being £102,000. This is to mean that still the customer niche is of great significance to the business. The other important customer to the business includes those who buy direct from the farm shop. The farm shop is particularly used to selling to visitors that come to the farm. This group of customer is known to make its purchases as they tour around the farm. They buy ice-cream packed in well insulated containers which are used to ensure that the ice-cream does not melt so fast. The company believes that this is almost a permanent group of customers. According to the company analysis, this group of customer comes both in coaches and cars. This group is particularly important to the business as they buy the same price as that of the retail one. The retail price is £2.00 and therefore selling ice-cream from the farm shop will imply good marginal profits as company will take advantage of mark-up price. This has continued to give the business the good deal for over years. In addition, the company is also enjoying the existence of the group of customers who buy direct from the separate counter of the farm. This comprises those customers who necessarily have to pay entry fee to enter and buy. Actually they buy from a different road-fenced entrance. It is however, important to note that this group of customer is almost regular and their purchase trend can easily be predicted. This group of customers in most cases makes purchases for household use. This group is also known to make frequent purchases throughout the year irrespective of the season. The relative importance of this group of customers is that the business assured of some revenue even when the season is low. Given the different categories which the company is expected to serve, it is always important to come up with different strategies to serve specific demands. According to Franx and Koole (2006), understanding the characteristics of a certain customer niche by any particular business helps in formulating and designing ways to meet their specific demands. Given the case of Fred and Gillian, its important to highlight that there are different customers who the company serve as discussed above and each of them require some kind of attention. The first group of the customers who include the retail customers, need to be assured of uninterrupted and quality of supply in order to continue ensuring smooth flow of ice-cream to the final consumer. Quality of ice-cream is of essence in this case as it will ensure that the company is competing favorably at the marketplace and at the same time continue building on its brand. The other group that needs attention, is the customers who come to the farm as visitors and who buy from the farm shop. This is the group that must be treated with more care as they are the ambassadors of the company in the market. The group should always be given good deal in terms of value (Kang and Gershwin 2005). This is because apart from spending their money on paying the entry fee, they should see the reason for buying ice-cream from the farm shop and that will depend on their experience during the exhibition. Finally, the customers who buy separate counters need to be assured of frequent flow of ice-creams as they make regular sales for family use. The process flow chart indicates the steps through which ice-cream goes through before being produced as a final product. The process of preparing ice-cream goes through five main stages namely: material preparation, weighting, mixing, packaging and freezing as shown in the flow chart below: The first stage of material preparations involves collecting and putting the required ingredients that will be used to produce the required quality of ice-cream. On the other hand, weighting is used to ascertain that appropriate measures of each ingredient are used for final processing. In addition, mixing involves the reaction of the weighted ingredients in order to produce the required output. Finally, packaging and freezing are used as final touches to making the ice more tasty and safe. The two visits are particularly important to the business. This is because both two types of visits have continued to generate substantial revenues to the company. For instance according to Gillian, in every two coach customers, one litre box is being purchased. On the other hand, in every four car customers, two litre boxes are being purchasing. This is to mean like the case of car visits in every two customers, one litre box is being purchased. This is to mean that both two visits hold some significance to the company’s sales and revenues. In general terms, dropping the coach visits operations will limit the company’s revenues and worsen the performance even further (Batt 2002). Conclusion and recommendation Operations management is a very important strategy for any business that intends to make good returns to the capital investment. This is because it allows for proper planning and utilization of the company resources for maximum production. In addition, an operation management allows enables companies to reengineer and redesign its internal processes so as to meet the ever changing customer demands and at the same time ensure that it’s competing favorably at the marketplace. Given this analysis, it’s evident that even though the company has not made such big strides towards large profits, at least it has managed to sustain its activities since its establishment in 2006. In general terms, as the company continues to embark on expanding its production, it is important to do proper risk analysis in order to avoid a situation where viable activities are dropped. With the business’ move to increase its ice-cream flavors, the customer is able to access a variety of ice-creams from the firm. This move is particularly recommendable as it will allow for product diversification and at the same time reduce the risk of market failure of one of the flavours. How it’s my view that proper risk analysis be done to determine the worthiness of this strategy. References Aksin, O 2006, Effective strategies for internal outsourcing and off shoring of business services: An empirical investigation. Journal of Operations Management, 3(41), pp. 324-367. Batt, R 2002, Managing customer services: Human resource practices, quit rates and sales growth. Academy of Management Journal 45(3), pp. 587–599. Easton, F and Goodale C 2005, Schedule recovery: Unplanned absences in service operations. Decision Sciences, 36(3), pp. 459 – 488 Franx GJ and Koole, SA 2006, Approximating multi-skill blocking systems by hyper exponential decomposition. Performance Evaluation, 63(8), pp. 799 – 824. Kang, Y and Gershwin, SB 2005, Information inaccuracy in inventory systems—stock loss and stock out. IIE Transactions, 37, pp. 843– 859. Read More