Is Focus Plastics on Brink of a Disaster - Essay Example

Is Focus on Brink of a Disaster The problem definition and supporting evidence: Problem Focus Plastics Plc., has gone wrong in taking certainstrategic decisions. Some of the crucial strategic decisions in which the company has gone wrong are discussed in this paper. Problem 1: Firstly, it has exited itself from the industrial marketing segment which when compared to consumer marketing has got better benefits and scope. The company has earlier got into different segments of the industrial market. Some of the segments into which the company entered are consumer durables, toy industries and automobile component industry. The company exited from the industrial marketing in a condition which it has got a decent industrial customer base. It has exited from the segment saying that they felt industrial marketing to be more unpredictable and unstable. If the company wants to re-enter the segment, it may not be possible as the customer or business once lost is lost forever. Problem 2: In the consumer marketing segment, the company has given a guarantee to its customers saying that it would supply any item in any preferred color for five years continuously. So even if a single customer buys a particular product of a particular color, the company is forced to produce that particular product even if it is for a single customer in order to keep up its promise and at the same time safeguard its reputation. Problem 3: The company has got a process based production system which also has certain demerits. The main problem with the process based production system is that two or more jobs undertaken by the production department may come to the same department at the same time. And there is obviously no possibility that the department can work on the same jobs simultaneously. Hence on of the jobs has to be kept waiting. As Focus Plastics Plc., is involved in large scale production, the process based system of production may result in several jobs that may be kept waiting in various departments at different stages. Thus , it is nothing more than a mere waste of time when a major portion of production time actually comprises the time in which jobs are needed to wait for getting processes in different departments and at various stages. Another disadvantage with this kind of production system is that it requires greater employee skill, more employees training, more number of supervisors and complex production control. If we consider the manufacturing system that is being followed by Focus Plastics Plc., it can be noticed that the company has got 24 large injection-moulding machines of different ages. Such machines would definitely need a person with good expertise and at the same time proper amount of training to handle such machines which actually is an expensive task for any organization. Problem 4: The company is also lacking in planning. It was quoted that it had to produce a huge amount of pasta strainers in a particular color which resulted in entire rescheduling along with a waste of one hour's production. This is because of over anticipation of the customers' demand. Problem 5: The company has also got a serious inventory problem. There has been a rapid increase in the inventory of the company over the past 10 years which is evident from the following ratios which are based on the financial information of the company. The major mistake that the company is committing is that it is producing the goods anticipating the customers' demands. But anticipations may or may not be right all the time. If the anticipation is less than the acute value, then the company may lead in to loss of sales. In this case the anticipation is more than the actual value and hence it is resulting in piling up of inventory. Actually, increase in the level of inventory may lead to the product getting outdated because of ageing. Increased inventory may also result in blocking of the working capital and thereby resulting in reduced cash flows. Though Focus Plastic Plc. has considered inventory as a cover to increase service levels, the company hasn't identified the fact that the cost ultimately will increase the price of the product. Ratios: Inventory to sales ratio Year 1983 1985 1987 1989 1991 1993 1995 Inventory 786 1758 3087 3777 4677 6729 7701 Sales 7566 8616 12636 13398 15324 16182 24063 Ratio 10.38 20.4 24.43 28.19 28.91 41.58 30.00 Debtors to Sales ratio Year 1983 1985 1987 1989 1991 1993 1995 Debtors 1449 2394 2526 2451 3963 2889 4119 Sales 7566 8616 12636 13398 15324 16182 24063 Ratio 19.15 27.78 19.99 18.29 25.86 17.85 17.11 Literature Review: In general, Operations Management is something that deals with planning, organizing, controlling, directing, motivating and coordinating all the activities of an operations system. If the concepts of the operations management are properly implemented in time then the effective management of resources that are used by the organizations to produce goods and services is possible. The advancement in information technology and computers has brought in drastic changes in the operations management wing also. The computerization of operations began in the year 1954 when the first computer was installed in General Electric Appliance Park. The best practice that is being used in the area of operations management to handle issues relating to manufacturing now-a-days is the use of Manufacturing information system. The major advantage of using these kinds of systems is that they provide comprehensive information regarding production. Comprehensive information regarding production are demand forecasts, purchasing, inventories etc. Manufacturing information system also resulted in the development of Materials Requirement Planning (MRP). Also advanced production systems also evolved with the increasing sophistication of software and hardware. Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), Flexible Manufacturing Systems (FMS) and automated storage and retrieval systems (AS/RS) were some such technological advancement. By making use of CAM in the manufacturing system, Focus Plastics Plc., can minimize worker involvement in the production process. Also the use of FMS can result in producing a large quantity of products that have similar processing requirements. As the company is already following a process-based production system, introducing the FMS technology will help in improving the existing process. The company also can make use of the AS/RS technology which is a computer controlled warehouse system. Use of AS/RS automates inflow and outflow of the materials from the warehouse and shop floor on the basis of production requirements. Proposal for changes: 1. Problem no.1 that has been discussed above says that focus Plastics has failed by withdrawing itself from the industrial market segment. Instead of withdrawing entirely from the industrial market, the company could have rather created a niche for specialty products either in the toy industry or the automobile industry. This way the company wouldn't have lost the industrial customers who would have been profitable to the company in the long run. 2. The second problem is that the company has made a guarantee to its customers that it would supply any product of any color for the next five years. This way the company is forced to produce products which even are bought by a single customer which in turn needs a restructuring in the entire production process. Obviously this is a loss to the company. Instead of making a guarantee, the company could have produced only the products which have higher demand in the market. 3. The company has also got a problem with its planning process. Also a supporting example was quoted above that relates to problem in planning. Instead of rescheduling its entire process when it comes to unanticipated production, the company can rather tie-up for backward integration with its entire supply chain. Another solution can be adoption of the Just in Time (JIT) technology. The practice of JIT aims at assembling finished products just before they are sold. The system also helps the company by keeping work-in-process inventory as low as possible thereby reducing production lead times. The company need not waste its production time of one hour. 4. The company was following a process-based production system whose demerits were discussed earlier. Instead, the company can design a production system which is product based than process based. The advantages to the company by switching to a product based production system will be low unit costs, high volume of production and ease of planning. 5. As discussed above, Focus Plastics is having a serious problem with its inventory. This can be handles by adopting a pull strategy in the supply chain. The tangible benefits of this strategy are increase in the inventory turnover, reduction in inventory cost, elimination of excessive and obsolete inventory and reduction in cash to cash cycle time. Also the company can adopt the KAIZEN method which means continuous improvement. When Kaizen is related to manufacturing firms like Focus Plastics, it means finding and elimination of waste in machinery, labor and production methods. References: 1. http://smbzone.indiatimes.com/articleshow/27104.cms 2. http://www.google.com/searchhl=en&rlz=1T4GFRC_en___IN210&defl=en&q=define:Kaizen&sa=X&oi=glossary_definition&ct=title 3. Operations Management (ICFAI Center For Management Research, 2003, Ref. No. OM 092K3 35). Read More