Operation Management

Operation Management

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Operation Management

Introduction

Operation management entails business administration process focusing on developing the highest possible level of efficacy in an organization. It regards transforming labour and materials into services and goods with highest level of efficiency probable, with intention of maximizing the organization’s profit. It focuses on trying to balance revenue with the cost, to attain the highest possible net operating profit (Chase et al., 1998). This paper focuses on analysing the efficiency of operation management in Hawkesbury Cabinets Pty Ltd, which is a manufacturing and designing company for custom-built and designed-built kitchen cabinets. The company was traditionally developing custom-built kitchen cabinets, but has recently advanced to design-built kitchen cabinets, which is currently affecting the profitability of the company. The paper aims at analysing operation aspects which are impacting the organization, focusing more on their daily and medium-term implications.

The Current Production Systems and Processing Employed by Hawkesbury Cabinets

Hawkesbury Cabinets has got two main production systems. They include custom-made kitchens cabinets and design-made kitchen cabinets. The custom-made cabinets involved different kitchen designs which are made based on the client requirements. The design-made cabinets involve batch processing where batch of cabinets for a single up to five kitchens are created in the same design. Strict delivery requirements are involved in design process. The two products or processes are carried out in a single production facility, where general purpose machines are used for both processes to enhance flexibility. This means, the production process is alternating such that one process is applied and after completion the other process is employed. Similar production tools are put in the same work area. This means that each work space can only be used to handle one operation at ago. Thus single operation facility signifies that no multiple productions can take place at the same time. The fact that the customers in batch processing contains strict delivery requirements implies that batch processing orders play a great role in determining the production schedule in the manufacturing facility. This means, when two orders of different types are place, the manufacturing facility will not be able to cater for the orders concurrently, and thus, one order, probably custom order will be delayed or rescheduled. This lowers the manufacturing efficiency of the company.

The Effect of the New Builder’s Kitchen Line on Hawkesbury Cabinets’ Operation

The new builder’s kitchen line has expanded the operation of the company into two operation process. This line of product demands the employment of strict customers’ requirement in batch processing. Batch production is a form of production where a number of similar products are produced together (Hitt et al., 2016). Every batch goes past one production process stage prior to shifting to the following stage. The sale of builder products has been increasing with time, resulting to regular scheduling of this form of production. As a result standard lots of cabinet component are normally left lying around the plant at different completion stages. This augments the work in process volume, reducing the manufacturing space area. The manufacturing facility is currently filed with partially completed pieces of work. This has limited the production of custom cabinet whose sales still remain strong in the company (Shah & Shin, 2008). Builder production process has also been increasing in cost and consequently, reducing the company’s level of profitability. Increase in incomplete batch lots resulted to holding more capital in finished product, work in process and raw materials inventory. This makes it hard to process new orders and hence giving orders extended waiting time. The high inventory volume has pushed the company into renting more warehouse space which increases the company’s production cost even more (Fullerton et al., 2014).

Basically, the expansion of builder production has highly impacted the manufacturing facility efficiency. More orders from this form of production has highly reduced the production space in the facility making it hard to enhance custom production which is related with higher profit margin that the builder. The need for more space pushes the company into renting more space which increases the builder production cost, reducing the process profit margin even further. The company’s capital is highly held up in batch processing raw material, complete products, and work in progress inventory (Nasrabadi & Mirzazadeh, 2016). This reduces the available money to expand the business, or to create a new facility for custom production. All these changes have highly reduced the work efficiency in production, increasing lead time. Labour efficiency is also going down as more people are required to assist in storage and carrying parts rather than in manufacturing process (Kumar & Suresh, 2008).

The Impact the Move to Produce Builders’ Kitchen May Have in the Company Financial Structure

The company was initially making enough profit which has highly enhanced its expansion and effective attendance to their customers. The aim of the company is to enhance the production efficiency so as to maximize the profit, and it had managed that considerably well until the builder line was introduced. The introduction of the batch processing has highly impacted the company production efficiency and in a way increased the builder production cost. More is held in production process which includes work in progress, finished goods, and raw materials. This means the company will be requiring more working capital than usual. In addition, there is an extra inventory storage cost, which was initiated by need for more storage for batch produced products. The company financial structure may demonstrate increase in revenues, increase in production cost and decrease in the net profit following increase in the volume of sales in builder production and at the same time increase in production cost (Emery & Marques, 2011). The structure may also experience reduction in the custom product revenue, following pilling up of the builder products in the manufacturing facility and thus, reducing operation space for custom product manufacturing. This will also be reduced by lack of enough capital for custom product manufacturing. Custom products are associated with high profit margin. Nevertheless, the expansion of builders processing is reducing their level of production due to increase in lead time. The volume of builder production is considerably high compared to the revenue attained. Custom product has 60% volume with 75% revenue, while builder have 40% volume for only 25% revenue. This means the builder level of income is considerably low compared to custom and their increase may not give the company any financial advantage. Further increase in builder production will definitely reduce total production and hence total sales of custom products. Consequently, the company will experience reduction in custom products revenue, and hence a decline in total net profit (Paiva et al., 2008).

Conclusion

The expansion of Hawkesbury Cabinets Pty Ltd to two production line; custom and builder has highly impacted its general efficiency. Builder production involves batch processing which involve massive stage-based processing. As a result the manufacturing facility has been filled with huge volume of incomplete products reducing its production space. Batch processing has also increased the amount of capital held in the inventory stage, thus reducing chances for expansion and enhancing performance. Huge volume of incomplete batch parts has initiated the need for extra space, which has ended up increasing the cost of production. Inefficiency in the manufacturing facility has highly reduced the company’s profit margin and this may worsen if the operation efficiency is not restored.

Referencing

Chase, R. B., Aquilano, N. J & Jacobs, F. R, 1998. Production and operations management. Irwin/McGraw-Hill.Emery, G. W & Marques, M. A, 2011, “The effect of transaction costs, payment terms and power on the level of raw materials inventories,” Journal of Journal of Operations Management, vol. 29, no. 3, pp. 236-249

Fullerton, R. R., Kennedy, F. A & Widener, S. K, 2014, “Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices,” Journal of Operations Management, vol. 32, no.7-8, pp. 414-428.

Hitt, M. A.,Xu, K & Carnes, C. M, 2016, “Resource based theory in operations management research,” Journal of Operations Management, vol. 41, pp. 77-94.

Kumar, S. A & Suresh, N, 2008, “Production and operations management, 2nd ed,” New Delhi: New Age International (P) Ltd., drafters.

Nasrabadi, M & Mirzazadeh, A, 2016, “The inventory system management under uncertain conditions and time value of money,” International Journal of Supply and Operations Management, vol. 3, no.1, pp.1192-1214.Paiva, E. L., Roth, A. V & Fensterseifer, J. E, 2008, “Organizational knowledge and the manufacturing strategy process: A resource-based view analysis,” Journal of Operations Management, vol. 26, no. 1, pp. 115-132.

Shah, R & Shin, H, 2008, “Relationships among information technology, inventory, and profitability: An investigation of level invariance using sector level data,” Journal of Operations Management, vol. 25, no.4, pp.768-784.