OPERATIONS MANAGEMENT: A Case Study of CLASSICS CABINETS Pty Ltd MGMT20085 Operational Analysis and Effectiveness

Bob Green Assessment item 1 Due Date: 1:00 AEST, Thursday, Week 7 Weighting: 50%

Marissa Adraincem Student Number: S0189609

OPERATIONS MANAGEMENT: A CASE STUDY OF CLASSICS CABINETS

PTY LTD

Local or domestic manufacturing businesses, however large or small, are always under pressures of local competition and the need of additional capital for sustainable growth. There is an incremental change of the development of its production system overtime for the reasons either financial or operational. This change gives rise to the evolution of a hybrid transformation system which is a combination of one or more production systems. This situation in the business environment changed the manufacturing industry significantly. The company that has been chosen for this case study is Classics Cabinets Pty Ltd. This company originally designs and produces customised kitchen cabinets. The company was founded by Chinh Chu and Anh Chu in Springvale, Melbourne in 2001. As the company grew their clients became more diverse and they began accepting low volume contracts to supply builders with high quality standardised kitchen cabinets. As the company accepting more orders for customised and standardised cabinets its production system also changed and consequently encountered production problems. These operational problems in return affect the overall organisational financial performance. At first, Classics Cabinets Pty Ltd manufactured mainly custom-made kitchens designed purposely for the customers requirement. In this case, the production system was basically make-to-order. In this system, a cabinet was manufactured set by usually by just one

customer and was delivered to the customer upon completion of the product. In general, the business was producing unique products in low volumes. Every item was different therefore the products cannot be stocked (Meredith & Shafer 2010). At this point in time, the business was clearly customer service oriented since it produced highly customised cabinets in which it was aimed to manufacture products on time and efficiently. In the make-to-order workplace, a higher level of uncertainty, variability and variety was visibly present in effect made the production systems and processes relatively difficult compared to other systems (MartinezOlvera 2009). Manufacturing companies that is associated with outputs that are make-toorder, belong to the type of intermittent production systems. Intermittent production systems are designed to manufacture in small batches. Since the business does not stock completed products inventory, the advantage of this system is resources are not wasted in finished goods

that are sleeping in the warehouse. When the customer order is taken, design and production will commence and the time needed for completion is high. Generally, make-to-order items belong in this group and the time element is a great disadvantage. Every output is unique and not identical by nature or in terms of design for cabinets. As a consequence, there is also the variability of manufacturing and technological requirement and other constraints as a result will put this system to its disadvantage. Overall, because of the higher level of

unpredictability and uncertainty with regards to customer orders will make the production control and planning very difficult. Typically this type of production system is money intensive since long lead time is required taken into consideration the unpredictability of the customers specifications and requirements. All these situations made this type of production system difficult and a disadvantage compared to other systems (Babu 1999). In the case of Classics Cabinets Pty Ltd, the production system at this point was customer driven in which customer orders are the primary concern. The business called for the production of the items upon the receipt of the end user orders in order to meet the specific needs of the customers in return giving highly customised products. To offer customers a reliable service and on time delivery date, this production system required a detailed and realistic production planning and control (Yeh 2000). As with any other successful businesses, the sales of Classics Cabinets Pty Ltd increased and resulted in the opportunity to accept several low volume contracts from builders for standardised kitchen cabinets. This in effect had changed its original production system as a make-to-order cabinet manufacturing business.The decision to take these contracts required Classics Cabinets Pty Ltd to produce a limited range of standardised kitchen cabinets in small batches. To manufacture these standardised cabinets, the production system that Classics Cabinets Pty Ltd adapted is what is called job shop. In this type of production system, the product is processed in small batches and sometimes manufactured differently, consequently the flow of the job through the production system usually is intermittent same with make-toorder system. In this case, the batches are considered too small since it ranged from a single to five or more kitchen cabinets. Furthermore, each operation took a different direction or operations and required different materials and takes unpredictable time to finish each batches. Clearly, this put the system to its disadvantage and will put the management of Classics Cabinet Pty Ltd the difficulty to manage its operation efficiently (Meredith & Shafer 2010). It is illustrated in the part of the production system of this business as a job shop that it machine limited and labour limited considering that it has a relatively short cycle
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manufacturing time. Although this type of system is characterised by a layout of equipment based on its function and will call for a high flexibility of manufacturing equipment to accommodate the small unique batches of kitchen cabinets (Babu 1999). A job shop workplace is generally difficult and complicated from an outsiders point of view because the business will cater to meet requirements for a wide range of standardised products which in this case is the delivery time requirement and cost sensitive cabinets for the builders (Newman &Maffei 1999). On the whole, the Classics Cabinet Pty Ltd since was using make-to-order and job shop production systems in the transformation of outputs for customised and standardised cabinets, it can be considered as a hybrid shop. Hybrid shops combine two or more forms in the transformation of outputs (Meredith & Shafer 2010). As Classics Cabinets operates as a single entity, the production layout of different types of equipment is grouped together. Assembly lines are located strategically in the production area. Overall this system reflects a hybrid manufacturing workplace environment. In this work environment, tactical and logistic considerations as well as cabinet design are involved in the factory layout. Operational issues of job schedules and sequences are considered in a hybrid shop. As Classics Cabinets grew, mainly for operational reasons the development of a hybrid manufacturing system gave rise (Huq&Huq 1995).The production line of Classics Cabinets which can be considered as a oneof-a-kind company can be generally considered as a hybrid shop. In a hybrid shop, almost all jobs are different because of the customisation of the cabinets and the smallness of each batch of the standardised cabinets. Accordingly, the production equipment and employees in a work group is not definite and should be flexible in order to have higher production efficiency (Luo et al. 2010). Numerous production problems were encountered upon the introduction of the new builders kitchen on Classics Cabinets operations. Although, the new builders cabinet are

standardised, these are manufactured in a relatively smaller batches sometimes even just a single kitchen. It is also evident, the effect to the production system the client builders imposition of more strict delivery time requirements not mentioning that builders are very price conscious. As the sales of the builders kitchen increases there is consequently and increase of job schedules and volume of work in process. Job shop scheduling is considered as the most difficult or complicated in production problems compared to other manufacturing environment (Zandieh&Ghomi 2009). In this case, the production of the builders kitchen as

a job shop and the make-to-order customised kitchen contributed to a more difficult job scheduling. As a result, a determined job schedule will become inefficient and will lead to a production problem that will require a great deal of work to spend in the development of other methods to come up with an efficient production schedules (Gomes, BarbosaPovoa&Novais 2010). Scheduling problems came up in job shop floor that will involve job assignment decisions, staffing decisions and production sequencing like in this case. Machine scheduling is one the most difficult problems that is presented in the increasing production of the builders kitchen. Assuming that specific equipment cannot process more than one kind of cabinets at same time, a classical hybrid job shop problem is presented in this case (Aytug, Khouja&Vergara 2003). The addition of the builders kitchen to the production created a competition for the processing time with the customized cabinets on the same equipment. This is a classic hybrid shop problem. The production problem can be illustrated in the processing of each job by one only one equipment at every work station doing works for both the standardised and customised cabinets at the same time. Moreover, the processing of this type of jobs at each work station will change rapidly and considerably from one builder clients order to another (Luo et al. 2010). Subsequently, the new builders kitchen line lead to an increase in volume of work in process that resulted into a factory space congestion with partially finished products. This situation creates a production bottleneck due to the fact that there is a shifting of workload from the existence of the builders kitchen operation to the customised cabinet operation without pattern. Classics Cabinets is having the difficulty in predicting the workload clogged up because of the nature of the different clients orders which are very variable and flexible (Salegna& Park 1994). Since there is an increasing and diverse demand of standardised cabinets, it is appropriate to adapt the hybrid shop transformation system. A large warehousing or storage facility is required is required and the demands of the standardised cabinets is relatively low but higher inventory cost to carry. Moreover, the additional workload automatically created a slower production output because the manufacturing capacity was distributed to the increase in work volume (Sarker& Pan 2001).
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The coordination and integration decisions of production, inventory and distribution functions are among the daily operational decisions that Chinh Chu will take into consideration to achieve an effective operation management strategy in order to minimise total costs and maximise production efficiency. Chinh Chu should address the production problem in coordinating a system wherein a facility production like in Classic Cabinets manufactures different products that are distributed to a varied set of clients. Chinh Chu decisions should aim in minimising the total production to prevent bottle neck problems and also minimising inventory costs (Shiguemoto&Armentano 2009). The primary production problem in this case is the hybrid job shop scheduling in the production of the two different cabinets. Chinh Chu should make decision that will develop a production of several different designs of cabinets on a single machine in a work station. As this problem is commonly found in any small shop manufacturing, it is mainly a concern in job scheduling decisions (Brander &Segerstedt 2009). On the other hand, Chinh Chu should also make decisions in the daily production planning. Although, there will be a master production plan which illustrates what Classics Cabinets will expects to produce, a series of daily production planning decisions that Chinh Chu has to make. This will reflect the material, time and other resource requirements. The daily decisions will take into consideration the builders and customised kitchen demands, pending customers orders, raw material availability, inventory levels, production capacity and other objectives. Generally speaking, production businesses are geared to maximise customer satisfaction level and resource optimisation and minimise inventory levels. Chinh Chu will make decisions that will ideally operate Classics Cabinet on a point next to the production capacity on a daily basis and an inventory level next to none or zero and maintaining a customer satisfaction at its highest level. Chinh Chu should have a daily production plan with operational decisions that will operate Classics Cabinets in a consistent production rate or pace, developing the minimum inventory level and take into consideration the ever changing production pace due to the nature of the companys production system. Despite having some level of inventory is acceptable to meet builders and other customers satisfaction, nevertheless this will increase costs. This is one of the day-to-day operational issues that Chinh Chu will consider. Furthermore, to complicate the operational issues, Classics Cabinets production is basically a multi-task process that involves varied operations which is distributed to the whole operation (Vieira &Ribas 2008).

Daily production plan, schedule and control should be done by Chinh Chu to monitor production activities and will allow Chinh Chu to manage a bigger part of Classics Cabinets operations and also to diminish uncertainty. Its production planning and control should aim at reduction of clogging up the production line. One operational decision is to hold back selected cabinets and not to process them to the production line. This will reduce work-inprogress volume and process time in the system with a minimum effect on the overall output and delivery performance. Different kinds of job sequencing heuristics or just plain job prioritising were established operational move to reduce processing time and work-inprogress inventory. Although, delivery time will be greatly affected but still the advantages of this approaches can be taken into consideration (Newman &Maffei 1999). Obviously in this case that the well-designed cabinets as its products is the main criteria for Classics Cabinets distinct competitive advantage, manufacturers are now offering other service products to accommodate the sale of their items. Chinh Chu needs to decide the configuration of the companys operations strategy to support and maintain effective production. On the other hand, the several low volume contracts from builder clients

provides a long-term steady revenue, however, such situation can have benefits if the production and operation strategies are effectively and properly applied on a daily basis. Chinh Chu needs a deeper understanding on the day-to-day operational strategies to successfully deliver the combined production of standardised and customised cabinets (Datta & Roy 2011). In the development of the operations strategy, several factors can be considered as influences in its generation. In this case, because Classics Cabinets operates by producing standardised and customised cabinets simultaneously, it created a complicated demand to its production system. Customisation of cabinets reflects the trends in modern consumer age that reflected a society in search of individualism and the breaking up of conventional social classes. Products are not anymore with values but reflect images, status and statement of differences. It is very clear, in this case that operation strategies will illustrate the end users demand and production concerns. In order for Chinh Chu to best organise its processes, one should analyse the key resources and skills. Based on the resource analysis, Chinh Chu will make his operations strategic choice by focusing on the importance of resources in the development of his operations strategy. The fundamental nature of this position it is importance on the

Classics Cabinets resources, capacity, capability and competency instead of a market driven operations strategy that is very common with others (Lowson 2002). This is also asserted by another article that operational effectiveness should be based on the companys capability in its operators and processes. It is crucial for Chinh Chu to configure and manage the operation to support overall Classics Cabinets business strategies. In a small business like Classics Cabinets usually will implement operations management theories that include total quality management (TQM), just-in-time (JIT) and theory of constraints (TOC). Total quality management (TQM) stresses producing the right outputs the first time while just-in-time (JIT) stresses lean manufacturing. Moreover, in the theory of constraints (TOC), this will assist small business like Classics Cabinet to focus on production system constraints. It indentifies that the production system constraints limit the performance of the whole system and will learn to manage these said constraints. Accordingly, this theory argues that in a small business like Classics Cabinet, it should not customer requirements or quality of output and workplace become the constraints in a successful operational strategy (Kohli & Gupta 2010). Lean manufacturing has helped in different industries specifically in cabinet production industry to achieve operational and production success. This is achieved by the increase of output and developing higher quality subsequently decreasing costs and waste. In lean manufacturing, there are fewer requirements of capital, labour, machines, production time and work space (Pirraglia, Saloni & van Dyk 2009). On the other hand, in the furniture industry, it is generally recognised to adopt the Lean Production system in order to compete in the highly competitive furniture manufacturing world. In this system, it basically uses less of everything compared to the job shop or hybrid job shop transformation system. This means less labour, less work space, less capital for equipment and also less time for the designing of the furniture output. Chinh Chu should consider this kind of system since this will lessen the work-in-progress inventory on hand to address the Classics Cabinets production problem of higher level of work-in-progress inventory due to the additional workload for the builders kitchen. In this type of

manufacturing system which will fit Classics Cabinet due to the fact that there are less rejects in the mean time manufacturing a wide range of different products. Each level in this system, the process is activated by the requirement of material at the nest level. In this regard, a stage makes a pull system for production and control. In the current production system of
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Classics Cabinets, typical of a usual job shop system adopted push production control wherein operations was activated by the presence of labour and material. The advantage in this kind of system is its flexibility and its design to manufacture high quality output, just-ontime at a very low cost (Hunter, Bullard & Steele 2004). The move to manufacture builders kitchen in Classics Cabinets change the production system from plain make-to-order to hybrid job shop. This created production problems that affect the overall companys financial structure. Although the size of the company has grown overtime and sales figure shows an increase in both the customised and standardized kitchens. On the contrary Classics Cabinets revenue is way below what is expected. Several production problems can be attributed in this phenomenon. Although sales in the builders kitchen cabinet are going up, consequently the cost of manufacturing the increase went to higher level that will affect overall profits in operating this line. Furthermore, performance evaluation of a hybrid transformation of output is complicated by nature. It is very evident that rise costs of manufacturing the builders kitchen contributed to the stagnation of the companys revenue. Cost and profit related operational objectives should be taken into consideration from the economic points of view (Venkatesh & Dabade 2008). On the other hand, the capital that is tied up in the raw materials inventory, increased also in inventory for work-in-progress as well as finished products contributes to the overall revenue. This situation was the result in the production of the standardised builders kitchen. It is generally accepted that the performance of a hybrid job-shop is usually assessed in terms of the level of work-in-progress (WIP) inventory and its on-time performance level. These issues of production in a hybrid job shop such as in Classics Cabinets affect the revenue performance of the company (Hug & Hug 1995). There is an influence of any of the operational issues of the companys performance. The conception of a business strategy like in the case of Classics Cabinets in accepting the contracts of the builders kitchen influences its companys operational strategy which in turn affects the companys profit performance. Although, Classics Cabinets has taken into

account to make trade-offs by setting priority customised kitchen since it has larger profit margin, it was still pushing manufacturing capacity to the limit. Basing on this argument, in order to benefits the opportunities of the companys business strategy it should be implemented with appropriate operations strategy which in this case it did not harvest any benefits in terms of profits (Oltra & Flor 2010).
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Despite that the move to produce the builders kitchen in Classics Cabinets was at first viewed in achieving the companys business and organisational goals. The most common companys goal of course is profit. Whereas this action, increases volume of inventory which in return pushes the company to spend for additional warehouse space rental. It is very clear, that this strategic move made an impact on the outcomes of the organisation (Ahmed & Montagno 1996). In todays highly competitive market even locally, manufacturers are under pressure to improve their operations management to sustain its organisational growth performance and competitive advantage. Well-designed products like in the case of Classics Cabinets are not only the criteria to achieve organisational goals such as profits. Effective operational strategy in conjunction with its business strategy can be viewed as one way in obtaining these goals. Manufacturing businesses like in the case of Classics Cabinets along the way will always face challenges. Unfortunately, some of these production problems that usually exist for

manufacturers cannot be easily solved but there are still several choices in improving processes. There is still an implication that it is important to develop an effective operational strategy that will result to a positive organisational performance.

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