Question1: Why is operations management important in this company ?Operations management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization (Stevenson, W. J., & Hojati, M., 2007). The operations function comprises a significant percentage of the employees and physical assets in most organizations. Operations managers are concerned with each step in providing a product or service.
They determine what should go into an operating system, such as equipment, labor, facilities, materials, energy, and information, to produce the output(Stevenson, William J., and Mehran Hojati., 2007). Operations managers are also responsible for critical activities such as materials management, capacity planning, purchasing, scheduling and quality. The importance of operations management has increased dramatically in recent years.
Significant competition, shorter product and service life cycles, better educated and quality-conscious consumers, and the capabilities of new technology have placed pressures on the operations function to improve productivity while providing a broader array of high-quality products and services.
Concept Design Services was an inward looking manufacturing company which focused on complex and cyclical industrial mouldings. Since 1999, it transformed and upgraded to more profitable household products business. Right now, it is an integrated service provider that works with design houses to provide end-to-end product design, manufacturing and distribution of high-quality design homeware. Jim Thompson explained the differentiation CDS from other competitors is that CDS uses the latest, precision equipment, bought the best quality moulds, and generally positioned as ‘technical professionals with a customer focused service’. Under the management of Linda Fleet, they discovered that one of their major strengths could be turned into a high generator of profitable business. They set up two different brands. ‘Focus’ and ‘Concept’. Focus products are more traditional with stable volumes, while concept products are much more fashion and seasonal with variable sales volumes.
Within two years of introducing their new product lines, concept products began to generate 75 percent of their profits. For dealing with the more and more requirements, 24 large injection-moulding machines and robotic devices are involved in the productive process. However these new products require more complex machinery and longer operating times. With the company’s expansion and increased demand for their products, operations management is important for achieving time efficiency so that to achieve the profit efficiency the most. It is also significant because it enables proper production planning through coordination of activities among the design, manufacturing, sales and distribution departments. The complexity of their production process and delivery services with seasonal volume change demand good operation management if they are to succeed in forecasting and meeting their customer demands on time meanwhile reserve reasonable inventory(Dröge, C., Vickery, S., & Markland, R. E., 1994).
Through proper operations management, out of stock occurrences can be greatly reduced by accurately forecasting sales leading to reduction in delivery costs. Moreover, due to the product life cycle becomes shorter and shorter, developing new products to fulfill the needs of customers and understanding the fashion trend are also needed great operation management. Question 2: How do the 4 V’s (volume, variety, variation, visibility) influence the way CDS operates? Draw a 4 V’s profile for the companies’ goods and services.
Volume: CDS has two main brands ‘Focus’ and ‘Concept’. Concept products take up 75% of their revenue and the bulk of their profits. Concept products are premium-priced whose lift cycle is short from the survey of a lifestyle magazines. The products are low repetition with high unit costs due to the SKU are with large numbers, but the only unit sales volume is not very high. The old fashioned products are usually replaced by a new version in pretty short time. Concept products are less systemization compared with Focus products. Focus products focus on a small handful of customers with large size of each order. Variety: CDS has an excellent new product development process. It usually takes around three months to get a new mould, which then has to be tested. For the help of bonus payment, they have good output and excellent productivity. The products are flexible according to the market condition and customer needs. Concept products and the whole design, manufacture, sales, distribution process is rather complex.
The new product development department receive detailed drawings of the new products from the Design Office managed by Marketing department, which shows CDS pay much attention to match customer needs. For doing the whole things above, the unit cost of CDS product is high. Variation: For Focus products , the vast majority of deliveries are to a small handful of customers. The size of each order is usually very large, with deliveries usually to customers own depots, which means the variation is stable, predictable. While for the more profitable Concept products, they are much more seasonal so that it is difficult to makes capacity planning and scheduling at peak times around November and Easter just after the spring trade fair in London. Take the consideration that concept products hold the bulk of profit, in total, the variation of the products is changing capacity and flexible. They are in touch with demand so that the unit cost of product is very high.
Visibility: CDS pay much attention to understand the needs of customers. They use different kinds of methods to interact with customers, such as magazine survey, face to face interaction, questionnaire, etc. From their research, they find some customers keep their products ‘on display’ in their kitchens as lifestyle statements rather than putting them away in cupboards. And they use this research result in marketing and products design, especially to develop the same product with different color to fulfill the seasonal needs. Since they produce fashion products with high quality, the time lag between production and consumption is very short, otherwise they may fall behind the fashion trend. Their sales and revenue increase very fast reflects that customers satisfy their service including products and distribution. Question 3 What would you recommend to the company if they asked you to advise them in improving their operations? (45 marks) Concept product and Concept office needed to be focused on, while at the same time maintain Focus products sales.
From the chart 1, we can tell the total sales increase dramatically, especially after 2001 concept products are sold in the market. The net profit before tax also goes up in a pretty fast speed. As chart 2 shows, the rate of profit doubled during the year between 2001 and 2006. From chart 3, we can see the trend of Concept products is increasing dramatically, which means CDS needs to be paid much more attention in this series. The company should go deep to research the needs of customers and the fashion trend to develop a series of satisfying products with high rate of profit and reputation score.
However, after a peak in 2001, the focus products sales becomes smooth and steady, the company need to maintain the sales volumes. Due to the stable sales of focus products, company is suggested to forecast the sales and arrange the manufacturing beforehand with satisfactory accuracy. By doing that, the rate of profit of focus products may have certain increase by reducing the cost of inventory and overhead (Xiao, Y., Li, G., & Zhang, J., 2011). Inventory management needs to be strengthened.
From the chart above, we can conclude that with the dramatically development of the products, the inventory increases as the sales goes up even much sharper than sales. The company should take care of the inventory management seriously. They have to take some methods to reduce inventory. On the one hand , it can reduce a lot money , on the other hand, for fashion and short life cycle products the longer time they keep in the warehouse, the less value they have. Sales channels are not only limited to the offline, but also online sales channels needed to be adopted. With the development of internet, Internet has become the fastest way and the most effective method to understand customers. Customer can upload their feedback of products immediately, and the company can use these material to arrange the following design plan. Online sales channel is good for inventory management, which meets the finding of the second suggestions.
More oversea cooperation with local company brings their culture into design. Different country has different culture and different understanding of beauty and fashion. CDS is advised to cooperate with local company from oversea to enter the market with the products needed by the customers at local. The local company may better at understanding the needs of local customers. CDS can take in the efforts of local company and design the product in accordance with the market demand(Robb, D. J., Xie, B., & Arthanari, T., 2008). Adopt computer-assisted software for improve the whole process. Computer software such as ERP can effectively improve the company efficiency.
A company can use to store and manage data from every stage of business, including: Product planning, cost and development, Manufacturing, Marketing and sales, Inventory management, Shipping and payment. Measurements, analysis and simulation capabilities can help companies plan better and react sooner and more effectively to changes in demand, competitive actions, and supply chain disruptions. Balance between customers’ needs and operation costs.
As a company, the main task is getting profit. The idea of being customer centric does not means that customer must be provided with everything they want. Company must have to strike balance between what customer would like and what operation can afford.
Stevenson, W. J., & Hojati, M. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin. Xiao, Y., Li, G., & Zhang, J. (2011). Passive data storage based housewares store management system. In Web Information Systems and Mining (pp. 51-56). Springer Berlin Heidelberg.Stevenson, W. J., & Hojati, M. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin. Dröge, C., Vickery, S., & Markland, R. E. (1994). Sources and outcomes of competitive advantage: an exploratory study in the furniture industry. Decision Sciences, 25(5‐6), 669-689. Robb, D. J., Xie, B., & Arthanari, T. (2008). Supply chain and operations practice and performance in Chinese furniture manufacturing. International journal of production economics, 112(2), 683-699.
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