Thisreport will discuss the pros and cons of: capacity utilisation, productionsmethods and managing change (stock control and quality).
Theaim of this report is to explain and provide recommendations for methods, thatwould most benefit the company.Thisreport includes a graph and a table from the previous year, which shows how thecompany is currently producing products. Therefore, enabling clarity toevaluate where improvements need to be made. Thisreport includes descriptions of the most beneficial methods for businesses, toclarify judgement, followed by comparisons to other useful methods. Finally,the most efficient methods are recommended.
2.Results/ findings 2.1Sales/Production figures Stocks at start (thousands) Monthly sales (thousands) Production level (thousands) Stocks at end (thousands) Jan 40 55 90 75 Feb 75 60 65 80 Mar 80 95 90 75 Apr 75 140 90 25 May 25 110 90 5 Jun 5 80 90 15 Jul 15 70 90 35 Aug 35 65 90 60 Sep 60 75 60 45 Oct 45 80 75 40 Nov 40 60 60 40 Dec 40 45 45 40 2.2Identifying under-utilisation and where stocks are building upSeethe graph attached 3.Capacity utilisationCapacityutilisation is a measure of the degree to which an organisation is using itsmaximum possible capacity is usually shown as percentages.
At supermarket checkouts, queues buildcreating the shop to have them be over 100% capacity utilisation, which can addstress and an unneeded extra workload for the employee. It will create theemployee to rush, giving a bad impression to the customers. Whereas at some supermarketcheckouts, you can have employees sitting idly with no work to do. Creatingthem to be working under 100% capacity utilisation. Companies try to combathaving a low capacity utilisation, for example B&Q operate a ‘over 60s’discounts’ on Wednesdays, as it is classed as a quieter period and to hopefullyincrease their capacity utilisation. Another example, cinemas offer discounts Mondaysas they are their quietest period, which they’d hope to increase their capacityutilisation. It isn’t possible, or wanted, to keep all resources fullyemployed.
Majority of companies aim to function at just under full capacity, suchas 90%. It is important to run a business at around 90%, as it is a measurementof efficiency and all organisation will want to be as efficient as possible.The more output a company makes, the average production cost fall, therefore ahigher utilisation makes the business more competitive.Thereis a capacity utilisation issue with MowRite, as they can’t always keep theirproduction level at 90,000 because they do not have the storage (80,000)/demandto hold the stock. As the demand increased for MowRite they clearly couldn’tproduce enough stock to keep to their minimum (buffer) stock level at 40,000units. This is shown in the table from the stock at the end of the April-July,as the stock was below their 40,000 thresholds.
Capacity utilisation is substantial,as it is used as a measure of productive efficiency, also the averageproduction costs tend to fall as the output rises, thus higher capacityutilisation can reduce the unit costs, making a company more competitive andmore efficient. Therefore, organisations usually aim to produce as close thefull capacity (100% utilisation) as possible. 4.Production methodsJobproduction is normally completed by a single worker or a group of workers, thejob can vary from complex and high technology to small scale and lowtechnology. An example of low technology jobs are hairdressing and tailoring,where the production is very simple, requiring low skill and easy obtainableequipment. This method allows customers specific requirements to be included,normally as the job progresses. Whereas high technology jobs include a lot morecomplexity, which means there is a greater management challenge. The businessshould always keep a clear definition of objectives.
Decision-makingprocess is essential, like how are decisions taking about the needs of eachprocess in the job, labour and other resources. Examples of high technology /complex jobs: film production; large construction projects. As a business grows and production volumesincrease, it is not unusual to see the production process organised so thatbatch production can be used.
Using batch production obliges the work for anytask to be divided into sections or operations. Each section is finishedthrough the whole batch before the next section can be performed. It ispossible to achieve specialisation of labour, by using batch method. Careful planningis needed to ensure that production equipment is not left idle, but the capitalexpenditure can also be kept lower. The main aims for batch production are toconcentrate skills (specialisation), plus to achieve high equipmentutilisation.
The batch method is probably the most commonly used method of fororganising manufacture. An example for batch method is the production ofelectronic instruments. Batch production does have faults though, having tofinish an operation on all the products, before moving onto the next section,means that there can be a high build-up of significant stock.Flowmethods are very analogous to batch methods, apart from the issue of in batchproduction where the batch is resting awaiting to be used for the following stage.The objectives of flow production are:• Improved work andmaterial flow• Reduced need forlabour skills• Added value / completedwork fasterFlowmethods are efficient as when work on a task at a specific stage is completed,it is required to be moved onto the next stage in the process without waitingfor the remaining batch of products as you do in batch method.Forflow production to work, there need to be a consistent demand for the product asif the demand is random, it can lead to an excess amount of stock, thereforehaving to buy storage is an unwanted business expense. Flow is very uncompromising,it cannot deal very well with differences to the product Ifthe raw materials for the product isn’t delivered on time, it may cause thewhole production to an end, with a likelihood of a serious cost consequence.
MowRite uses flow production, as it makes sucha vast amount of lawn mowers i.e. 90,000Units possible per month. The use any otherproduction method wouldn’t make sense forMowRite as it wouldn’t be able to keep up withthe demand that MowRite has. Whichwould foresee a bad reputation.5. Managing change – Stock control and qualityStock control usually takes place at leastonce a year, but varies with different company policies.
Stock taking, is usedto check the amount and the value of the stock possessed. Also, it adds asecurity check, to check for a theft and to monitor if the business has theright amount of stock for production. This process can be done manually, butmost shops have computerised stock records.
Having low stock levels can have many implications,running out of stock can be an issue, as there could be a sudden increase indemand and the business may not have the stock to accompany for the demand. Nothaving a lot of stock can implicate a organisations reputation, as consumers willfind start to find them unreliable, questioning the companies trustworthiness. Whereasholding a high amount of stock can have its implications as well, storage tohold all the materials and adds a more likelihood chance of spoilage/waste ofthe products. Holding high levels of stock may make the good become obsolete,therefore the company have wasted money on products that won’t get used. Havingsuch a vast amount of products in storage makes all your money tied up in stock,which holds the company back to make any investments. There are many things to take into considerationthat will influence the decision for holding stock, such as:• Storage costs• Type of products, as you wouldn’t want tostore cold or perishable items in a warm enclosed area • Economies of scale• Level of demand • Suppliers reliability • Opportunity cost • Level of competition Thereare two types of stock rotation: FIFO (First in first out) and LIFO (Last infirst out).
FIFO means that the stockthat has been delivered first are first to be sold, which is highly recommendedfor perishable items and products that are likely to become out of date. Forexample, such as meat, vegetables,dairy products and even prescription drugs. LIFO means that the latest stock isused rather than earlier stocks, these technique is used if stocks are bulkyand/or difficult to handle. It’s not suitable to use this for perishables as itwould cause a lot of stock to go off or/and out of date.
A problem for this isthat old stock will be stored for extended periods of time, maybe even getforgotten about, therefore wasting money on stock not being used. Just in time was developed in the 1950s inJapan. A form of ‘pull’ system. An organisation only produces, and thereforeorders, what is required at the required time. So, all stocks are kept to aminimum, it requires efficient and effective scheduling, plus it is usuallymanaged by a computerised system, also ensures supplies are delivered only whenrequired. Advantagesof just in time is that your cash is not tied up in stock, so it can be used tocover other business expenses. It reduces storage costs, because stock is onlyordered when needed, and used straight away when it is delivered, also makingit very unlikely for stock to become obsolete.
Also, it reduces waste because onlythe required quantity is ordered. Disadvantagesof using just-in-time is that it’s extremely dependant on having reliablesuppliers, because if an order due is in for a certain date and the supplier islate with the delivery, then production may be delayed, which may ruin thereputation. If there is a sudden change in your demand it will be difficultrespond. A significant disadvantage of using just in time is that losing theopportunity of getting bulk buying discounts.TheKanban system is used as part of the just-in-time process.
It ensures onlymaterials/resources needed for a particular stage are authorised for movement.Therefore, avoiding a build-up of unnecessary stocks. A Japanese method meaning’signboards’ or ‘cards’. It is used to move materials through the differentstages of production. The ‘kanban’ can be in various forms e.g. a physicalcard; a plastic marker.Someadvantages of using IT are, the range of new products, for example, touchscreencomputers to routine updates on computer software.
It can significantly increaseproductivity, as any mistakes that are made are more easily corrected when on acomputer, but if you have all paper work then once you’ve sent it off it can bea hassle to make any adjustments, whereas if it’s on a computer, adjustment canquickly be made. Also, using IT can create a lot less waste as there would beno paper waste as every would be done electronically. It can massively improvecommunication as employees can email and fax things with computers. Having workon computers can make your working conditions a lot more flexible, as you wouldonly need a small laptop to complete your work.
Somedisadvantages of using IT include, the stress that employees may experience ifthey are not computer friendly, which could create a bit of a hostileenvironment. It may reduce jobs, fewer people are needed. If there are anyissues with IT equipment its reliant on specialists, which could cost a lot andmay even interrupt your normal routines, as equipment may not be available. Thesoftware on computers are updated very regularly, which could put the personusing the computer under pressure making them feel like they must do thingswhich they don’t know enough about, so training would be needed to keep allstaff up to date with the software and confident enough to do their job.
Thecosts of IT equipment are not cheap, so, an initial amount of money will beneeded to invest in equipment. Lastly, employees may feel like the traditionalcrafts/skills are lost as it is all controlled by computers. Thebenefits of innovative technology cannot be denied, and businesses cannotignore the change, otherwise they will be slacking behind every other businessthat are embracing technology and making their company more streamlined. Introducingnew systems may be problematic but can be successful provided those applyingthem are enthusiastic and confident. Technology is only another ‘set of tools’relying on good understanding of customer and staff needs and wants; internalauditing and knowledge of the external environment. So good management of it isno different to good management generally.Quality control involves testing ofunits and determining if they are within the specifications for the finalproduct. The purpose of the testing is to determine any needs for correctiveactions in the manufacturing process.
Excellent quality control helps companiesmeet consumer demands for better products.Quality testinginvolves each step of the manufacturing process. Employees often begin with thetesting of raw materials, pull samples fromalong the manufacturing line and test the finished product. Testing at thevarious stages of manufacturing helps identify where a production problem isoccurring and the remedial steps it requires to prevent it in the future. Aquality product or service is one which is fit for its intended purpose, and isproduced at an acceptable cost. An organisation will need to consider the costof failing to meet quality requirements. Quality management initiatives enablean organisation to focus on both customer and employee satisfaction.
However,this may be at a cost in financial terms and in meeting requirements ofshareholders. 6. Conclusion Fromthe table and graph provided, lawn mowers sell a considerable amount morebetween March and June.
To counter the issues of not being able to keep thebuffer stock based on the operations managers suggestions. This report wouldadvise to make more lawn mowers a few months before and keep them in storageand it can then be more consistent with production, making it more consistent,which may make the employees more comfortable than having to rush at certaintimes throughout the year. Flow production is the most suitable way ofproduction for MowRite as make a lot of lawn mowers and on such a consistentbasis, therefore keeping things the same is most beneficial.This report would advise FIFO to be adapted atMowRite, as it would reduce the waste made, making sure that all the stockbeing bought is being used and not going to waste, making the money go further.MowRite using just in time is very constructive, as stock ordering can bepredicted can tell how much stock you would need. This will release cash wouldbe able to invest in other ventures.
So, making investments in other areas likemarketing or advertising could be easily made.