MAN1033 Management | Operating Decision Faced by Chad Thomas

Chad’s Creative Concepts (Krajewski & Ritzman, 2002: 23)

Chad’s Creative Concepts designs and manufactures wood furniture. Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kell’s Island and Bass Island. Being an ‘outdoors’ type of person himself, Chad Thomas originally wanted to bring ‘a bit of the outdoors’ inside. Chad’s creative concepts developed a solid reputation for its creative designs and high quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with its growth came additional opportunities.

Traditionally, the company had focused entirely on custom-made pieces of furniture, with the customer specifying the kind of wood from which the piece would be made. As the company’s reputation grew and sales increased, the sales force began selling some of the more popular types of furniture pieces to retail furniture outlets. This move into retail outlets led Chad’s Creative Concepts into the production of a more standard line of furniture. Buyers of this line were much more price sensitive and imposed more stringent delivery requirements than did clients for the custom line. The custom-designed furniture continued to dominate the company’s sales, accounting for 60% of the volume and 75% of dollar sales. Currently, the company operates a single manufacturing facility in Sandusky, where both custom and standard furniture pieces are manufactured. The equipment is mainly general purpose in nature in order to provide the flexibility needed for producing custom pieces of furniture. The layout groups saws together in one section of the facility, lathes in another, and so on. The quality of the finished product reflects the quality of the wood chosen and the craftsmanship of the individual workers. Both the custom and the standard furniture pieces compete for processing time on the same equipment by the same craftspeople.

During the past few months, sales of the standard line steadily increased, leading to more regular scheduling of this line. However, when scheduling trade-offs had to be made, the custom furniture was always given priority because of its higher sales and profit margins. Thus, schedule lots of standards furniture pieces were left sitting around the plant in various stages of completion.

As he reviews the progress of Creative Concepts, Thomas is pleased to note that the company has grown. Sales of custom furniture remain strong, and sales of standard pieces are steadily increasing. However, finance and accounting have indicated that profits aren’t what they should be. Costs associated with the standard furniture line are rising. Dollars are being tied up in inventory, both of raw materials and work in process. Expensive public warehouse space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed and no space is left in the plant for expansion. Thomas decides that the time has come to take a careful look at the overall impact this new standard furniture line is having on his operations.

Answer the following questions.

What kind of operating decisions are facing Chad Thomas’ business today?

What might Thomas have done differently to avoid some of the problems he now faces?

Answer:

1.Operating decisions can be defined as the decisions which are made for the purpose of managing the day to day operations of the business. Ten critical decisions are required to made in operations management namely quality management, service and product design, location, process and capacity design, supply chain management, human resources and job design, inventory management, scheduling, layout design and maintenance decision (Choi, Cheng and Zhao, 2016). Taking into consideration Chad’s Creative Concept case study, Chad is required to make decisions regarding the operational flow of the business in order to ensure that there is no stoppage at any stage in the manufacturing process. The situation which is currently being faced by Chad is between manufacturing and turnover. The case study also clarifies that there is no problem in the performance of the current staff. The focus of the business should be on scheduling, inventory and maintenance for the purpose of making right decisions in this regard (Ancarani, Di Mauro and D’Urso, 2016). Also, the case study provides that the raw materials related to the manufacturing of standard line are in work in progress. This, in turn, leads to slow progress of the business causing inability to make good turnover. A critical situation can come across the business due to its non- favorable and non- promising financial status. Therefore, there is a need to make decisions regarding scheduling for the purpose of reducing the number of raw materials under the category work in progress. This problem can be avoided by way of proper scheduling of the standard line manufacturing (Haksever and Render, 2018).

Another problem specified by the case study the costs associated with the standard product warehouse is increasing at a rapid pace which is creating difficulties for Chad Thomas. This problem can be resolved by making effective decisions regarding inventory and supply chain (Burns and Dewhurst,2016). The inventory should be reduced by Chad and this can be controlled with the help of reducing replenishment lead times, centralizing the inventory and making the use of PARETO chart for analyzing the sales vs inventory. The supply chain designed for the products of this business should be good and it should be implemented as soon as possible in order to deal with this problem. Another decision which is important for Chad’s business is regarding maintenance. The problem faced by Chad in terms of insufficient capacity and finance. There is no problem with regard to the nature of the business s growth is visible for both custom and standard line. However, both the manufacturing line should be maintained on equal basis without dropping any of them. This is due to the fact that there is no reduction in the demands of these manufacturing lines rather the demand is increasing. In case, if any of the manufacturing line is closed by Chad, he will probably lose a number of opportunities for the growth of the business. Both the manufacturing line can be systematically maintained with the help of an effective maintenance decision without any waste or loss from both the lines. The manufacturing capacity can be aimed to be improved for meeting the increased demand. Good planning is necessary regarding all the process of production. The basic aim of strategic capacity planning is to meet demand by production capabilities at the optimal level.  With the help of the above suggested decisions, the operations of the business can be carried out in a smooth manner. Moreover, it will further enhance the future of the business and will offer good profits and return on investments.

2.The problems faced by Chad Thomas are in terms of slow manufacturing process and finance. For the purpose of resolving the finance related problem, Thomas can go for relocation of the warehouses. The case provides the fact that the costs for standard furniture line are increasing and the public warehouse space is also very expensive. Therefore, Chad is required to adopt cost effective operations by relocating their warehouses to the locations which are cheapest. Delays in the process of manufacturing leads to the problem of low finance as the raw materials still remain under work in progress. The problem of finance can be resolved by way of cutting down the warehouse costs or by reducing the time taken by raw materials under work in progress (Sankar, Kannan and Muthukumaravel, 2014). Decrease in work in progress along with systematic operating can be ensured by the implementation of new scheduling by Chad. The custom furniture is given greater priority as compared to standard line which, in turn, results in stoppage of the raw materials for standard line in the progress of manufacturing. The analysis for the priority should be made again and the custom and standard manufacturing should be given equal priority. This will lead to non- stoppage of the standard raw materials in work in progress. Both products will follow the promising cycle of first in – first out which suggests that the product on which manufacturing is started first will be finished first.  The standard manufacturing will not be put on hold and will continue at the same time.

Delayed manufacturing line is another problem faced by the firm which also appears as a disadvantage and can also result in losses in the future. Delayed work leads to the blockage of money as the sales are not made (Smith, Maull and CL Ng, 2014). Chad can attempt to overcome this situation by making decisions regarding business capacity enlargement by enabling more facilities. Just in Time (JIT) production can also be adopted so that the production can be made by the business in the client’s desired quantities. The production will be balanced by JIT as the manufacturing process will be evenly spread throughout a specific time period for cultivating seamless flow between the diverse processes involved (Filippini and Forza, 2016). When the work in progress levels of Chad’s business will be reduced in a controlled and synchronized manner, the business will be free from the problem of blockage of money. Problem scan be identified on timely basis and therefore can be resolved before it affects the business. The demands of the business undertaken by Chad are in its increasing phase which, in turn, has the capability of providing a better future to the business (Masudin,  Kamara, Zulfikarijah and Dewi, 2018). Chad should aim at increasing the staff employed for performing the operations of the business such that the orders can be completed on timely basis. Since the finance level of the business is not good, recruiting greater number of employees can create a number of difficulties. If this is not possible for Chad, an alternative can be adopted by encouraging the existing workers to perform overtime work in order to maintain smoothness in the operations of the business. This will require the investment of only a smaller amount as compared to the investment required for recruiting new staff for the business (Walker, Chicksand, Radnor and Watson, 2015). By providing an option to work overtime, the existing workers can assist the business in manufacturing more furniture. Task arrangement and good scheduling, which is a part of operation management, can also be ensured with the help of such an option (Storey, 2016). By way of considering the above mentioned points, problems can be avoided by Chad Thomas and can be easily preventing from occurring in the future.        

References

Ancarani, A., Di Mauro, C. and D’Urso, D., 2016. Measuring overconfidence in inventory management decisions. Journal of Purchasing and Supply Management, 22(3), pp.171-180.        

Burns, P. and Dewhurst, J. 2016. Small business and entrepreneurship. Macmillan International Higher Education.

Choi, T.M., Cheng, T.C.E. and Zhao, X., 2016. Multi?methodological research in operations management. Production and Operations Management, 25(3), pp.379-389.

Filippini, R. and Forza, C., 2016. The Impact of the Just-in-Time Approach on Production System Performance: A Survey of Italian Industry. A Review and Outlook. In A Journey through Manufacturing and Supply Chain Strategy Research(pp. 19-39). Springer, Cham.

Haksever, C. and Render, B., 2018. Service and Operations Management. World Scientific Books.

Masudin, I., Kamara, M.S., Zulfikarijah, F. and Dewi, S.K., 2018. Impact of Inventory Management and Procurement Practices on Organization's Performance. Singaporean Journal of Business Economics and Management Studies (SJBEM), 6(3), pp.32-39.

Sankar, K., Kannan, S. and Muthukumaravel, A., 2014. E-Logistic for Warehouse Management. Middle-East Journal of Specific Research, 20(6), pp.766-769.

Smith, L., Maull, R. and CL Ng, I., 2014. Servitization and operations management: a service dominant-logic approach. International Journal of Operations & Production Management, 34(2), pp.242-269.

Storey, D.J., 2016. Understanding the small business sector. Routledge.

Walker, H., Chicksand, D., Radnor, Z. and Watson, G., 2015. Theoretical perspectives in operations management: an analysis of the literature. International Journal of Operations & Production Management, 35(8), pp.1182-1206.