Operations Management

In January 2010, I took over the

management
of my recently deceased mother’s integrated farm, with no prior
experience
in farming. Koncious Farms Nigeria Limited (“Koncious Farms”) was set
up a
few years ago. It is located in a remote village in northern Nigeria
with
no electricity, running water or good roads. Currently, Koncious Farms
has
six full time staff, and several others who work part-time. We rear
broilers (chicken), turkeys, catfish and sheep, and are about to go
into
egg production. We also farm crops such as maize, groundnuts and
tomatoes.
Our major clientele are in the hospitality industry (e.g. hotels,
restaurants and supermarkets) and rely on prompt delivery to meet their
guests’ needs. Since taking over management of the farm, I have had to
learn that running a business requires not only careful
account-keeping,
but careful planning. Most importantly, like any other organization,
the
efficiency of our operations is crucial to the business. When the farm
was
first established, we had the problem of over or under production,
leading
to either inability to meet our customers’ targets, or being left with
a
surplus. Incidents like these have led to our external customers having
to
rely on other suppliers when we either fail to supply them or supply
them
with chicken that does not meet their requirements. This of course has
led
to some of our customers permanently shifting their loyalties to other
producers, resulting in large losses in our revenue. After assessing
the
situation, I discovered that the major reason for our inability to
satisfy
our clientele had to do with delays along our supply chain. Many times,
our
suppliers of day-old chicks failed to supply us our chicks when due or
have
even supplied poor quality chicks, thus leading to us having
insufficient
chickens to supply our customers, or having to supply customers with
low-weight chickens; which they usually reject. Generally, we have
often
had to disappoint customers. Thus, the operational issue I will address
in
this assignment is the supply chain management in Koncious Farms.
Supply
Chain Management in Koncious Farms: An Overview Supply chain
management,
according to Slack et al (2007), is a broad concept which includes the
management of the entire supply chain, from the supplier of raw
material to
the end customer. It involves making sure that the interconnections
between
organizations that lead to the provision of goods and services to the
end
consumer are well managed. A faulty supply chain means that the goods
may
not reach the end user in the best possible way. Professor Marshall
Fisher
of Wharton Business School noted that there are two major distinctions
between supply chains: the efficient supply chain, which is needed in a
functional market, and on the other hand the responsive supply chains,
which are required by innovative markets. Functional markets are more
predictable, which makes planning of the supply chain easier. Koncious
Farms operates a functional market - the demand for our products is
generally stable year round, with fluctuations during festive seasons.
For
our chickens and eggs, there is a high demand year-round. For our sheep
and
goats, the demand is also relatively stable year-round, but spikes
during
Islamic festivities, as these animals are used for religious
ceremonies. A
notable exception is that we sell turkeys mainly during festive periods
such as Easter and Christmas, when the demand is high. Therefore we buy
turkey chicks over summer, so as to ensure that they are ready for
Christmas. To ensure that we satisfy our end users, we need an
efficient
supply chain, one which anticipates our needs as well as those of our
customers. An efficient supply chain runs smoothly from supplier down
to
the end customer. The major objective of any supply chain should be to
make
sure the end customer is satisfied with the goods or services received.
According to Slack et al (2007), to achieve this, the following
performance
objectives must be met: Quality: A supply chain’s performance will
directly
affect the quality of the product that reaches the customer. If there
are
problems along the chain, it will eventually have an adverse affect on
the
quality of the end product or service. In Koncious Farms, this is
clearly
shown in the supply chain of our broiler chickens, as depicted in the
following illustration: the hatchery produces poor quality chicks,
perhaps
due to receiving poor quality parent stock from a chicken breeder.
Without
inspecting the quality of the chicks, the middleman sends them on a
6-hour
journey to our farm, and the chicks therefore arrive exhausted. The
farm
employees further stress the chicks by hurriedly heaping them together
and
sorting them. The generator has no fuel, so the chicks are not able to
feed
properly in a well lit environment, our feed supplier has run out of
feed.
At the end of the day the chickens do not reach their optimum weight
and
the customer is unhappy, and discontinues patronage. It is obvious in
the
above scenario that every action along the supply chain affects the
eventual quality of the chicken reared. Speed: This has to do with the
swiftness with which a consumer receives his product. On our farm, we
have
been able to score above average in this regard. Usually our customers
place orders a day or two in advance, and we are able to slaughter and
process our chicken to meet up with the deadline to supply. In some
instances, we keep some chicken in stock and are able to meet customers
who
place last-minute emergency orders. Dependability: This can also be
referred to as reliability. Customers need to know that they can rely
on us
to supply what they need when they need it. In our farm, our major
challenge has been our inability to depend on our chick supplier to
supply
birds on time. We have had chicks supplied as far as 3 weeks behind
schedule. This sometimes throws the entire supply chain out of sync.
When
we have such issues with undependable supply, we in turn cannot be
depended
on to supply products to our end users. Of recent, we have tried to
shore
up our dependability by buying chickens from other poultry farms and
supplying same to our customers, just to ensure that we maintain the
integrity of our supply chain. Flexibility: This can be referred to as
the
agility of the supply chain. It is the ability of the supply chain to
adjust to small changes which would otherwise adversely affect the end
customer. For example, fuel scarcity and power outages are recurrent
problems in Nigeria. Naturally, this has in no small way affected our
flexibility. A flexible supply chain should be able to meet sudden
fluctuations in supply along the chain. Cost: This is one of the most
important objectives of a supply chain. Even if you meet all other
objectives, a customer will only be willing to pay a certain price for
a
product. It is therefore very important to minimize costs incurred
along
the supply chain, so that they are not passed on to the end customer.
At
Koncious Farms, to ensure that we give our end customer the best price
possible, we constantly negotiate with our suppliers to ensure that we
get
our feed and other raw materials at the best price possible. When we
find a
cheaper, reliable supplier that can offer us good results, we switch
accordingly. As an example, to give an idea of the process our broiler
chickens pass through, this is a process map below: Farmers’ market
Supermarket Restaurant End User Koncious Farms Poultry and Fishery
Chick
Hatchery Middle Man (Chick Supplier)Koncious Farms Supply Chain Fuel,
charcoal Feed Seller (A)
Feed Seller (B) One of our problems on the farm stems from the fact
that
when the farm was initially set up, there was no clear-cut plan of how
our
supply chain would work. Originally, suppliers were generally stumbled
upon
by accident. There was lot of trial and error, and when one supplier
failed
we would simply try another. Thus, for the first two years of the
farm’s
operations, the supply chain had knots and disconnections running along
the
chain. Over time, we have discovered the folly in poor planning, and
have
had to go back to the drawing board and plan our supply chain
thoroughly.
For our chicken feed, we currently rely on more than one supplier for
our
feed, i.e. multi-sourcing. This is because we usually purchase our feed
under credit arrangements, and we are wary of heaping too much debt on
a
single supplier. Also, as noted by Russ Banham on Cfo.com many
suppliers
have trouble funding their operations, so we divide the burden of our
feed
orders among two or more suppliers, and are currently on the lookout
for
even more suppliers as our production rate increases. This also ensures
that there is product availability, as sometimes one supplier is not
able
to meet our demands. For our chicks, which are more delicate, it is
safer
to rely on one supplier so as to be sure of the source and quality of
the
chicks supplied. However, because we have only one supplier, our
dependency
on a single source of supply has led to serious problems. Whenever our
supplies are delayed (which of recent has been very often), it affects
our
entire supply chain. A policy of e-procurement would have helped the
flow
of our supply chain, but unfortunately e-procurement is not an option
as
most of our suppliers are not IT compliant due to their location in
rural
areas. However, one area in which we have recorded recent success is in
the
area of partnering with our suppliers, using the principles I have
learnt
while studying operations management. Slack et al (2007 p 447) defines
partnership relationships as:
‘... relatively enduring inter-firm cooperative agreements, involving
flows
and linkages that use resources and/or governance structures from
autonomous organizations, for the joint accomplishment of individual
goals
linked to the corporate mission of each sponsoring firm’. Previously,
our
only criterion for selecting suppliers was that the supplier could give
us
a credit line; however this prevented us from partnering with suppliers
who
could work with us towards the mutual growth and success of our
businesses.
In choosing suppliers, we are currently influenced by the need to find
partners who are able to do the following: give us favorable discounts;
give flexible credit line maintain proximity help us market our
products;
and maintain good links with dependable major suppliers Most
importantly,
we always seek suppliers that we can trust. Trust in the opinion of
Slack
et al (2007) is widely held to be both the key issue in successful
partnerships and is also by far the most difficult element to develop
and
maintain Supply Chain Management Theories as they apply to Koncious
Farms’
Operations I will proceed to assess two major theories in supply chain
management with which we have to deal in order to manage the supply
chain
effectively. Just in Time (JIT).
This is an aspect of lean management, where unnecessary inventory is
avoided. According to Slack et al (2007) JIT can be taken literally:
get
your supplies Just in Time. It means producing goods and services
exactly
when they are needed: not before they are needed so that they wait as
inventory, nor after they are needed so that it is the customers who
have
to wait.
JIT originated in Toyota of Japan, and was created by Taiichi Ohno. The
main goal of JIT is to reduce to the barest minimum, “non value adding
operations and non moving inventories in the production line”
(www.siliconfareast.com). It is sometimes referred to as stockless
operations, as one of its main features is the reduction of inventory
levels. The three main pillars of JIT as stated by Slack et al (2007)
are
eliminating waste, involvement of all staff in operations, and the
adoption
of continuous improvement ideas. The advantages of practising JIT
include:
Less wastage: For us at Koncious Farms, this means that we will engage
in
over-production much less. If we can accurately predict the demand for
our
products for a particular period, we should not over produce, as the
leftovers may be ruined.
Less damage to goods in storage: For example, at Koncious Farms, pests
often break into our storage rooms and destroy our bags of chicken
feed.
Better planning: Implementing JIT forces businesses to engage in
planning
and forecasting. To successfully implement JIT, it is important that
the
organization only has what is needed at every point in time. For
instance,
if a company through forecasting knows that it only needs to supply 200
kg
of chicken per day during the summer months, then JIT advocates that
only
what is needed to produce 200 kg of chicken is kept on the farm. Any
surplus should be avoided. JIT is a “pull” system: in the context of
Koncious Farms’ operations, this means that it is the demand from
external
customers on the supply chain that should determine how many chickens
are
reared at the farm. The practice of storing more raw materials than
needed
should be avoided in order to eliminate wastage, theft, holding costs
and
so on. A good way of achieving this is a system where the needs of the
next
stage in the supply chain modulate the production of the preceding
stage. A
key component of JIT, which aids in its implementation, is the use of
the
Kanban system. The word “kanban” is derived from a Japanese term that
means
card signal or signboard (www.encyclo.co.uk). According to
www.handsongroup.com a kanban system can signal the authorization to
move
material or product from the supplying location to the consuming
location.
It can also be used to signal the authorization to produce additional
product. It is a system that is able to track each stage of production
and
thus limit inventory. If properly used, the workers on the production
line
know when and where materials are needed on the production line. The
kanban
card, which is the major tool of the kanban system, “is both a
transaction
and communication device” Gross, McInnis (2003), which ensures that
components on the production line are delivered ‘Just in Time’. At
Koncious
Farms, our current level of production is still quite low. As such,
kanban
cards are not necessary. However, as we step up production, we will
seek
ways to implement the kanban card system, so as to ensure that the
theory
of JIT is fully adhered to. A good example of how our farm has operated
with respect to JIT is that until recently, we would purchase a tonne
of
feed every week, without studying the consumption rate of the chickens
per
day. Wastage was rife, as the farm staff would over-feed the birds just
because the feed was available. Leftover feed in our storage rooms
would
then be attacked and destroyed by pests. Today, with improved planning
and
input from our staff, we have been able to estimate the average amount
of
feed needed per week, and the amount of feed bought weekly has
significantly dropped. For example, recently, one of the farm staff
noticed
that when the birds ate at night, they would gain more weight. With
this
helpful input, the birds are currently being fed less, but with greater
precision, and are therefore healthier. We are still working on
forecasting
accurately, and with our current progress, we will soon be able to buy
exactly what we need. If we are able to buy only the feed we need from
our
suppliers, we will be able to take less stock on credit, which would
help
us add value to our suppliers’ businesses, thereby partnering more
effectively with them. Another area in which we are attempting to
implement
JIT on Koncious Farms is with respect to our fuel purchases. Currently,
because we have no electricity supply on the farm, we routinely need
petrol
to power our generator. However, it is difficult to stock just enough
fuel
for weekly needs, as our fuel consumption varies from week to week. An
example of this is the need for constant water (which is circulated by
a
generator) during the catfish hatching stage. This does not exist to
the
same degree at other times, and the catfish-hatching stage is not
always
consistently timed. It is therefore clear that due to the limitations
we
face as a growing farm business located in a rural area, implementing
JIT
in its entirety would be difficult, as it is easier to apply the theory
to
systems where production flows are consistent and do not change often,
e.g.
a factory where the same processes are continuously repeated. However,
we
can and have already started implementing some aspects of JIT. With JIT
in
place, we will improve our ability in meeting our end users’ demands
and
operating an effective supply chain. (b) Total Quality Management (TQM)
Another important theory which will affect proper supply chain
management
is Total Quality Management (TQM). This theory was first introduced by
Fegeinbaum, but was made popular and developed further by the legendary
WE
Deming. Others who contributed to the theory are JM Juran, K. Ishikawa,
G.
Taguchi and PB Crosby. TQM,in Fegenbaum’s words,is:
“an effective system for integrating the quality development, quality
maintenance and quality improvement efforts of the various groups in an
organization, so as to enable production and service at the most
economical
levels which allow for full customer satisfaction’.
(Feigenbaum, A.V. 1986) TQM has the customers’ needs at its core. It is
all
about customer satisfaction and ensuring that both internal and
external
customer needs are met. In fact, one of the most powerful aspects to
emerge
from TQM is the concept of the internal customer and internal supplier
(Slack et al (2007) which have been indispensable in supply chain
management. Treating every one along the supply chain as a customer and
conforming to the customers’ needs ensures that quality is upheld. ,
Where
quality is not upheld, the cost of production is ultimately increased.
A
good example of this on Koncious Farms was our maize harvesting
exercise
early this year. The maize was sorted manually after harvesting, and
was
stored in a poorly-ventilated area, without the addition of
preservatives.
As a result, when we eventually sold the maize, it was in such poor
condition that customers offered 30-40% lower than the normal price.
Thus,
we made poor sales and very little profit. If we had stored the maize
properly and bought the chemicals needed to preserve them, we would
have
made significantly more profit. We would also have been able to sell
the
maize faster, as the locals would have spread the word that Koncious
Farms
had good quality maize for sale. Instead, with every subsequent buyer
less
was offered for the poor quality maize. The impact of this will likely
still be felt by the farm in the future, as chances are that when next
we
have maize for sale, potential customers in the area will remember the
poor
quality maize that we sold previously, and may therefore be reluctant
to
return. As stated by Deming in his book “Out of Crisis, “defects are
not
free” (Deming E.W 2000, p 11) For the defects in our maize due to our
carelessness, we “paid” by earning low revenue and even worse, perhaps
a
bad reputation. Like JIT, TQM requires a lot of employee input and a
much
higher standard of management. Its successful implementation must start
from management. John S Oakland stated that in order to achieve quality
throughout an organization, the following questions need to be asked by
the
suppliers: Who are my immediate customers? What are their true
requirements? How do I find out what their requirements are? How can I
measure my ability to meet these requirements Do I have the capability
to
meet the requirements, and if not why? What must we change in order to
meet
them? Do I continually meet these requirements? If not, why not? What
stops
me from doing my job properly? How do I monitor changes in
requirements?
For the customers, Oakland states that the following must be asked Who
are
my immediate suppliers? What are my true requirements? How do I
communicate
my requirements? Do my suppliers have the capacity to measure and meet
my
requirements? How do I inform them of changes in my requirements?
(Oakland
J, Morris P, 1997 p 10) If the above questions can be answered
effectively
by both suppliers and customers, then TQM can be practiced effectively.
Further implications of TQM were revealed by Deming in his
revolutionary
book on crisis, Out of the Crisis, in which he offered 14 key
principles
which would make any business effectively manage its quality practices.
Some of these principles are: Employees in different departments should
work as a team, and be aware of each department’s operations. Training
of
all employees is necessary, especially to instruct them on quality.
Eliminate the need for inspection by ensuring that quality is built
into
the product in the first place. Most importantly, in relation to supply
chain management, minimize total cost by using a single supplier with
which
one would have built a long-term relationship of trust. It is
impossible
for a supply chain to be effectively managed if the elements of TQM are
not
practised. This is because quality is at the core of any serious
organization’s practice. Once a product is known for its quality, then
its
customers remain loyal. On the other hand, where an organization has a
reputation for producing low quality goods, then customers will switch
to a
more reliable service. In fact, as Deming opined, it is impossible to
know
the actual impact of an unhappy customer - not only will such a
customer
not patronize your business, he/she will also discourage others from
using
your services.
There really is not any one way that TQM must be practised. What is
important is that everyone in an organization must practice it
according to
the same set of rules, set by management. As clearly stated in Out of
the
Crisis pg 11, low quality means high costs, and every business aims to
reduce cost and maximize profits. Without quality, this is not
achievable.
From the above, it is obvious that at Koncious Farms, we have
experienced a
sharp decline in customer loyalty as a result of mismanagement of the
supply chain. Recommendations: Some of my recommendations for how
Koncious
Farms’ operations can be improved with respect to supply chain
management
are the following: After carrying out supplier evaluations, we have
decided
that our suppliers should be changed in order to enhance reliability
and
smooth operations along the supply chain. In this spreadsheet (please
see
spreadsheet annex 1) based on a spreadsheet from www.inc.com, I have
been
able to pinpoint and evaluate several areas which are essential to the
smooth running of the farm’s supply chain. Using the results of these
evaluations, the farm will now be able to choose reliable chick and
feed
suppliers and ensure continuous product flow. We will properly partner
with
our suppliers to ensure that we are working together to achieve one
common
goal. This will involve developing customised written policies and
targets
to ensure that our suppliers have a clear reference point with respect
to
the farm’s needs and expectations, and that we at the farm likewise
have a
clear picture of our suppliers’ needs and expectations; Improve on
forecasting and proper planning, so as to accurately anticipate the
farm’s
needs at every point in time and ensure that we carry out lean
operations.
Frank Burrit of Deloitte Consulting has noted that forecasting demand
is
more difficult than ever. In spite of this, it is more important than
ever.
We will make sure we carry out continuous improvements at various
stages of
the farm’s supply chain, such as improving the pesticides and equipment
used on the farm. There are plans to introduce solar panels so as to
reduce
our dependency on electricity. These improvements will be done over
time so
as to be less stressful for the farm, but they will have a lasting and
positive impact on our production. We will make sure that we fully
engage
and involve staff at all stages of operation. Apart from generating
useful
ideas for improvement, this will also increase staff morale and output,
as
they will take greater interest in the process
We will engage in internal and external customer relationship
management
(CRM) .This will help us to anticipate all our customers’ needs and
improve
on the quality of products and services offered by the farm. For
instance,
we will find out from our customers if they require increased
flexibility
with regard to how we supply them with products. If this is required,
we
will ensure that we create this flexibility
Most importantly, we will improve the quality of the end products that
are
sold to customers. When we improve the quality of the final product, we
will lose fewer customers, and will therefore be able to forecast
demand
more effectively. All the above recommendations, when fully implemented
on
an ongoing basis, will lead to a more robust and effective supply chain
at
Koncious Farms.
Reference List Deming W.E (2000), End of Crisis, first MIT press
edition
Feigenbaum, A.V. (1986) Total Quality Control, McGraw-Hill John M
gross,
Kenneth R mcinnis (2003)kanban made simple: demystifying and applying
Toyota s legendary manufacturing process : AMACOM Div American Mgmt
Assn
Oakland J, Morris P(1997) TQM a pictorial guide for managers; pictorial
guides series, illustrated reissue butterworth-heinemann Slack N,
Chambers
S, Johnstone R (2007) Operations Management. Fifth Edition. FT Prentice
Hall http://www.articleplanet.net/negotiation/11660 http://www.cfo.com
http://www.datalliance.com/donovan.pdf
http://www.encyclo.co.uk/define/kanban
http://www.handsongroup.com/lean-articles/taking-the-mystique-out-of-ka
nban
-systems, http://www.inc.com http://www.siliconfareast.com/jit.htm
http://hbr.org/product/...right-supply-chain-for-your-product.../97205-
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