The Operational and Strategic Issues Facing Klassy Kitchens Ltd
Operations management, commonly known as OM, is an area of management that deals with designing, developing, overseeing, and controlling production processes in an organization, and redesigning these operations to suit the needs of a rapidly changing economic market (Katsikopoulos & Gigerenzer, 2013). In every organization, especially those that are concerned with production of tangible goods, the role of the operations manager is magnified, and constitutes one of the key determinants of success. Poor operations management is a sure way to business failure, as an organization would start having cases of poorly managed inventories, unhealthy employee-employer relationship, and poor management of stock among others (Kumar & Suresh, 2009). The effects of these shortfalls are unfathomable, but the usual ultimate result is the collapse of a giant production unit or company.
In businesses, the three key areas that determine success are finances, marketing, and operations. All these issues are always inherent in every business, and may include other business disciplines. For instance, finance could comprise insurance, real estate and investing. Proper management ensures that all these three areas are addressed effectively in both the long and short terms of business operations. Firms strategic goals can be achieved when there is a well-established operational management of company’s resources. This ensures that there is proper design and layout of factories so that efficient provision of goods and services can be attained. It also helps in the scheduling of activities that lead to enhanced transformation of inputs into output (Lödding & Lohmann, 2012). Currently, Klassy Kitchens Ltd faces the challenge of poor management in relation to its operations. This has made the company experience several problems such as limited capacity for expansion, abnormal profit trends, and increased lead times among others. These problems are caused by the several management shortfalls, which exist in this company. The author of this paper champions the argument that Klassy Kitchens Ltd has a myriad of operational management issues that have been instrumental in sidetracking its success, as envisaged in one of the golden objectives of a for-profit organization: profitability.
In real sense, operation management becomes a significant task that comprises many stages. Firms have to make their choices concerning production techniques that they can adopt to achieve their goals. These stages include process design, product design, operation strategies, and supply chain management (Lödding & Lohmann, 2012). Scheduling operations, planning and inventory control are also some of the stages involved in operation management. When functioning in global markets, conventional companies are often placed at a competitive disadvantage. This is seen in the case of Klassy Kitchens Ltd, faces transformational challenges. Some of the challenges that such companies face include wrong production scale, inadequate products, and wrong organization. These problems may limit the potential of firms to produce and market products. In relation to this problem, global organizations have emerged with three strategies. They have had both their plant and facilities located worldwide, which is not the case in the Klassy Kitchens Company. This firm has a single production facility that is situated in Cabramatta. Global organizations have adopted the strategy of shifting commodities across several countries. In addition, both services and components parts are obtained globally. This requires the utilization of process technology and product design that are universal. These organizations, therefore, magnified economies of scale alongside improved inventory systems, and logistics. Managers have to make crucial decisions regarding improved production processes and layout designs. Such decisions have not been exploited fully in the Klassy Kitchens Company. This makes the firm to experience problems related to production processes. Managers need to make decisions concerning technology, choice of process, and job designs. In the Klassy Kitchens Ltd, there is no defined role between the two owners.
One of the main elements of process design involves process selection. Two processes that are included in process selection are product flow and customer order. In the product flow, the elements included are batch, line, and project flows (Kumar & Suresh, 2009). On the other hand, the customer order focuses on the aspects of made-to-order, and made-to-stock. In relation to product flow, the line flow comprises the linear pattern of operations, where products move from one stage to the other and include commodities such as computers, automobiles, and refrigerators among others (Lödding & Lohmann, 2012). Line operation is applicable to standardized commodities. However, companies that use this system experience the challenge of altering flow volume and products, which leads to inflexibility in terms of operations. Thus, Klassy Kitchens Ltd continues to face the problem of commodity clogging at various production stages. Adjusting of line operation is often difficult and can occur in limited situations. These systems need large capital alongside high volume.
The main method of operation that is used in Klassy Kitchens Ltd is batch operation. This is because most of the machines, which are grouped together, are similar. Batch operations are characterized by the use of general-purpose equipment as in the case of Klassy Kitchens Company. Batch processes can be designed to handle limited volume orders. On the contrary, they lead to inventory and scheduling challenges. In many situations, these operations cannot manage to handle full capacity loading. This is because full capacity loading leads to high inventories (Kumar & Suresh, 2009). Consequently, several commodities will end up waiting to be completed in the production lines, as is evidenced in the case of the organization under study. Batch processes, as aforementioned, are efficient for lean production, and no doubt they worked so well for Klassy Kitchen when its production capacity was still within reach. For more voluminous productions, an organization needs to adopt a continuous process that has lower use of inventories and floor time and space (Muda, Rahman & Hasan, 2013). As the company grew, the main problem that is registered in its operation management is lack of conformity. It does not automatically adjust to the new market demands, and instead continues to use the old process of production to attend to a bigger market.
Utilization of high capacity often leads to interference among many aspects of employee tasks as they wait for equipment of labor that is used in another job to be finally free (Walk, 2011). This challenge is experienced in the Klassy Kitchens Company, as many cabinets that wait in line are not completed. Thus, jobs spend more processing time than that which is needed for them. Increase in floor time, otherwise known as waiting time, is particularly detrimental to the profitability of a production unit. It not only limits the achievement of team goals (which are usually set based on the forecasted number of units that each production needs to deliver within, say, a day), but also increases costs of production as more recurrent costs such as electricity among others increase at the expense of final products. Klassy Kitchen Ltd does not make good use of the batch operation. This is because it continues to produce customized cabinets despite receiving the order for standardized ones, which are needed in low volumes. In the process choice, managers have to make their decisions depending on the nature of the order. The decision made should depend on whether the commodity is made-to -stock or made-to-order (Muda, Rahman & Hasan, 2013). Make-to-stock (MTS) operations are critical for the provision of fast customer services from the available stock. Furthermore, their costs are lower than that of make-to-order (MTO) (Huang, Lu, & Wan, 2011). On the contrary, the customization of products is higher in MTO than in MTS. This makes the Klassy Kitchens Company to produce customized cabinets. Thus, the company faces problems when it comes to transformation of the production process. It cannot manage to shift from the production of customized cabinets to the production of standardized ones. In the MTO operations, orders can be identified when the production is performed. This is because the orders are made to the specifications of costumers. In contrast, operations of MTS involve building commodities for inventory (Muda, Rahman & Hasan, 2013). Besides, the jobs involved are not linked to defined customers (Huang, Lu, & Wan, 2011). Klassy Kitchen produces the customized products based on the MTS. This is because these products are inexpensive, and have a low variety (Rajagopalan, 2002). The company does not want to produce standardized cabinets because they are expensive and have a high variety.
The above shortfalls ensure that the firm experiences increased lead times, which imply that it does not meet the stipulated delivery time. Production systems involve organization of activities where production processes are combined and transformed. These systems transform inputs to useful commodities. Although it is clearly indicated that the company, according to the General Manager, was growing and covering more market base, one thing is for sure: customers are not ultimately satisfied. Customer satisfaction constitutes the focal point of every business’ success, since Economists say that the greatest asset an organization could ever have is the customers (Jaber, 2009). Though Klassy Kitchens operates a customer-oriented type of manufacture, where consultation with customer based on desired quality of product is conducted, it lack enough capacity to address the increasing demand from customers, and does not ultimately achieve its predetermined objective. This has to do with strategic decision-making, which entails making the right changes when it is absolutely appropriate. Klassy Kitchens seems to have introduced a new product line without fist evaluating its capacity to handle the prospective increase in demands for space, staff, and other inventories.
Klassy Kitchens’ processes and production systems are established in a manner that limits production efficiency. The company’s facility layout has not been well organized. This is has led to several challenges such as limited room for expansion, accumulation of goods at different production stages, and extra costs for hiring storage space. Thus, the company’s profits have been affected negatively by the increased production costs. Much of the organization’s capital is held in various stages. These include work in process, raw materials, and finished goods. Adequate layout of firms’ manufacturing facilities requires efficient planning of the organizations’ process. This needs to address areas such as machine locations, materials storage areas, employees’ workstations, and customer service areas. Such an approach is critical for the enhancement of flow patterns of both materials, and people within the company and outside it. Proper arrangement of process and productions systems helps in the creation of space, which is needed for the support function (Su, Chang, Ferguson & Ho, 2010). Companies should ensure that they develop efficient facility layouts in order to benefit from such outcomes. In most instances, facility layout and process planning affect each other due to their continuous interchange. Klassy Kitchen experiences the challenge of product accumulation in the production chain. This leads to losses in terms of unsold commodities whose manufacturing process is not complete. Generally, the layout of a production unit should be such that each point leads to a subsequent one, and equipment needed for similar operations are grouped together. In this sense, proper flow of work processes is enhanced, which works positively for speed-up of processes (Rajagopalan, 2002). In addition, the arrangement of tasks and procedures clearly demonstrates lack of professionalism, as both the custom and standard cabinets have been incorporated within the same production arrangement. These are totally two different production lines that need diverse approaches with independent tools and human personnel to handle them adequately. In most organizations where two different but related product lines are run concurrently, the workstation is organized such that production units that perform the same function are integrated, or put together, and supplied with enough equipment and manpower. The other units which have different production needs are run independently, to ensure that a hitch in a separate production line does not spill over to the next. Unfortunately, this is not what is practiced at Klassy Kitchens, and the production system stands high risks of being completely jeopardized by small maintenance issues in a single unit along the production line.
The company has inadequate employee workstations and cannot manage to engage in continuous production. Besides, the facility layout of this firm leads to the limitation of space that is needed for conduction of processes such as storage. Klassy Kitchens Ltd, therefore, spends much of its financial resources in the hiring of expensive storage facilities. Proper layout is significant in the provision of adequate production capacity, which is one of the challenges faced by the Klassy Kitchens Ltd. Its operation systems are established in a way that limits expansion. Reduced cost of handling materials is also a benefit that is associated with efficient layout of processes (Zăpodeanu, Cociuba & Petria, 2012). This is because it eliminates duration that goods take in the production lines. Companies often experience immense losses in terms of damages and loss of sales when good clog in the production lines. Klassy Kitchen is one of those organizations. The company has much of its revenues held in the production lines. Its working capital is held in the raw materials, finished products, and work in process. The company cannot conform to the building constraints because it lacks adequate space that is needed for production machines. Moreover, the machines are grouped in relation to the production of customized kitchen cabinets. This limits the flexibility potential in terms of producing the standard kitchen cabinets. Thus, transformation of the production process is not achieved efficiently.
Introduction of new production lines may affect the performance of firms negatively. The magnitude of these effects depends on the availability of income, staff and the process choice. Businesses need to focus on their profitability and cash flow. Cash flow involves the outcomes of business transactions, which are related to financial activities and investments. Firms should have enough cash to cover for borrowed funds and operations. Klassy Kitchens Ltd lacks adequate income that can be used in the production of standardized cabinet. This has made the company focus on the production of customized cabinets, which have a low production cost. Cash flow problems have negative effects on the performance of businesses. The main area of concern for businesses when evaluating cash flow performance is cash flow that is linked to the operating activities. In the performance of business operations, firms obtain cash from their consumers and use this cash to pay suppliers. In many instances, this event does not generate immediate revenues to the company. This is because expenses may be incurred and leads to delays in cash outflow. Lack of adequate working capital has been pointed out as one of the factors that lead to decreased cash flow (Zăpodeanu, Cociuba & Petria, 2012). Working capital refers to the organization’s investment in assets for short-term purposes. This may be dome in terms of stock, debtors, and trade. Every firm needs a set amount of working capital that it can use to conduct its usual operations. Studies have shown that managers spend much of their time in the management of working capital, which is evident when they focus much of their attention on the daily operation on the businesses.
Klassy Kitchens Company also lacks adequate staff. This has made the company experience many challenges related to production. Some of these include increased lead time and clogging of commodities at various production stages among others. The company lacks enough laborers who can manage to conduct the production of commodities to their completion. Thus, many goods lie unfinished in the production line. It is also noted that the company is experiencing increased lead-time. This implies that the customers do not obtain their orders at the required time. The main cause of this delay is limited staff that can manage to hasten the production and delivery processes. In the running of this company, the two owners have decided to play multiple roles so that they can manage to compensate for staff shortage. This is, however, not very advisable in a company of such wide market coverage, which needs clearly defined roles for every single employee. The organizational structure of a performing company needs to be arranged in a matrix form, which organizes employees in teams (Chase, Jacobs & Aquilano, 2007). These teams have clearly defined roles, headed by a team manager, who reports directly to the senior employees. It further follows that Klassy kitchens does not suffer from inadequate number of staffs, but also from lack of proper job allocation and description.
For a fully operational organization, the company needed to have adjusted the number of employees with the increase in production. Additionally, the two different production lines: custom and standard cabinets – need to have functionally independent manpower that can be able to address the demands of the processes adequately. Although hiring of more employees may seem expensive from the surface look, it would save the company a lot of other costs, such as those wasted on reduced sales, delayed deliveries sanctioned by increased lead-times, and increased floor-time (Schniederjans, Cao & Ching, 2012). From the look of things, it can even be assumed that the employees are not adequately motivated, especially due to the work conditions to which they are subjected. Making them to finish a huge load of work with few hands is a challenge enough that does not certainly augur well with employee morale (Beneish, Press & Vargus, 2012). Usually in operation management, one of the biggest challenges is finding employees that are dedicated, and which can work under little supervision. A more holistic view of this common challenge would reveal that lack of employee trust comes as a result of an integrated set of problems, one of them being work load. Overworking means less synergy, and reduced corporation among employees (Niranjan, Wagner & Nguyen, 2012), which does not work well with production success, as evidenced in Klassy Kitchens’ case.
The Klassy Kitchens Ltd also faces challenges regarding daily scheduling of operations. It appears that the management is not able to cope up with unplanned and unexpected changes in their production lines. Planned management requires coordinated planning, sharing of information, and focused collaboration (Youssef, Delft & Dallery, 2004). Though the move by the management to introduce a new builders’ line of production is generally positive and would have led to increased revenue and profits for the company, there exists no planned protocol that details daily operations which would go a long way in effecting that transformation (Ivanov, 2010). For such change management to occur, one would expect the company to fully equip its employees with the necessary equipment and proper layout of schedules to be performed each day in the interest of the achievement of the organization’s goals (Bohari & Zainuddin, 2013). Getting the right and enough people to handle these operations is also important, a part that is not addressed by Klassy Kitchens. For proper scheduling of daily operations, each company must have clearly set objectives, and a plan to meet those goals. This, however, is not that case with the organization under study, which introduces new product lines, but does not make new round of adjustments to its plan of daily operations.
Daily operation decision scheduling, based on the above argument, therefore forms an integral part of organizational success. The main component of the decision-making process that the case company fails to address is collaborative and consultative process (Hurwitz, Heaslip, & Moore, 2012). Based on the description of its management, the company decision-making body constitutes exclusively of the couple only. The rest of the employees receive orders, and are expected to act according to those orders. The danger of such a decision-making style lies not only in its inefficiency at cementing relationships in the organization, but also in its lack of wide range of alternatives (Ivanov, 2010). When every member of an organization is involved in daily decisions, not only do employees feel appreciated and as part of the organization, but several creative ideas are also generated, which can be useful in optimizing the production process. While this may be difficult and time-consuming, it saves an organization from huge losses, and helps to win the loyalty of employees. Klassy Kitchens manifests an obvious lack of strategic decision-making capacity, which is hugely culpable for its chronic and unconcealed failures.
The defects registered in the financial performance of the company speak a lot about its lending and borrowing habits. Generally, a performing company should have a balanced figure of assets and liabilities, but according the report obtained from the financial officer of Klassy Kitchens, the organization is operating in huge deficits and values do not actually add up to how they are supposed to be. The root cause of such financial performances lies on the rate of cash flows. Having higher cash outflows as compared to inflows is a negative indicator of a declining equity (Gondzio & Kouwenberg, 2001). For instance, the organization seems to focus entirely in making quality products for the customer, and producing goods that they think have better sales; the emerging truth is that this is the principle cause of the failure of the company. As much as it is product for every company to produce goods that are of high quality, it is even better to incorporate the question of sustainability and affordability among the strategic decisions (Foster, Wallin & Ogden, 2011). Research shows that customers would more often than not go for a good that is sold at a lower price, but still satisfies the same need as the ‘high quality – high price’ commodity. To a customer, quality is closely intertwined with price, and organizations that have historically held on to production of prime products have been outdone by their cheaper rivals who produce goods that customers need and can easily afford.
Moreover, inefficient management of the value chain has financial implications that are far more painful than any other hitch in an organization’s operations management. One important component of the value chain is the supply chain, which entails the relationship between suppliers and an organization. From the deficits pointed out by the financial officer, it shows that the company is running huge debts from suppliers, especially for unpaid goods, which significantly hampers their relationship (Foster, Wallin & Ogden, 2011). Having a non-collaborative supply chain significantly affects the production process, and can cause serious delays in finishing of commodities and subsequent deliveries. Further, running of these deficits raises the amount of liabilities higher than that of the assets, which reflects negative financial performance of a company, especially on a balance sheet. The process of production, which uses up various inventories, must also be in line with a company’s budget capacity (Gondzio & Kouwenberg, 2001). Usually, this may go unnoticed when unplanned disruptions along the production line are experienced, such as delays in finishing of a commodity just as it happens in the organization being studied. Lastly, the distribution channel of Klassy Kitchens seems to present some solid problems that might have led to the poor fiscal performance of the company. The entire value chain needs to have efficient supply chain, production process, and distribution network that cover the entire market target of an organization (Gondzio & Kouwenberg, 2001). The single-point institution of the company does not allow it to supply goods to customers when and where they need them. Thus, the customer benefits package of Klassy Kitchens is distorted and highly misappropriated.
From the arguments advanced herein, it suffices to conclude that Klassy Kitchens Ltd operates under an inadequately managed environment, with inefficient operation strategies and fiscal management. Some of the common problems identified from the case include adoption of an inadequate and inappropriate production system even after making structural adjustments; failure to adopt to new method of product as a result of the introduction of a new product line; inefficient day-to-day operational decisions and poor decision-making model; inadequate staffing; and poor financial balancing and management of cash flows.
List of References
Beneish, M, Press, E, & Vargus, M 2012, ‘Insider Trading and Earnings Management in Distressed Firms’, Contemporary Accounting Research, 29, 1, pp. 191-220
Bohari, A, & Zainuddin, N 2013, ‘Computeralization of Seaport Operation Management: Competitive Issues and Need of ICT Advancement’, Information Management & Business Review, 5, 5, pp. 217-224
Chase, R. B., Jacobs, F.R. & Aquilano, N.J., 2007. Operations Management for Competitive Advantage, 11th ed McGraw-Hill.
Foster, S, Wallin, C, & Ogden, J 2011, ‘Towards a better understanding of supply chain quality management practices’, International Journal Of Production Research, 49, 8, pp. 2285-2300
Gondzio, J, & Kouwenberg, R 2001, ‘High-performance computing for asset-liability management’, Operations Research, 49, 6, pp. 879-891
Huang, S, Lu, M, & Wan, G 2011, ‘Integrated order selection and production scheduling under MTO strategy’, International Journal Of Production Research, 49, 13, pp. 4085-4101
Hurwitz, D, Heaslip, K, & Moore, D 2012, ‘Relating Transportation Systems Management and Operations Strategies to Policy Goals: A Framework for Quantitative Decision Making’, Engineering Management Journal, 24, 3, pp. 32-42
Ivanov, D 2010, ‘An adaptive framework for aligning (re)planning decisions on supply chain strategy, design, tactics, and operations’, International Journal Of Production Research, 48, 13, pp. 3999-4017
Jaber, MY 2009, Inventory Management : Non-Classical Views, Boca Raton: CRC Press, eBook Collection
Katsikopoulos, K, & Gigerenzer, G 2013, ‘Behavioral Operations Management: A Blind Spot and a Research Program’, Journal Of Supply Chain Management, 49, 1, pp. 3-7
Kumar, S, & Suresh, N 2009, Operations Management, New Delhi: New Age International, eBook Collection
Lödding, H, & Lohmann, S 2012, ‘INCAP – applying short-term flexibility to control inventories’, International Journal Of Production Research, 50, 3, pp. 909-919
Muda, S, Abd Rahman, M, & Hasan, F 2013, ‘Management by Principle for the Make-To-Order SME’s’, Asian Social Science, 9, 4, pp. 227-239
Niranjan, T, Wagner, S, & Nguyen, S 2012, ‘Prerequisites to vendor-managed inventory’, International Journal Of Production Research, 50, 4, pp. 939-951
Rajagopalan, SS 2002, ‘Make to Order or Make to Stock: Model and Application’, Management Science, 48, 2, pp. 241-256
Schniederjans, M, Cao, Q, & Ching Gu, V 2012, ‘An operations management perspective on adopting customer-relations management (CRM) software’, International Journal Of Production Research, 50, 14, pp. 3974-3987
Su, J, Chang, Y, Ferguson, M, & Ho, J 2010, ‘The impact of delayed differentiation in make-to-order environments’, International Journal Of Production Research, 48, 19, pp. 5809-5829
Walk, EM 2011, ‘Documented Problem Solving as a Learning and Assessment Technique in Operations Management’, Business Education Innovation Journal, 3, 1, pp. 57-64
Youssef, K, Van Delft, C, & Dallery, Y 2004, ‘Efficient Scheduling Rules in a Combined Make-to-Stock and Make-to-Order Manufacturing System’, Annals Of Operations Research, 126, 1-4, pp. 103-134
Zăpodeanu, D, Cociuba, M, & Petria, N 2012, ‘The role of value at risk in the management of asset and liabilities’, Annals Of The University Of Oradea, Economic Science Series, 21, 2, pp. 635-640
