Klassy Kitchens PTY ltd
(Operation Management)
Introduction
Operation management involves overseeing, designing, coordinating and controlling all the
processes of production and re-evaluating and redesigning the business operations and processes
in the final production process. Its concerning with the responsibility of making sure that all the
business processes or operations are very efficient in terms of utilizing the few resources
available as required and effectively making use of human capital. It involves the management of
the processes of converting inputs i.e. materials or labor into output i.e. goods or services.
Operations management concentrates on the delicate part of the management of internal business
operations or processes to produce or manufacture and distribute items and services. Most
companies especially the smaller ones don’t mention or use the words operations management
but they still perform the activities classified or known as operations management. Some of these
actions or activities that fall under operations management are product creation and
development, production, distribution and its organization although operations management
includes literally all the operations within a firm. The major activities under operations
management are purchases management, inventory and quality control, logistics, evaluations and
general control of other business operations. Operations management concentrates mostly on the
efficiency and the effectiveness of the production processes in a company. Therefore, business
operations management involves substantial calculations, measurement and analysis of the
internal processes. The nature of business operations management in an organization depends
largely on the products or services being offered by the organization, for instance whether it’s a
retail business, manufacturing or wholesale. (Altiok and Ranjan, 1995)
The operation functions are performed by the staff members who actually manufacture or
produce the goods. These operation functions are also known as the production functions and are
among the three major functions of a business operation the others being finance and marketing.
The operations department employs the most employees and uses the greatest resources of a
Operation Management 2
company’s assets i.e. it’s the most critical section of a business set up. (Handfield and Nichols,
1999)
Klassy Kitchen overall production structure rotates around the interior decoration
of Kitchen units as per the specification of the customer and also using standard
designs for the normal standardized kitchen designs. As the business improved more
orders were received to produce small spec builders i.e. standardized kitchen cabinets
with a high quality finish but not similar to the custom made kitchen cabinets. The
batches ranged the production of a single kitchen cabinet production to five similar
kitchen design units. The clients for these Builders kitchen pressed for more deliveries
with tighter schedules which resulted in more pressure to increase production. Klassy
Kitchen has no capacity to deal with more or excessive production than its single factory
in Cabramatta could handle. The factory gave priority to the custom kitchens which had
a higher profit margin which resulted in the builders kitchen cabinet units being
manufactured in stages in most cases the unfinished units were left waiting in various
states of work-in-progress states. The machines for the production of the kitchen
cabinets were limited and their layout in the factory was not convenient for the
production of unfinished products which resulted in less space for operations in the
factory as the unfinished Builders cabinets were piled in all available space. These
forced the management to rent storage facilities to deal with the unfinished products as
sales grew and also the financial liabilities also grew. The management of Klassic
Kitchen had to come up with an expansion strategy.
The inputs, transformations and the eventual outputs may vary but the general characteristics
of input transformation into useful outputs are similar in all the operations in the system. The
production facilities, methods and ways of manufacturing products a company uses are mostly
referred to as the production system. Klassy Kitchens needs to device a system of production that
matches its business operations. For instance, design a system that’s related to its production
cycle and the stage the company conducts inventory in an effort to serve its clients conveniently
and in a faster way. By the time a clients order is received, the company may hold the products
to fill the order one either as finished goods or standard parts waiting to be assembled. After
receiving the customer’s order, some companies are mostly make-to-stock manufacturers or
producers that finished or complete products and stock them prior to the initial receipt of the
clients order. The end product is shifted from the inventory of finished goods after the clients
order has been received. The make to order manufacturer or producer finalizes the end product
after receipt of the clients order. As for the unique and custom designed products the client will
most likely have to wait for the producer to purchase the required material and produce the items
as the manufacture cannot stock the anticipated materials that each new client may require and
stock all the necessary needed raw materials and the components on hand to reduce the
manufacturing lead time. However if some components or raw materials are regularly used, the
manufacturer may stock some of them especially the ones that have a longer lead time. The skill
module describes such a balancing act by the producer of kitchen cabinets. When a
manufacturing company manufactures standard designs, the optional modules that are ahead of
time and in earnest assembles a specific combination of such modules after the client’s orders
then the business takes the form of an assembly-to-order manufacture or producer. For instance,
when Klassic Kitchens imports its glass partitions and custom made cabinet class shutters in
response to client’s requests and assembles them as per the client’s style and color. Klassic
Operation Management
3
Kitchen would be better placed if they if they would order the components required and stocking
them before the clients places their orders.
A continuous system of production manages and arranges the available equipment and work
stations in a procedure or sequence according to the set steps necessary to convert the input
materials into the required or desired components or the assembly line. The prescribed route of
jobs is fixed, and the overall set up of the equipment rarely changes from the production of one
item to another. The flow of materials is continuous in the whole production process.
An intermittent system of production commonly referred to as job shop is different from the
continuous production system as it’s specifically designed to provide a lot of flexibility. This
system of production groups evaluates and organizes the production equipment or the work
stations as per their functions or the processes they perform. Different products or items flow in
batches that correspond to the individual orders. Depending on the needs of each type of product
being manufactured, each batch may follow its own route which is different from the others
through the functional job centers. The final products or items could be made either for stock or
to order but this kind of production is associated with the make-to-order business. The
continuous and the intermittent type of production systems that can be applied to Klassy
Kitchens PTY ltd, represents the extreme opposite ends of a continuum that actually measures
the rate or degree of specificity of the production system. At one of the extreme ends of the
continuum are the production facilities that have been designed in a specific way to produce one
particular type of standard item and to optimize the material usage and movement and the
required production steps needed to produce the item. On the other side of the continuum are the
work shops or the job shops which are not ideal for the production of any specific products but
are actually capable of producing a variety of general products. Most production facilities
include features of both the production processes. They find their balance on the continuum near
a job shop and a continuous method of production operation. On one of ends of the flexible
continuum is the low volume or level type of operation commonly referred to as the project.
Projects have long duration and the personnel attached to these projects are usually the same
people who manage it to its eventual conclusion. Non manufacturing operations or the service
operations produce results that do not really give tangible outputs. Non manufacturing operations
are also subdivided in accordance to the degree of its standardization of its own output i.e.
whether its services are standard or custom oriented and the processes involved. There are some
non manufacturing operations that actually resemble projects because they engage the services of
a team of trained people over long periods of time. For instance a training program.
Operations management has to be tailored to the specific requirements and the needs of that
company, all its clients and the overall growth strategy of the business. Optimization of the
inputs isn’t achieved by the use of generic approach that may be universally applied to all firms
within the industry. It’s gained through the general utilization of all developed methods and the
production processes which are actually created and eventually implemented by the manager of
the operations and also shared by all other employees in the organization. A lot of factors have to
be considered when planning or implementing the operational production processes which
includes the size, location and type of company or factory, the amount of technology involved
within the operations and ultimately the logistics in getting the item produced or service to the
end user i.e. the process of acquiring the raw materials, manufacturing the product and
eventually distributing the product.
Operation Management 4
The existence of the operation management system in the management of Klassy Kitchen
administration is a vital process that has to be outlined and communicated effectively to the
relevant departments of the organization and also to the heads of sections. They should be aware
of their achievements and failures. A distinction can be made among the processes that add value
and those that do not add value, the ones that do not should be removed and awarded to the
valuable sections. (Staubus and George, 1971) Direct labor and the relevant materials are
mostly easy to identify and trace directly to the products. Where the products use common or
similar resources differently, and then in these case the total lengths used should be determined
as required and ordered as per the required lengths. The cost driver is the main factor that
establishes or controls each activity that has been identified. For instance, the activity cost of
standard cabinet can be related and associated with each product by taking the measurements of
how long each transaction of particular products takes (cost driver) at the workshop. For the
activity of operating machinery, the driver will be machine operating hours. That’s the machine
operating hours will also drive labor, maintenance and the overall power cost during the
machine’s operations and running activity.
Adjustment of the operation system so as to allow costs to be collected by each activity
instead of the cost system and identification of the factors that cause each and every activity’s
cost to change. The allocation of short term production time like the direct labor hours, total
machine hours, or direct material cost. Items like electricity would be allocated and driven by
machine hours and later apportioned in accordance to the variability of the drivers. In the same
way some items may differ with the value of the materials used or with direct labor hours.
In terms of the additional support functions, it’s the nature of the transactions taken by the
support section which are related to the relevant cost drivers. For instance, the number of
purchase orders drives the purchases department. Similarly, the number of the total production
runs undertaken in a particular department drives several other costs such as inspection or the
production costs scheduled. (Kaplan and Bruns, 1987)
Immediately the cost drivers and the related costs have been identified, each one is identified
as a cost center to which all related costs are apportioned. In the example of purchases above, the
identified costs which are related to the cost center are divided and allocated by the number of
goods sold to determine the rate of charging out. For example if the costs were identified as
$10000 and 1000 items were immediately dispatched, then the charge out rate would be $10 per
item. (Tan, Kannan, Handfield and Ghosh, 1999)
The implementation of the operations management principles to cost minimization and
also as a result of limited financial budget and staff compels Klassic kitchen management to
adopt the applicable strategies such as the material requirements planning (MRPI/II) (Orlicky,
1975), the others are just-in-time (JIT) and the TQM i.e. total quality management. (Monden,
1981), (Deming, 1986) and finally the theory or doctrine of constraints (Goldratt, 1988) and lean
manufacturing (Womack and jones, 1996) have assisted in cost reduction as much as it’s
practically possible. For Klassy kitchen to cut down on cost of labor and materials, it has to
adopt some strategies to streamline its operations and reduce the unnecessary costs and processes
that are increasing its overall production costs. (Skinner, 1974)). The most effective strategy and
which is very popular and has a lot of potential of reducing costs is the cost that’s spread along
the distribution business channels. (Magretta, 1998) Supply chain management is a competitive
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5
strategy that has over the years grown rapidly both in the industry and academia as a critical tool
in cost control and reduction strategy. (Gardiner and Blackstone, 1994)
Klassy kitchens need to apply the system approach known as the thinking process (TP) and
the theory of constraints (TOC) (Goldratt, 1990) to identify the critical factors for an effective
and efficient supply chain management, determine the relationship between these factors of
production and investigate their causal interrelationship with the supply chain’s performance.
The results will assist the managers analyze and develop growth strategies in the supply chain.
(Rahman, 1998), (Gupta and Boyd, 2006) The TOC has two main components. The first one is
the Logistics Paradigm, a philosophy that consists of five steps for any on-going improvement
i.e. the drum-buffet.rope (DBR) for scheduling methodology and buffer management
information systems. This concept suggests that the major constraints in many organizations may
not necessarily be physical but may be related to the policies made by the management. To
minimize the policy constraints and implement the on-going improvement effectively, the TP, a
generic approach was developed. (Goldratt, 1990) This is the second part or component of the
TOC. (Gardiner and Blackstone, 1994)
The principles of TOC provide a detailed focus for the continuous and effective
improvement process. These principles consists the following five steps. a) Identification of the
system’s constraints. For Klassy Kitchens, the constraints are lack of funds, inadequate staff and
inadequate stock control measures. b) Make a decision how to exploit the system’s constraints.
The weaknesses of inventory management in Klassy Kitchen’s case stem from poor policies on
stock control procedures that the management has implemented. The management of Klassy
Kitchen needs to develop new policies that will adequately address all the weakness in its stock
control systems. A managerial constraint or weakness should not be in any way be exploited but
should be corrected and replaced with an effective policy which increases the output. c)
Everything else should be subordinate to the decision above. Every other component in the entire
system should be adjusted to support the utmost effectiveness of the mentioned constraints
incase of Klassy Kitchen. The constraints normally dictate the way a company’s production will
rate or its throughput. Resource synchronizations with the firm’s constraints lead to effective
input or resource utilization. d) Elevate and promote the system’s constraints. The shortage of
staff and the lack of funds for Klassy Kitchen should be addressed and corrected i.e. the
company can obtain bank loans at negotiated interest rates to temporarily address its fund
shortages. When eventually all the existing constraints have been improved and the system
performance has improved then the system will encounter new constraints. d) If any step is
broken in a constraint then the whole process is repeated and don’t allow inertia to be the next
constraint. TOC is normally a continuous process and appropriate policies should be adopted as
the environment changes. The implementation of the above steps in any production environment
will result in rapid and greater improvement in its business operations as well as the profits.
(Noreen et. al, 1996) However, this production process of continuous and increased
improvement will finally shift the constraints from the factory floor to the main market.
Inadequate demand is a constraint that falls under managerial policy and not a physical
constraint. These policy constraints are difficult to accurately identify and evaluate and they
frequently need the involvement and the cooperation across all the functional areas in the
company. The TP was developed as a methodology to solve or address the policy constraint and
Operation Management 6
also create some breakthrough solutions while using common sense, logics, intuition and
knowledge.
The TP process involves making the following three generic decisions while dealing with
constraints. a) Make decision what to change b) Make decision what to change to c) Make
decision how to cause the change. To answer these questions, the TP recommends a set of five
devices in the form of diagrams referred to as cause-and-effect. The TP process begins with the
question, what to change to, i.e. to identify the core problems. The Current Reality Tree (CRT) is
utilized for this purpose. (Lepore and Cohen, 1999) CRT is a logical and diagrammatic structure
that depicts the current state of reality as it exists in the given system. The core problem that
exists in Klassic Kitchen is the lack of effective policy on the overall management of the
resources and inventory. Lack of funds is a result of poor planning which compounds in
inadequate labor force and under stocking of the required resources in terms of raw materials.
After identifying the core problem, the next question is” what to change to” i.e. for Klassic
Kitchen they have to change to an efficient, profitable and highly organized company. The other
step involves a search for an effective solution to the major problem i.e. the core problem. Such
tools like the evaporating cloud (EC) and the Future Reality Tree (FTR) can be used. These
changes have to introduced and implemented fully for them to improve the system. The other
question is how to change. The Prerequisite Tree (PRT) and the Transition Tree (TT) logical
diagrams are utilized to identify obstacles that hinder implementation and formulate detailed
plans that will be used to overcome the obstacles.
Klassic Kitchen needs to address and in particular pay attention as they are the key issues
within the operations department. The purchasing practices and methods the firm adopts are very
critical to the success of the company and also in the reduction and minimization of the total
costs of production. Klassic Kitchen needs to embrace Total Quality Management for an
effective and efficient management of its operations. The Total Quality ensures that all the
products constantly meet the set standard quality by the company i.e. Klassic Kitchen.
Continuous Improvement Quality Management is also necessary in the production process.
Klassic Kitchen needs to adopt all the necessary measures required to improve literally all its
aspects of operations.
The daily operation decision scheduling of Product management by Klassic Kitchen should
target the creation of the set standard for the production of custom cabinets which accounts for
more than sixty percent of its sales and also the Builders cabinet. The products also need to be
rebranded and their sales and distribution channels also promoted. The operations manager needs
to macro manage the environment surrounding his products. Inventory management and control
needs to be practical, efficient, cost effective and timely so as to improve operations and save
time and money. (Wernerfelt, 1984) The lead times for its orders have to be shortened to ensure
efficiency and improve its sales. Application of such concepts as “Just in Time” (JIT) can be
applied to streamline its stocking department. It involves the buildup of stock coming in just
when it’s required so as to avoid overstaying on the shelves waiting for its use in the production
system. These system doesn’t tie cash flow on unnecessary stock instead it allows money to be
used to elsewhere and in other potential and critical investments and only allows the purchase of
stock at the last possible time when it’s needed. (Hahn, Pinto and Bragg, 1983). This makes a
very significant in the firm’s bottom line. Klassic Kitchen can adopt many other stock control
procedures but it’s necessary to maintain a good control over its stock to remain competitive in
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7
the market. It’s better to have a leaner and profitable company which is efficiently managed than
a bloated and inefficient, loss making one. The logistics and transport management entails the
efficient control of goods from the firm’s supplier to the company and eventually to the
consumer. (Ballou, 1992). Facilities management involving the company’s assets such as the
buildings, computer systems and vehicles has to be effective. Market research and the
feedback from the consumers of its products have to be analyzed in order to create
successful and effective marketing programs.
Klassic Kitchen also has to plan how to efficiently utilize its machinery by
planning a plant layout that full utilizes the production machinery. Plant layout involves
all the arrangements and physical location of production machinery, the work centers
and the auxiliary facilities for the sole purpose of being effective and efficient in the
manufacturing process or the distribution of the items produced to the customers. The
primary objective of the plant layout is to promote the effective and efficient utilization of
manpower, maintain and promote high turnover in the work in progress section and also
ensure employee convenience, comfort, effectiveness and safety in the production
process. (Adam and Ebert, 1982).
Klassic Kitchen budget system is vital to its success. The process should involve
methods and proper procedures of subsidizing its own budgets where there is a deficit
and appropriate measures need to be adopted to avoid lack of funds. There are many
options of raising funds from the market or from the public. Operations management
should provide accurate budgets and forecast for each phase or section of the
production department. Klassic Kitchen needs to adopt measures to manage its
configuration of its own products. This involves tracking and managing the various types
or versions of its cabinet designs being offered by the company. (Tan, Kannan,
Handfield and Ghosh, 1999).
Operations Management adds value to the products and processes of production by
re-engineering the business and production processes with the full intention of adding
value. This is actually done by the analysis of all the areas of a business and identifying
the current position of the business as well as the existing status of the various
departments within business operations. These added values normally affects the
company balance sheet items i.e. the assets and liabilities of the business. These can
be done by identifying the profitable improvements in the production process that can
be easily converted into extra cost savings and therefore allow the firm to pass on their
savings by cutting down the products costs and strengthening their current competitive
position. The company can also streamline its inventory and its supply chain issues by
making it responsive to the needs of the company. The operations department can also
streamline its administrative system and also its infrastructure and making them
efficient. The general benefits of a good operations management is the cost saving,
effective and efficient production processes. These results in higher share prices for the
producers while the customers enjoy lower prices for finished products. (Bowen and
Youngdahl, 1998).
The introduction of the Builders product is actually taking a considerable share of the
Klassic Kitchen profit as its sales cannot be compared to the custom made kitchen
Operation Management 8
made cabinets which accounts for most of its profit as its profit margins are higher than
those of Builders cabinets and these is affecting its growth.
Operations management is practically concerned with the evaluation and analysis of
a company’s internal processes so as to improve its performance. All successful
business operations actually involve all the aspects of a firm which includes a constant
flow of communication to all departments. Operation management develops and
implements various processes which it re-engineers from time to time or even changes
the entire process with intentions of making them effective and efficient. The company’s
supply chain is of great importance in the focus of the operations department as it
literally covers all the entire life cycle of the product within the company i.e. from the
initial acquisition of the raw materials and transportation from the suppliers to the actual
delivery of finished and ready products to the eventual consumer or customer. The
importance of the role of the operations department cannot be underestimated as it’s
very pivotal within the company for creating a responsible, efficient, effective and sound
performing firm that links the rest of the departments as they utilize all their resources fully.
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