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)
Operation Management 2
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
company’s assets i.e. it’s the most critical section of a business set up. (Handfield and Nichols,
1999)
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
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
Operation Management
3
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.
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. (Elmurugan and Manivannan, 2010). 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. (Drucker, 1999)
Operation Management 4
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 and 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. (Cooper and Ellram, 1993). 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 strategy that has
over the years grown rapidly both in the industry and academia as a critical tool in cost control
and reduction strategy. (Forrester, 1961)
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), (Cox and Spencer, 1998) 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.
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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, 1995) 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
also create some breakthrough solutions while using common sense, logics, intuition and
knowledge. (Goldratt, 1994)
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. (Dettmer, 1997) 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
Operation Management 6
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. http://www.its.usyd.edu.au
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.
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. The
products also need to be rebranded and their sales and distribution channels also promoted. The
operations manager needs to macro also 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. (Cook and Rogowski, 1996) 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. (Deming,
1986). 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 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.
http://www.its.usyd.edu.au
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
Operation Management
7
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).
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.
Operation Management 8
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