Operational Management Analysis

Questions: 1.The current production systems and processes used by Hawkesbury Cabinets (a technical analysis). 2.The effect of the new builders kitchen line on Hawkesbury Cabinets operations (problem definition). 3.The effect the move to producing builders kitchens might have on the companys financial structure. (broader organisational issues caused by operational problems). Answer: 1. Hawkesbury Cabinets Pty Ltd is an Australian based company which deals with the manufacture of Kitchen cabinetry. This company is established in Mulgrave, Sydney in the year 2008 by two siblings Fung and Mei Chen. Both of the siblings are expert as a master cabinet maker and interior design that renders the complete understanding of the essential operational activity in the mentioned business. The business mainly orients in producing kitchen cabinetry with the intention to satisfy the requirements of the Chinese community in the Hawkesbury. There are basically two types of kitchen cabinetry manufactured in this business, which include (i) Custom-made kitchen (ii) Standardised kitchen. The custom-made kitchen is basically the kind of kitchen, where the customers state their requirements the desired architecture as specified will be implemented in kitchen design by Hawkesbury. On the other hand, standardised kitchen cabinetry is that type of kitchen where contracts have been signed to supply regular products but of high quality. Both types of kitchen design are manufactured in a single production unit, in which the total volume production in the standardised kitchen is approximately around 40 percent. Likewise, the total volume production in the custom-made kitchen is approximately around 60 percent. Interestingly, the revenue earning based on profit margin is high in case of the custom-based kitchen (75% of total revenue earning) compared to that of the standardised kitchen. Though two different types of kitchen cabinets are produced, but these are produced by the same machinery and the same manpower. Hence, the critical aspect of operational management is linked with time and labour investment in both types of kitchen products (Van Kersbergen Hemerijck, 2012). Various types of instruments and machinery are placed within the manufacturing unit of the factory, which are equitably shared as per the order demand and production requirement. Likewise, all the raw materials, intermediate product, and finished pr oducts are kept in the warehouse of the factory. The equipment used for making the kitchen cabinet consist of high quality and costly machinery for designing of the custom cabinets. Importantly, since the customer required design have more profit margin, thus particular attention is given to this type of product manufacturing (Hagedorn, 2015). With the increase in sales and more earned reputation, the workload in production unit also increases that demand of more time and skill investment (Van Kersbergen Hemerijck, 2012). The technical aspect involved in machinery and production unit is of a high standard and comply with the modern world customers requirement. The change in the work pattern assigns notable role like production and operation management to Fung. On the other hand, Mei negotiates the responsibility related to finance and general managerial duties of the company. 2. The standardised kitchen comprises of 40 percent of production volume but fetches only 25 percent of overall revenue earning. On the other hand, standardised kitchen has more profit margin that accounts for 75% of relatively. Regulated kitchen products sales are found to be increasing for the company in a steady manner which accounts for the market reputation of the company; whereas the profit earned and demand level for custom kitchen product is significantly high that accounts for companys profit (Shao, 2013). In the present time, there is an increased demand for the product in both custom as well as standardised division. This leads to increase work burden of manpower; inventory consumes space of the warehouse; along with having an impact on delaying overall production process. As the factory produces both types of kitchen cabinetry, thus there is pressure on the overall production system, especially for the skilled time of craftsmen. Same machinery and manpower are used for th e manufacture of the both the types of kitchen cabinetry, which as a result, reduces the flexibility of the production system, and production is delayed. This is reflective of increased inventory size that comprises of raw material, intermediate products, and end-stage furnished products. This causes shortening of warehouse storage as well as additional cost for renting warehouse space for product/intermediate part storage (Guo, Yu De Koster, 2016). Another problem is related to financial consideration. The total cost related to the production of the standardised kitchen started increasing, which proved as a barrier in terms of total production cost. The increase in cost is also linked with renting charges for arranging newer inventory and warehouse space (Guchhait, Maiti Maiti, 2013). Overall, these issues are reflective of the fact that profit margin is not equitably shared to all the production dimension. In conjunction with increased ordering and production demand, the problem arises due to lack of machinery and manpower. The result of this problem is reflective in terms of delay time in the production of both custom as well as the standardised kitchen. Moreover, more workload is shifted on the existing machinery and manpower of the factory that probably can also give rise to frustration for employees (Schaufeli Salanova, 2014). The production of custom products is also hampered by the bulk amount of raw materials, and intermediate products are piling up. As a result, there is an increase in processed pressure, and hence they fail to supply the final product in time. 3. Standardised kitchen product accounts for 40 percent of the factory volume but in return, there is only 25 percent revenue earning. Standard kitchen in this consideration comprises of fixed number of cabinets and low volume production, but it requires high-quality machinery for bulk production. The impact of this issue on the overall financial structure is reflective in terms of: Effect on the manufacture of custom kitchen products: The production of the standardised kitchen has several indirect effects on the production of a custom kitchen. As the same machinery and craftsman are engaged in the production of both the kitchen cabinetry, hence production time of custom kitchen is delayed. Moreover delay in the supply of finished products also affects the company and customer relationship. This results in service failure and dissatisfaction to custom clients, which can lead to decreased profit margin (ElMaraghy, 2013). Money investment for space: There is also a lack of space for storing the inventory in the warehouse. Thus, extra space is accommodated for storing the raw materials, intermediate materials and final products (La Lond Lambert, 2013). All these arrangements indirectly increase the cost of production of both standardised and custom kitchen products. The cost of production for standardised kitchen products: Standardised product render specified cabinets in the kitchen architecture. On the other hand, these products have fixed price criteria that result in marginal profit earning for the company. It is also noteworthy to mention that the bulk production system requires high-quality product as well as must be processed according to a stringent delivery system. All these issues lead to increase in the cost associated with the production of standardised products. Furthermore, this also leads to a reduction in the profit margin of the company (Raz, Druehl Blass, 2013). Piling of revenue in different production stages: The increase in production demand also leads to increase in storage space requirement for products and parts. The inefficiency in a production system that is attributed to increased production demand leads to piling of raw materials, intermediate products, as well as furnished product in the inventory, factory space, and in warehousing. Indirectly, this blockage of product flow leads to retention of money in a different segment that are not accountable in the overall financial analysis (profit margin) (Hagedorn, 2015). The same issue is thus linked with increased investment in the Hawkesbury Cabinets Pty Ltd into the production system. Dissatisfaction among employees: Lastly, by virtue of increased pressure on craftsmen, machine operator, and labours, it is likely to find a ray of dissatisfaction among the employees. Correspondingly, with increased sales activity, it is likely to conclude that employees will be expecting a higher salary, additional perks, and incentive for motivation. Failing to comply these requirements is likely to impose an adverse financial impact on the overall operational measure of companys activity (Panaccio, Vandenberghe Ayed, 2014). References: ElMaraghy, H., Schuh, G., ElMaraghy, W., Piller, F., Schnsleben, P., Tseng, M., Bernard, A. (2013). Product variety management. CIRP Annals-Manufacturing Technology, 62(2), 629-652. Guchhait, P., Maiti, M. K., Maiti, M. (2013). Production-inventory models for a damageable item with variable demands and inventory costs in an imperfect production process. International Journal of Production Economics, 144(1), 180-188. Guo, X., Yu, Y., De Koster, R. B. (2016). Impact of required storage space on storage policy performance in a unit-load warehouse. International Journal of Production Research, 54(8), 2405-2418. Hagedorn, H. (2015). The functioning of the model. In A model of Austrian economics (pp. 49-59). Springer Fachmedien Wiesbaden.