Metelworld is one of the largest manufacturers of plastic and moulded components and supplies its products to just about every industry, including telecommunications, computers, power tool, automotives, consumer durables etc. They are operating in almost all continents with than hundred manufacturing units. Their important customers are HP, Ford, GM, Dell and Black & Decker. Metelworld also provides design assistance to its customers. It was the role of the advisor to suggest ways of simplifying the overall design which would be fast, easy and profitable to produce in the factory while being cheaper for the customer.
Since 1990 three major changes had occurred in the market. First was that the major customers such as HP, GM, Dell, Ford, Black and Decker started to build new factories in developing countries. These customers were often encouraging Metelworld to build supply units in the same region, adjacent to their new locations. Second change was the rising trend in global standard design patterns for customer products. So there is change in the quality of customer's products. The third significant market change was that the customers increasingly wanted the suppliers to do more assembly and value- added works. Alternatively this could require complex purchasing, assembling and testing of major sub- assemblies. As given in the case study, "Customer's initial delivery schedules were often stable and close to forecast levels but could vary wildly as competitive forces affected customer's sales. Lead times from these global suppliers could be up to 12 weeks. Overall, this type of work did appear commercially attractive, typically bridging up to 10 times the revenue of a simple moulded part." (Case Study, Appendix)
Ways to tackle the issues are follows
- Lowering costs and increase profit by more procurements
- Reduce lead time by increasing capacity and making changes in supply chain management
- Performing more value added works but maintaining the same quality
- Establish virtual partnerships with the customers and suppliers, joint planning, and sharing information etc
- More involvement in design stage
- More efficient production techniques like lean manufacturing, quality management, inventory control etc
- Choosing proper locations and making more investments.
In order to tackle the operation issues in the case I need to go through the main topics like Supply chain management ,logistics, TQM, Control process, impact of globalization in an organization operations, and the relationship between the customers and suppliers.
There was no hierarchy of power in Metelworld because every manufacturing unit was operated as a semi-autonomous profit centres under the authority of a general manager. This had forced each manager to defend his or her business. Sometimes it involved the purchasing of components from other company sites and selling it to the customers after adding up a profit in it, because every manager was responsible for reporting to the regional manager for the performance of the production unit
Planning & Control processes
Planning and control is conceived with the reconciliation between what the market requires and what the operation resources can deliver. Planning and control actually provides the systems, with procedures and decisions which bring together different aspects of supply and demand. Control is the process of coping with the changes in these variables. It may be required that plans need to be redrawn in short term.
It may also mean that an intervention will need to be made in the operation to bring it back on track for e.g. finding a new supplier who can deliver quickly, moving staff from one part to another part of operation to cover up for the low work force, increasing the capacity of the plant by over time etc. Control makes the adjustments which allow the operation to achieve the objectives that the plan has set even when the assumptions on which the plan was based does not hold true.
Since Metelworld wanted to be a first tier supplier for their customers they had to concentrate more on long term control planning. In long term control planning they need to use the aggregate demand forecasts and deliver resources in aggregated form. They need to set their objectives largely in financial terms.
Planning & control requires the reconciliation of supply and demand in terms of volumes, timing and quality. In order to reconcile volume and timing four overlapping activities need to be performed - Loading, capacity planning, Sequencing, Scheduling, and Monitoring.
The effective implementation of these four overlapping activities requires a clear and precise understanding of the current process. The mapping of the entire process in Metal world gives an insight into the current operations and helps to identify the bottlenecks.
In these days of intense competition and supply chain management the relationship between the suppliers and customers has changed significantly. Many of the recent developments in the supply chain management, such as partnership agreements or reducing the number of suppliers are an attempt to minimize the transaction cost.
Relationship with customers & suppliers
The main areas which need to be discussed after going through the case study is the pattern of the leadership that Metelworld maintained with their customers and how it affected Metelworld growth and development in the past and present.
Metelworld was competent to maintain a splendid relationship with their customers. They even create new business ventures with the help of good rapport they have with their present customers and it enables them to make more business. All the time they try to carry out the needs and wants of their immediate and end customers by taking all the possible measures. In order to satisfy the requirements of their customers they were very keen to design new moulds.
Due to their excellent relationship with the customers Metelworld even provides design assistance to their customers in their product designs. This sincere relationship with their customers even obliges them to develop new partnerships with their customers in their business ventures.
It is obvious from the case study that Metelworld business policies were dictated by their customers. Their strong relationship with their customers facilitated them to make more business. Their customers always encourage them to move new locations mostly to an adjacent site of their business since they were given as the status of preferred supplier.
In these days the relationship between the suppliers and customers has changed significantly due to intense competition and supply chain management. In the past customers purchased from the lowest bidders who could meet their delivery needs and quality. The supplier's assurance of quality can be self assured by comply with standards.
Benefits of maintaining a good relationship with the customers.
- Since the objective of supply chain management itself is to satisfy the end customer it is achievable only with the advice and support of their immediate customer.
- An excellent relationship with the immediate customer enables them to implement a policy by which they can produce the products efficiently with low cost, considering the real needs and wants of their customer.
- This relationship enables them to understand the requirements of their customers and develop designs which are cheaper and simple for their customers.
- Metelworld were always conscious about the success of their immediate customers. On the other hand the technical skill and ability to produce and supply the products at the right time with the low cost, forced the customers to maintain a good relationship with them, because Metelworld was one of the most important supplier in this field with only about five competitors having a worldwide coverage.
- To get more orders from their customers.
- With such a relationship they could recognize the needs& wants of their immediate and end customers and develop a high efficient system for P&S with low cost, that also help their immediate customers to cut the cost of their production and trade the products at less prices.
- Metelworld should be able to develop a technical skill by doing the replication orders from their customers and so that skill becomes one of their trademarks.
- An admirable relationship with the customers enables them to continue in a competitive manner in the market, as a main supplier for their customers, in the period of globalization.
- Metelworld were invited by their customers to establish partnerships with them where they had the benefit of their sole supplier. This would enable them to provide the right quality products, efficiently at the right time, to their customers.
Globalization and supply chain management
GATT was updated in 1993 (GATT 1994) to incorporate new obligations upon its signatories. One of the most considerable changes was the formation of the World TRADE ORGANISATION (WTO). Since the creation of WTO the entire world was changed. The boundaries of national market are opened for the international companies i.e. multinational companies. Since then the multinational companies were changed their main focus from developed countries towards the developing countries. Then we had seen the introduction of globalization in its real sense, even though it existed before that, which facilitates the multinational companies to enter into the domestic markets of the developing countries without any major barriers. Since then they were building new factories in developing countries in order able to take maximum advantage internationally. This would help them to reduce their costs in many areas like production, raw materials distribution etc.
Globalization is the process of transformation of regional or local phenomena into global ones. Thomas l Friedman argues that "globalize trade, outsourcing, supply chain and political forces have changed the world permanently, for both better and worse". He also argues that 'the pace of globalization is quickening and will continue to have a growing impact on business organization and practice'.
In the late 1990's the market started to change rapidly and Metelworld's most important customers like GM, Dell, Ford etc started to construct new factories in developing countries to take advantage of the benefits of low wages and overheads. They did this as a strategy of entering into markets of these developing economies. Since Metelworld was one of the key suppliers they were often encouraged to establish new supply factories by their customers in the adjacent sites or same regions, of developing countries, were their customers new factories situated. During this period of globalization the importance of information technology also increased due to the fact that the major companies had their home company situated in one region and their subsidiaries were situated in other regions of the world.
The competition between the companies had also increased, since these companies make a way into international market, especially in developing countries, in order to take hold of the international market. In order to survive in this intense competition each company have to raise their quality of product design to a global standard. The introduction of e-commerce and globally open market enabled them to buy component for their factories around the world from virtually any suppliers anywhere in the world. This opportunity to purchase components from anywhere around world gifted them a powerful position to confine the number of suppliers and demanding a global, single, low price form their suppliers. Moreover they would now be able to find the lowest Metelworld price from various manufacturing units and buy the components they want from them.
These market changes present a new set of problems to Metelworld. Since its production cost varied widely around the world depending mainly on the labour charges and overhead costs they might not afford a single global price. Their product price varied according to the production costs and other local commercial conditions like, taxation, domestic economic conditions etc.
The labour charges were also varies significantly from one country to another in this world, for e.g. the basic wages in UK is 5.80 but in countries like India, China and Brazil it has far less than that. Another significant factor was that Metelworld were forced to do more value-added works by their customers and that could require more investment from Metelworld in the areas of assembly lines, testing equipments, storage, component and finished inventory and systems to support purchasing and logistics.
Since the beginning of globalization a pressure had mounted to ease the costs to continue to exist in the international market, so the customers forced their suppliers to cut the price by providing larger volumes to those who had the lowest cost. But Metelworld cost of production varied largely according to the cost of local labour and overhead costs, it had provided some kind of problems to Metelworld.
Supply chain management is the management of interconnection of organizations that relates to each other through the upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services. Supply chains are also described as pipeline, so physical goods and services flow down a supply chain. The common objective of all supply chain management is to satisfy the end customer.
In order to execute Supply Chain Management customers were search for a closer relationship with their suppliers. They try to reduce the total number of their suppliers and combine their purchases, from those remain they are getting the overwhelming volume of their business. They also stipulate the suppliers to do greater portion of assembling, this permits them to ease assembly cost and they are expecting even further reduction in costs, in return for large volume of orders, from their reduced number of suppliers.
Logistics is responsible for the physical movement of all the resources through a process. It includes procurement of materials, movement through the process, delivery to the customers, and all associated movements of people, information and services, and all stages in between.
Metelworld need to makes more products in the existing facilities and opens new limited facilities in the new markets adjacent to their customers new factories in order to finish or assemble the final product it includes a warehouse and sales force to handle distribution in the new market. This would help to avoid making a huge investment for a completely new factory.
It is evident that since introduction of globalization market is changing now suppliers were forced to do more value added works to convince the customer needs and it requires further investment in assembly lines, component, testing equipments, storage & finished inventory and systems to supports purchasing and logistics. Metelworld was required to provide a single, global, low price for the components by their customers.
The objective of supply chain management is to unite entire process of satisfying the customer needs along the supply chain. In order to accomplish that Metelworld need to procure raw materials from multiple sources, transporting them to different processing and assembling facilities and distribute it through their immediate customers to the end customers.
At the same time Metelworld want to be a first- tier supplier for their existing customers. In order to accomplish that they need to deal with both the purchasing and supply & physical distribution side of the supply chain management. The purchase & supply management is a function that deals with the operations interface with supply & purchasing i.e. buying goods and services.
Companies depend a lot on procurement activities to achieve their supply chain strategy. Obtaining the right quality raw materials and services at the right time and with the right cost, when they needed, is possible only with the process of purchasing. Another term for purchasing is 'procurement', whereas purchasing means a monetary transaction, procurement is the 'responsibility of acquiring the goods and services the organization needs by any means'.
Procurement is the purchasing of material and services from suppliers. Purchasing manager provide a vital link between operation itself and its suppliers. They need to understand the requirements of all processes within operation and also the capabilities of the suppliers. Once operation requires product& services purchasing function need to uses the knowledge of market to identify the potential suppliers, prepare purchase orders and often form the legal basis of contractual relationship between operation and suppliers.
Here Metelworld able to arrange a purchase of moulds costing up to 50,000 each. By which they were able to gain a cost advantage. But they need to do that on a regular basis with the support of e-procurement and multi-sourcing. Multi-sourcing is the practice of obtaining the same type of product, component or service from more than one supplier. This would help Metelworld to maintain market bargaining power and keep the continuity of the supply of materials and services. Multi-sourcing help to drive down the price by competitive tendering and also enable Metelworld to switches the suppliers in case of supply failure from any of the supply group.
E-procurement means using the internet to organize the purchasing of materials and services from suppliers. E-procurement may include identifying potential suppliers and auctions as well as the administrative tasks of issuing orders etc.
Benefits of E-procurements are:-
- It promotes efficiency improvements in purchasing process of Metelworld.
- It improves commercial relationship between Metelworld and its suppliers.
- It reduces the transaction costs of doing businesses for suppliers.
- It opens the market place to increased competition and therefore keeps prices of materials and services competitive for them.
- It improves Metelworld ability to manage its supply chain more efficiently.
Physical distribution management 'is the activity of supplying immediate customers it includes the management of logistics, flow of material to customers and information from customers'. Logistics can be defined as 'efficient and effective planning & controlling the flow of goods, services, and information from one point to other'. It consists of inventories, storage and warehousing, distribution network, transportation, information processing and even production. On the other hand material management is 'the management of flow of materials and information's through immediate supply chain'.
Metelworld have to share information through the entire supply pipeline and be an important linkage in that supply chain. Information technology is essential to sharing information in the supply chain and this is possible with the use of EPOS. This will enable them to realize the behaviour of their suppliers, customer and market as a whole.
Total Quality Management
Every organization pays lot of attention to the quality of their products. But it is a fact that quality is very difficult to define. There are two views regarding the quality of a product, an internal view from the producers and an external view from the customers. Quality management is the management function that is responsible for all aspects of a products quality. Quality is remembered long after the price is forgotten. Higher quality gives producer a competitive advantage.
The central idea of total quality management is that managing quality is an integral part of all operations. Here Metelworld need to focus on the operations during the process itself, in order to make sure no defects are made at each and every process of production and delivery and during the planning stage , make sure that, the design of the product are correct to the requirements of the customers and also the process allow high quality.
Metelworld need to appoint a team that can manage the changes, they need to examine the present condition and find out what changes needed then they need to designs a plan for implementing TQM. There a recommendation helps the rest of the organization to make necessary changes. Metelworld need to find out what the customers actually wanted it requires more involvement of customers through the support of information technology. Design the product and process with quality in mind. Quality may be examined at all points in the process so that high quality product can be guaranteed.
The objective of capacity planning is to match the available capacity to forecast demand over the long, medium or short term period.
The standard approach to capacity planning involves:
- Examine forecast demand and translate this into a capacity requirement
- Calculate availability capacity of present facility and upcoming months
- Identify the mismatches between capacity needs and availability
- Generate alternative plans for overcoming mismatches
- Compare these alternative plans and choose the best
- Implement the best plan-then check and control its progress
This process is sometimes called resource requirement planning.
Once they are selected as the first tier suppliers by their customers then there may be an increase in the demand for the components. In such a situation Metelworld need to change their capacity to reach the optimum level of production in order to satisfy the requirements of their customers.
If there is a change in demand from the customers then Metelworld need to change their capacity to satisfy their needs. It is evident that customers demand would vary widely as competitive forces effect their sales. For e.g. if the customers requires more components than what they actually demands for the period then they need to adjust their capacity to meet the requirements by several capacity planning's methods like by increasing the work force either by recruiting temporary staff or by recruiting permanent staff, increasing the working hours either by increasing the production weeks or by doing overtimes, by giving sub-contracting some form of minor works to outsiders. But after these changes they were not able to satisfy the requirements of their customers then they need to alter the capacity of their plant and machinery, which involves new investments.
Since Metelworld product involves highly sophisticated techniques the better option is to increase the working hours either by increasing the production week or by overtime, if they are not able to meet the requirement then they can recruit new permanent staff because this would help them to train them and take future benefit and also keep their quality.
CONCLUSIONS AND RECOMMENDATIONS
The procurement is a major potential area for reducing the costs of production and to increase profits. So they need to arrange more procurement mainly e-procurements to reduce the costs and be competitive in the world market.
Metelworld require to reduce the lead time, in Supply Chain Management, 'lead time is the time from the moment the supplier receives the order to the moment it is shipped' It is possible by increasing their production weeks, or increasing their work force either by recruiting new workers on a temporary basis or by recruiting permanent workers, or by subcontracting some of its functions to outsiders but since the work involves greater technical skill I would like to recommend any one of first two methods.
Metelworld have to satisfy their customer by taking the responsibility of doing more value added works which in turn helps to create single sourcing arrangements. That will help them to create virtual partnerships with the customer. This is possible only if they become more involved even at design stage and ready for more frequent JIT deliveries of higher quality components. This will help them to establish long- term relationships with their customers, help each other's in their problems, make joint planning, and sharing of information's.
Metelworld need to adopt more efficient production techniques such as lean manufacturing, inventory reduction techniques and quality management, to ease the cost of production & services. They also need to improve the quality, functionality and speed of delivery of their products to the customer. This is possible with more planning & control in the areas of supply chain management and logistics.
Metelworld needs to advance their production process and delivery channels. Delivery should be made at the right time with the quantity and quality specified. It is possible only with more investment in production and delivery areas, improved lead time, and high technical skill.
By making highest quality products they can create niche in the market and enable them to become the first tier supplier of their customers. That will force the customers to purchase from Metelworld even though their prices are comparatively high.
Bibliography & References
- Nigel Slack etal, Operations Management, FT Prentice -Hall.
- Donald waters, Operations Management, Picewaters coopers, 1999.
- (Friedman, Thomas L. "The Dell Theory of Conflict Prevention." Emergin: A Reader. Ed. Barclay Barrios. Boston: Bedford, St. Martins, 2008. 49)
- Scott M. Shaffer. "Operations Management for MBA'S". Jhon Wiley & Co,Third edition 2007.
- Krajewski & Ritzman. "Operations Management" . Strategy and analysis . Addison Wesley second edition.