Inventory And Operations Management: A Case Study Of First For Forensics (FfF) Essay.

Introduction: Inventory and Operations management

First for Forensics (FfF) is a high tech company that manufactures and markets a range of products in the field of forensic science. Their main revenues have traditionally been generated from their core business; namely blood, drug and DNA testing equipment. Their markets are to the forensics services, law enforcement agencies and sports drug testing authorities around the world. However, a growing part of the business is in the sale of consumables, including reagents, calibration solutions and special cleaning fluids needed to operate the equipment along with a wider range of associated consumables including protective rubber gloves, protective eye glasses and finger print kits. These are supplied as branded own label products.

The company manufactures two products for this market namely F1-Basic and F1-Advanced. Both products are designed and manufactured in a factory at Cranfield Science Park near Cranfield University. The company has had unparalleled success with these two products for the last 10 years being the first to bring the technology to market in a portable format. However, the patent has now expired and recently competitors have started to flood the market with lower cost versions. Although customers have been loyal, international sales are under pressure as margins are squeezed.  Moreover, the company’s delivery performance has been poor and the company continuously fails to meet customer delivery dates. This is in spite of the fact that, on average, the company’s inventory turns for finished product are around 3.5.   

The basic product design for both products has a high level of commonality and they share a high percentage of the same components in their Bill of Materials (BOMs).  However, there are a wide range of customer-specified optional extras which increases the product complexity. These optional extras relate to the number of substances that can be detected by each machine.  

F1-Advanced machines have an additional functionality in terms of the range of analysis that can be performed. The customer specifies the optional extras at the time of placing an order.  The optional functionality is achieved by inserting additional printed circuit boards (PCBs) which are fitted onto the main electronic motherboard (each optional extra selected by a customer requires an additional PCB to be fitted). There are currently a range of 5 test options that can be selected by customers for the F1-Basic.  However, the F1-Advanced has a further 12 test options (17 in total) that can be added to reach its full functionality.  

Main Body

The production facility (shop floor) at FfF has three main areas:

1. The first of these is the batch manufacturing area which fabricates the subassemblies required in final assembly. These are produced in batch quantities (based on EBQ calculations). The layout in this area is arranged following the ‘process layout’ where each batch order follows a specific routing around this area until completed.  Once the parts and subassemblies are produced they are taken to the warehouse where they are stored until needed by final assembly.
2. The second area is the electronic fabrication centre which produces the main electronic mother board and the optional PCBs. All the motherboards and optional PCBs are produced on one machine and because there are a wide range of PCBs, they are produced in long batch runs to offset a 2 to 4 hours change over time. Therefore, there is a high inventory (several months of cover) kept for the complete range of PCBs which are stored in the warehouse prior to final assembly. As the machine used to make the PCB’s costs in the region of 4M Euros each, it is not financially viable to invest in further machines at this point.
3. The third and final stage is final assembly where the subassemblies and electronics are assembled into finished products. The final assembly operations consist of two assembly lines, one dedicated to F1-Basic and the other to F1-Advanced.  Each assembly line comprises 6 workstations each. Once the product has been assembled it is packaged together with its language-specific technical manual and appropriate country mains power cable. Although the workstations are in close proximity, there appears to be a high level of WIP between some of the stations.

Manufacturing planning is based on a Master Production Schedule that is agreed by Sales and Operations on a monthly basis. The forecast for the total number of sales of machines is reasonably accurate.  However, the forecast accuracy for individual order specifications is very poor.  In addition, the sales team are on a financial incentive to meet the quarterly sales target, so will offer price discounts to customers towards the end of the quarter if sales are slow. This tends to give a sharp increase in sales in the last week of every quarter and a slump at the beginning of the new quarter.

As orders are received from Sales, a Planner assigns a due date and passes the specification to Manufacturing.  As Manufacturing can’t meet the customer lead times, they are producing to the forecast. A recent study undertaken by Cranfield students showed that it took several weeks to get product through the plant but no one is quite sure why it takes so long.  In addition, there is an inventory management system used for managing materials in the warehouse and supporting purchasing decisions for the replenishment of raw materials from vendors.  However, there seems to be many discrepancies between the data in the system and real life. For example, inventory of materials in the warehouse never matches what’s recorded in the system’s inventory files.

Lead times from suppliers range from 4-16 weeks depending from where they are sourced.  Lead time variance is not uncommon.  The Purchasing teams have been told not to be short of parts as this disrupts manufacturing, so they plan to maintain high levels of raw materials to cover all eventualities.  To keep purchasing costs down, the Procurement department frequently tenders for parts and changes suppliers if they can buy at lower costs.

There is an unacceptably high defect rate for finished products even though there is a thorough Quality control and inspection system in place. To overcome the problem, the company has a dedicated area for reworking product. In this area three people are dedicated to finding the problems and repairing any faults so that product can be put back into stock as quickly as possible.

As inventory levels of raw materials (RM), work-in progress (WIP) and finished goods inventory (FGI) have grown steadily over the past few years a new automated warehouse was built in 2010 to try and solve the inventory problems.  

The workforce is a mixture of semi-skilled and skilled workers.  Many of the employees have been at the company for years and have good knowledge of the functions they perform.

FfF has one main warehouse which supplies all customers in the UK and Europe, ordering is telephone or internet based, usually direct to the end-user. Outside Europe alternative channels are used.  The company currently supplies a range of 243 SKUs (ranging from basic reagents to special calibration solutions, gloves, glasses, etc.) from 14 vendors.  One Buyer and one Inventory Manager are employed by the company to negotiate supply, review DC stock levels, and place orders with vendors as required.

The automated warehouse is, according to the Financial Controller, ‘overflowing with consumable inventory’ while the Inventory Manager has a standard policy to hold 10 weeks of stock for all items. All consumables are managed in the same way irrespective of sales volumes or value-usage.

You have been engaged by FfF to act as their consultants.  Your high level tasks are to:

1. Analyse FfF’s existing manufacturing operations and develop an integrated set of recommendations to enhance customer service levels, reduce overall lead times, whilst reducing operating costs.
2. Address the ineffectiveness of the company’s inventory management policy by reducing current stock levels, maintaining service levels to customers and release cash which the company can utilise in manufacturing.
3. Produce a consultant-style fact-finding report for FfF to improve their business.

Operation management refers to designing and using of available resources in the company so that highest utilisation of resources would be attain (Wild, 2017). Main purpose of OM is to reduce inventory cost and avoid wastage with the aim of reducing overall price of the product (Khmelnitsky and Singer, 2015). For this report, First for Forensic (FIF) company’s case study is taken for consideration which manufactures products in forensic science industry. Overall operations unit of the case study will be analysed by considering every aspect of it. Apart from that, different strategies and techniques which company could use to enhance their productivity and efficiency is scrutinised. At last, various recommendations through which company can resolve their existing issues will be explained.

Overall Operations of The Company

It is vital for every company to manage their resources which includes human resources, raw materials, financial resources etc as it is directly linked with the success of it (Heizer and et. al., 2017). It means high utilisation of resources leads to higher profitability and productivity and vice versa. Main aim behind using operation management is to enhance quality of the product, meet with the changing needs and demands of customers by changing product accordingly, lessen delivery time so that higher customer satisfaction would be achieved in the future etc (Ravinder and Misra, 2016).

FIF has large and wide potential customer in the market but still their employees and management has been suffering from losses and poor inventory management due to bad management of operations and supply chain. For instance, FIF has been leading the market from past 10 years but still inventory time is 3.5 which show poor coordination of raw materials which leads to higher time for making the final product. Besides this, both the products which FIF is producing i.e., F1-Basic and F1-Advanced has same raw material requirements but still customer lead time is getting higher which implies the incapability of workers while coping with the external environment.

Production facility or shop floor is divided into three parts and overall batch processing is used by company to operate their business. Once the production is complete, product is stored in warehouse until and unless it goes to the final batch resulting in higher inventory cost. To avoid material handling cost, company must need to use the product as soon as it comes from the previous batch as then only it would become possible for FIF to provide product on time by earning more profit margin (Hübner, Holzapfel and Kuhn, 2015).

Main Body

Product or demand forecasting is done by the sales and operations team on the basis of their expertise which is accurate in terms of overall product demand but failed miserably when it comes to individual product demand. Old information or trends of sales must be properly analysed by FIF before forecasting as it has direct impact on company’s profitability depending on the accuracy of it(Silver, Pyke and Thomas, 2016). At last, mis-matchability between recorded inventory and present inventory is always there due to which it becomes hard for FIF to manage their raw materials. So overall, it can be summarised that company needs to implement new techniques and bring reforms in to their business operations as then only they would be able to sustain in the market.

As mentioned in the case study, company has been suffering from poor operation management and inventory management techniques due to which they could not deliver the product on time which hampers their performance as well as profitability. To cope up with it, FIF must implement Just in Time technique in their business operations. It is way of aligning the demand of product with the availability of raw material in the company so that inventory cost would be eliminated from its base (Disney and et. al., 2016). For instance, if there is a demand of 15 products in the market then only raw materials which are required to make 15 products would be ordered and then the cycle goes on (Ancarani, Mauro and D’Urso, 2016).  There will be many benefits which FIF can attain from it like reduction in material handling cost, increase in number of shipments on time, usage of space reduces as no inventory would be there, stock reduction WIP, cost of labour as they would be hired according to the work which company has etc. These are all the problems which are currently faced by FIF while operating their business. On the other hand, external market is highly volatile and vulnerable in nature and changes very regularly, so to tackle it; FIF must maintain minimum level of stock in their premises with the aim of tackling any uncertainty in the market (Balcik, Bozkir and Kundakcioglu, 2016). Way through which JIT would help First for Forensics is given below,

Manufacturing Capability: As mentioned, FIF produces two products which has been in the top but still could not manage to deliver product on time due to bad inventory management. With the help of JIT, FIF does not have to store inventory in their premises and will deliver the product when the demand comes resulting in low inventory cost.  

Overall Operations of The Company

Shop Floor operations: In first stage, raw material would be order according to demand and after producing the first phase of product; it will be transferred to next step without any waiting time. At the same time, motherboards and PCB will be produced so that material produced in the first stage does not have to wait. At last, final product from both stages would transfer to the final stage which leads to elimination of waiting time.

Planning and control system: Minimum level of stock must be maintain by FIF irrespective of forecasting and apart from that, whole process would be run on Just in Time strategy so that any mismanagement between forecasting and actual demand would be eliminated. Moreover, with the help of training to the inventory manager, holding of stock for 10 weeks will be lessen.  

Various recommendations which must be implement by FIF to maintain their existing customer and gain new potential customer is given below,

• Highest utilisation of resources can only be attain if workers are equipped with set of skills and capabilities required to excel at work (Mahadevan, 2015). Proper training and development session must be provided to the less skilled employees so that their individual productivity would increase which can assist company to perform better in the market.  
• To bring down defective products, six sigma techniques must be implement by FIF as purpose of implementing is to get rid of defective products from assembly line by doing error free work (Chen and et. al., 2016).
• FIF must increase their sales number from their core business i.e., drug and DNA testing equipment so that company’s profitability would increase resulting in better cash flow within organisation.
• Continuous changes in vendors or suppliers have a negative impact on business operation as changes in overall quality of raw materials affects final product quality (Canyakmaz, Karaesmen and Özekici, 2017). To maintain this, FIF must tie up with limited vendors who provide highest quality of product with low price.
• Company only has one warehouse through which product supplies in UK and Europe resulting in high transportation cost and low profitability. To cope up with it, government warehouse must be used by them according to demand as it is the easy way of handling the product in low cost.
• To reduce inventory or material handling cost, FIF should implement Just In Time technique in their operations so that ideal time of raw materials would get reduce. 

Conclusion

From the above mentioned information, it can be said that company needs to continuously monitor their manufacturing process and try to improve it according to external environment and trends as then only it would be possible for them to compete with competitors and sustain in the market for longer period of time. To attain this, Just In Time technique would assist organisation to reduce their wastage of eliminate steps which does not contribute to the final product and its value to the customers. There must be proper flow of information from operations department to floor shop and manufacturing department as it assist them to enhance their utilisation of resources to certain level.

References

Ancarani, A., Di Mauro, C. and D’Urso, D., 2016. Measuring overconfidence in inventory management decisions. Journal of Purchasing and Supply Management, 22(3), pp.171-180.

Balcik, B., Bozkir, C.D.C. and Kundakcioglu, O.E., 2016. A literature review on inventory management in humanitarian supply chains. Surveys in Operations Research and Management Science, 21(2), pp.101-116.

Canyakmaz, C., Karaesmen, F. and Özekici, S., 2017. Minimum-variance hedging for managing risks in inventory models with price fluctuations. Foundations and Trends® in Technology, Information and Operations Management, 11(1-2), pp.107-123.

Chen, X., Hu, P., Shum, S. and Zhang, Y., 2016. Dynamic stochastic inventory management with reference price effects. Operations Research, 64(6), pp.1529-1536.

Disney, S.M., Maltz, A., Wang, X. and Warburton, R.D., 2016. Inventory management for stochastic lead times with order crossovers. European Journal of Operational Research, 248(2), pp.473-486.

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Hübner, A., Holzapfel, A. and Kuhn, H., 2015. Operations management in multi-channel retailing: an exploratory study. Operations Management Research, 8(3-4), pp.84-100.

Khmelnitsky, E. and Singer, G., 2015. An optimal inventory management problem with reputation-dependent demand. Annals of Operations Research, 231(1), pp.305-316.

Mahadevan, B., 2015. Operations management: Theory and practice. Pearson Education India.

Ravinder, H.V. and Misra, R.B., 2016. ABC Analysis For Inventory Management: Bridging The Gap Between Research And Classroom. American Journal of Business Education (AJBE), 9(1), pp.39-48.

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Wild, T., 2017. Best practice in inventory management. Routledge.