Describe about the Operations Management for Organization Designing and Manufacturing.
Operations management is the area of management concerned with the business practices for designing and controlling the production systems (Stevenson 2012). According to the case study, Hawkesbury Cabinets Pty Ltd is an organization designing and manufacturing custom-built kitchen cabinetry founded in Sydney in the year 2008. Fund and Mei, the founders of the company are responsible for operations and financial management respectively. There is a single manufacturing facility in Mulgrave for customized and standard kitchen cabinets. The company had a contract that would require manufacturing standard kitchen cabinets in small batches. It has been observed that the sales of custom kitchens have been strong, but the profit margin is not rising. The aim of this essay is to assess the current production systems and processes followed by Hawkesbury Cabinets. Further, the problem is defined with the effects of new builders’ kitchen line on the operations of the organization. Lastly, the essay determines the effect of operations on the financial structure.
According to Pralong et al. (2014), factory layout plays a critical role in the operations and production systems. It helps in making the production system smooth and efficient. An appropriate factory layout minimizes the manufacturing cost. According to the case study, Hawkesbury has a single manufacturing facility in Mulgrave for customized and standard kitchen cabinets. The equipments and machinery to manufacture cabinets serve general purpose and produce high-quality. This helps the operations in providing flexibility and manufacturing the custom designed cabinets. Since its formation in 2008, the factory layout has several equipments grouped together. The factory layout is designed in such a manner that keeps assemblies strategically. The saws and cutting tables are arranged together. However, other equipments such as routers and shapers are assembled at another work area. The machines used less frequently such as lathes are kept at a distance from the work area. Therefore, it is observed that the materials are handled efficiently in the factory thereby saving cost and time. The area and space available for use are efficiently utilized. It is analyzed that the organization is reputed for its timely deliveries for which the factory layout can be given credit (Accorsi, Manzini and Maranesi 2014). The activities such as furnishing and painting are performed in an environmentally controlled area towards the rear of the facility. Therefore, it is interpreted that the production area is sustainable and it is designed in a manner that causes minimal harm to the environment and employees (Despeisse, Oates and Ball 2013). However, as the machinery and equipment for both the standard and custom kitchen has same space, machinery and equipment, it is observed that the craftspeople had to compete for the processing time on the same equipment. It is inferred that such practice leads to bottlenecks and processing time is delayed. Bottlenecks were created as stocks or materials were piling up and were produces at a less speed due to inadequate machine capacity. It is argued that there is a requirement for good production control system for smooth operations (Stevenson 2012).
Operational failures in the manufacturing facilities can cause minor to major consequences. It is argued that due to competitive pressures, the organizations tend to push their manufacturing capacity for generating higher revenue and profitability (Näslund and Hulthen 2012). According to the case study, the standardised kitchens generate 40% of the factory volume and 25% revenue. However, the remaining volume and revenue was generated from the custom kitchens. Therefore, the founders of the company found it beneficial to focus on the custom cabinets as they generated the remaining 60% of factory volume and 75% revenue. With the improving reputation and increasing sales, various low volume contracts were signed by the company. This involved supplying to the small ‘spec’ builders with standardized kitchen cabinets. The contracts involved manufacturing limited range of kitchen cabinets ranging from a single to five kitchen specifications. Additionally, the client builders laid more stringent regulations on the delivery time. They were also price-sensitive than the customized kitchen cabinet buyers. There has been a rapid increase in the sale of builders’ line of kitchens. There has been a greater scheduling of such work and it is given priority because of higher sales and profit margins. However, the company accountant argued that the operations are not profitable in the manner it should be. It was because of the rising cost of standard builders’. The lead times for both custom and standard cabinet orders was increasing. As the machinery, equipment and craftspeople were same for both standard and custom orders, there was greater processing time. There was pile ups affecting the overall delivery times (Chiadamrong and Canova 2013). The existing manufacturing capacity was pushed to the limit and there was no further space for expansion. Evidently, the existing manufacturing location is not sufficient to fulfil the demands of buyers. It is argued that to maintain reputation in the market, there is a need for the organization to address the bottlenecks in the factory operation systems and processes (Durowoju, Kai Chan and Wang 2012).
A financial structure of an organization refers to the long-term debt and equity used by a company for financing the operations. The role of a financial manager is to decide the amount of money to be borrowed and the best ways to manage capital structure. It is argued that financial structure planning is important in the business survival and every component needs to be managed effectively (Robb and Robinson 2012). In the given case scenario, the move to producing builders’ kitchen is affecting the operations. Consequently, the financial structure of the company shall also be affected. With the rising cost of standard builders’, there was also a rise in capital investment for raw materials inventory, work in progress and finished goods. The increasing labour cost shall be added as an operating expense affecting the gross profit negatively (Öztekin 2015). As the demand for standard kitchen cabinets were increasing, there is a greater requirement for inventory. As the stock needs to be increased, the gross profit rate shall decline. With the increasing inventory, there is a need for rented warehouse space. The rent of a warehouse is usually charged monthly, that adds up to the administrative cost thereby affecting the net profit negatively (Degryse, Goeij and Kappert 2012). With the declining gross profit and net profit, the overall profit for the organization tends to decline. The net profit figure is added to the capital figure in the balance sheet. The financial position of the company is indicated using the Profit and Loss Statement and the Balance Sheet. It is argued that as the profit will be low, the balance sheet statement shall present low figures that may affect investors of the business. It may also affect the creditors such as banks to make loan to the company (Jõeveer 2012).
Conclusively, Hawkesbury Cabinets Pty Ltd needs to pay attention to the operational deficiencies as it is not only affecting the day-to-day implications, but also the long-term profitability and operations of the organization. It has been observed that the sales of custom kitchens have been strong, but the profit margin is not rising. The existing production facilities of the organization suit the demand structure. However, the existing manufacturing capacity was pushed to the limit and there was no further space for expansion. The company is making late deliveries to the buyers as there has been an increase in lead times. Not only the operations, but the business is not as profitable as it must be due to the rising costs for production.
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