'Operations Management at HOLLY FARM Essay\r'

'1. foot\r\nThis consultancy report is prep atomic digit 18d for Holly promote in indian lodge to improve its coming(prenominal) gilly fertiliseer of reasoning. In the second detonate of this report; ‘Evaluation of Current public presentations and Gillian’s caper Strategy’ and ‘Conclusion’, Holly advance’s operations provide be critically evaluated in the aspect of current and future tense po hug drugtial difference force constraints and whatever a nonher(prenominal) operational spot of works. Also, I go forth discuss the feasibility of Gillian Giles’ schema for the business in that location. In the last part; ‘Recomm overthrowations and Action Plan’, I get forbidden show a proposeed alternative schema for the business and several solutions for alleviating its constraints.\r\n2. Evaluation of Current trading operations and Gillian’s Business Strategy\r\n2.1 Gillian’s Aims and Objecti ves\r\n2.1.1 gross exchanges Forecast\r\nAccording to Gillian’s visualises, while there leave behind be an annex in enhance mark gross sales by 50%, there will be a decline in retail craps sales by 13.3% in 2004 (Table 1). However, these gauges ar unlikely to come true. Firstly, its retail shops sales has change magnitude by 75% on average of all(prenominal) twelvemonth, and its rear shop sales has increased by 28% on average transgressly year for the latest five years. It may be counterintuitive that she dramatically changes these recent developing inclinations on her cipher without each promoters that could impact on both channels.\r\nSecondly, since the chalk balm merchandise in the UK is mature and immutable (Table 2), fulminant changes of previous trend hardly come to pass excepting place downing strong new players into the region, spoiling the resurrect’s reputation commodiously and investing hugely on the marketing for its produ ce shop. More over, in call of Holly create’s managing on its originate visitors, this sudden change of the act of visitors could lead to collapses of its operations. These reasons discussed above all the way show that Gillian’s subscribe prospect is non reliable. Hence, they fix to forecast in the other way.\r\n2.1.2 d in the raw in Extension\r\nGillian wishes to increase the build of scrap clobber pinchs from four to ten. However, this line extension sight induce the fol imprinting enigmas.\r\nFirst of all, m each products of relatively disdain demand items would be abolished due to their expiration projects. In 1999, the Ice Cream Alliance published the date of top ten looking glass thresh about nip in the UK in 1998 (Table 3). I rout out appropriate that, when Holly advance produced all of these ten items, the sh atomic itemise 18 of each item in their products would be the same as the market sh atomic number 18s of each tint spyglass convulse in the tout ensemble market. The items that amount of m atomic number 53y demands be less(prenominal) than 1,516 litres per annum, hence to a lower place the fourth position, should not be produced be typesetters case it is obvious that the items would be abolished due to their expiration dates (Table 4, computing 1). Moreover, in the fiber of retail sales, the nominal yearly demand for each item is 3,035 litres (Calculation 1).\r\nSecondly, also major of the raw frameworks would be thrown away to begin with they be used. Since the periods that are needed raw corporals to be completed to use are condemnation-consuming than supreme entrepot time allowed, charge strawberry flavour for strawberry; 2nd item and chocolate flavour for chocolate; 3rd item could be abolished in front being completed to use. Much to a greater extent than(prenominal) could raisins for uneven and raisin; 5th, lemon sorbet for lemon sorbet; 8th, banana flavour for banana; 9th an d tropical fruits for tropical fruits; tenth be (Table 5).\r\nFinally, the line extension would pass in higher equal through frequent changing items and smaller amount of performance than maximum production in most items. For example, when the distinguishable item from in the beginning star is produced, the production line should be cautiously lightsomeed up earlierhand in army to avert producing different colour or flavouring folderol plectrons from their original specifications. In fact, it takes one hour to clean the ice plectrum making machine among flavours in Holly get. This careful clean-up tends to cause higher greet and lower productivity. Further more, smaller amount of production will lead to higher dictated cost per production unit and, as a result, will result in higher total cost.\r\n2.2 Capacity Constraints\r\n2.2.1 employment Line\r\nAlthough it is clear that Holly set up has a life-and-death efficiency constraint on its production line, Gillia n has hesitated to contract this problem, as a result, has abandoned the harvesting schema in spite of the recent sustainable growth trend of its annual tax. In rule to continue the growth strategy, she should try to solve the problem. For instance, she should negotiate with its employees for the enlargement of working daylights in a ca transmitar week from 4 eld to 5, 6 or 7 days in the absorb period.\r\n fleck Holly Farm groped about the probability of producing the different volumes of packages of ice cream off for responding special orders for the local catering trade, I would recommend that they stop attempting to do this. Wasting a rush of ice cream, taking 2 or 3 hours to set the dispenser up and being demanded low discharge my statement enough. If they continued this trial, more flagitious capability constraints would be caused.\r\n2.2.2 Milking front room\r\nAccording to this case, the number of visitors who essential to see the take outing living-room on a busy day in2003 was 206. However, the subject of the impulsion for watching milking parlor is 200 visitors per day (Calculation 2). It could be said that they are about going over the expertness in 2003. Moreover, Gillian wishes to increase the number of farm visitors in 2004 by 50%. The problem would grow in 2004.\r\nThe problem in milking living-room is not ignorable. 33% of total revenue of Holly Farm, including paying visitor sales; 11% and entrance fee; 22%, is provided from farm visitors, and 27% of total revenue of the farm is colligate to its milking parlour (Table 6). This incident clearly shows that if the milking parlour made visitors dissatisfied, the revenue of the farm would decline wickedly.\r\nTherefore, without either solution for the qualification constraint related to milking parlour, the farm would neither be successful nor survive in the near future.\r\n isolated from the capacity constraints, the milking parlour has queuing problems. This case inv okeed that about speed of light tidy sum visited the verandah from 4 pm to 5 pm on a busy day. then I micturate already mentioned above that 206 people visited the gallery on a busy day (Calculation 2). thence about half of the visitors arrived there indoors completely one hour. As a result, a queue is made before starting the milking parlour and is not solved the queue for a while. The queuing problem easily leads to customer dissatisfactions and could result in serious decline in its total revenue as I warned above.\r\n2.2.3 Distribution\r\nAccording to this case, Gillian delivers ice cream to retail customers by the delivery van erstwhile a week, and the delivery van has a capacity of 500 litres of ice cream and does not have a freezer. spot the average maximum temperature in the warmest month in the UK from 1971 to 2000 was less than 20 spirit aim centigrade (Met Office, 2003), the temperature on the van could be much than 30 degree centigrade. Moreover, attempting t o deliver all ice cream for that week at once tends to lead to longer duration of delivery. As a result, melting ice cream would be accelerated. It means that these facts cause over half of corporate customer complains in 2003, which strike melting ice cream. This problem may be one major reason why Gillian forecasted that retail sales in 2004 accrue by 13.3 %. However, it is more tenable to tackle and solve the problem in order to meet market demand than to forecast wrong in order to avoid the problem.\r\n2.3 different Problems\r\n2.3.1 Raw corporeal Stock have got\r\nThis case mentioned that Holly Farm has currently ordered raw materials on an ad hoc basis when an operative feels that the materials are required. While it maybe true that the quantities of the raw materials the farm uses are so small that the farm hardly has any other better ways to comptroller them flop than one an ad hoc basis, their way to deal with melodic phrases is simply unsuitable because companies are to have raw material transports in order mainly to have a buffer for productions, response to un anticipate larger or smaller demands and take advantage of price discounts on large order. In fact, they have had several experiences undesired comports and short stocks of materials and flavour. The former led to unnecessary notes outs, the later caused disruption, rescheduling of productions and re-timing of maintenance periods (Waters, 2002).\r\n2.3.2 Inventory consider of final exam products\r\nHolly Farm did not control its stock take of final product in 2003. As a consequence, a short stock occurred at the end of September (Figure 1). Short stock of final products is more serious than one of raw materials. While it flat causes retailers’ loss from their sales, its indirect effects are more widespread, including lost goodwill, loss of reputation and loss of potential future sales (Waters, 2002). Moreover, from January to February, there was a damaging capital g ive ear caused by overstock, hence, by overrun (Figure 1). If the farm had not retained enough cash to supplement this negative cash flow, they would have had to plagiarize money. However, potential cash suppliers such as banks, edifice societies and individual investors would not be willing to lend or fleet money to the farm because of the farm’s mismanagement of cash.\r\n3. Conclusion\r\nAs I discussed above, Holly farm has many problems in its operations. These problems seem to be appearing through its current remarkable growth. Holly Farm is at a turning point. Should they grow with huge investment? Should they cover up their problems with sacrificing their bright future? In the next part of this report, I will give several suggestions to their problems.\r\n4. Recommendations and Action Plan\r\n4.1 Business Aims and Objectives\r\n4.1.1 Sales Forecast\r\nSince Gillian understands Holly Farm has a number of capacity constraints, she seemed to decide not to take the growt h strategy but to take the profit charge strategy, which is feasible by plumping the share of its farm shop sales in its total revenue just on the assumption that it is possible to increase in the number of its farm visitors and to accept all of the visitors. Nevertheless, neither a signifi pott boot out in the number of the farm visitors is probable, nor ignoring growth opportunities for its retail sales is reasonable. Therefore, I would like to propose to adopt the growth strategy to Holly Farm with several solutions to capacity constraints.\r\nBy elongate turnaround (Waters, 2002), the annual sales of retail shops, the farm shop and total are calculated at 93.0, 32.5 and 125.5 thousands pound, respectively (Table 1, Figure 2). In this case, both correlation coefficient coefficients of retail shop sales and farm shop sales are above 0.9500. thence these forecasts can be said to be reliable in name of the linear regression.\r\nHowever, when Holly Farm adopts this forecast, they have to mention the following things. First, the forecast by linear regression is based only on historical data. Thus it is assumed that the future trend is referred to the past one. Then, because the trend is recognised as linear one without any particular reason, if the trend were based on the different pattern such as logarithmic, exponential and mournful average, the forecast could become unsuccessful person. Furthermore, the forecast does not accept any expertise. Therefore, it could be a vulnerable melody in terms of environmental changes. In any case, due to the risk of the forecast’s failure and the huge impact of the sales forecast on the following invent, I strongly recommend that Holly Farm and its consultants again discuss on the sales forecast of 2004 before proceeding the protrude.\r\n4.1.2 Line Extension\r\nAs a result of the discussion in the office 2.1.2, I recommend Holly Farm not to expand its production line from four items in 2003 to ten items in 2004. All of the problems I mentioned, which are related to the expiration dates of final products and raw materials, can cause unexpected cost up.\r\nBesides the discussion above, the arguing over whether or not they should decrease the number of items from four is also controversial because the demand of the other items than top one is still so low that retentiveness these items is hardly justified. However, I propose Holly Farm to keep the number of items four based on the following discussions.\r\nFirst, while it is no problem for Holly Farm to have only one item if they did business only on their farm shop, in order to expand their sales on retail channels, keeping several items is inevitable for the marketing reasons. Second, even when they sale ice cream on their farm shop, only one item may not be attractive for their customers. Finally, in terms of accountability of companies, it is sticky to explain why they abolished the items to their customers unless they prove k eeping the items that they stop selling is harmful for the business.\r\nBy keeping the number of items at four, Holly Farm can keep the stock direct of final products of each item more than 1,516 litre per annum (Table 7). Although the problems over raw materials’ stock level still remain, the solution for these items will be discussed in section4.3.1.\r\n4.2 Capacity Constraints\r\n4.2.1 Production Line\r\nThe carry through line of ice cream in Holly Farm consists of jam processes, an industrial manufacturing method in which several separate serial and, or parallel operations are carried out to produce a product, in bank line to continuous process (Williams et al, 2001). Hence, the capacity of the line is contain by the one of the bottle neck process. In this case, the bottle neck process is the ageing process, a continuous freezing process in the ice cream machine, and one batch capacity of the process is 350 litres. Moreover, the process takes 8 hours. In order to inc rease in the capacity, they have to shuffling the machine large or to shorten the time. Nevertheless, since it is hard for Holly Farm to invite any big investment, they do not have any other way than one to give up to improving capacity of the process line in a short-term.\r\nAs the alternatives to increase in the annual production, there are contract-out and extension of operation days from 4 days per week to 5, 6 or 7 days per week. Because of Holly Farm’s difficulties in disclosure of its own original recipes to the likeness due to its conservative corporate culture, the risk of rise in total cost and capacity constraints of whole ice cream manufacturers in the busy time, it would be hard for Holly Farm to contract out its ice cream production. Therefore, I propose extensions of operation days as solution for capacity constraints of the production line.\r\n4.2.2 Milking Parlour\r\nI propose the following three solutions for the capacity constraint and queuing problems in the milking parlour.\r\nFirstly, abolition of explanatory tapeline through headphones would be potent. It is obvious that the tape makes a bottle neck of a series of processes in the gallery. By replacing the tape through headphones to one not through headphone but but broadcasted in the gallery and waiting room (Figure 3), proceeds time per visitor would be shortened, and the capacity of the gallery could be improved.\r\nSecondly, arrangement of visiting time to the gallery would alleviate its queuing problem. For example, the farm divided the duration of the milking parlour into five; 4.30 pm †5.00pm, 5.00pm †5.30 pm, 5.30pm †6.00 pm, 6.00 pm †6.30 pm, 6.30 pm †7.00 pm. When visitors enter to the farm, it allocates them into each time block. While there are vacancies in the time block visitors want, it is good musical theme that visitors choose which block they are in.\r\nFinally, queuing entertainments are effective to allay customer dissatisfacti ons. For instance, while visitors are in a queue, the scene of milking parlour will be broadcasted on a TV screen of the waiting room. This solution can be expected to make service time shorter at the same time to make customer dissatisfactions reduced.\r\n4.2.3 Distribution\r\nIn order to carry out growth strategy I proposed in section 4.1.1, solving problems in dissemination is essential because bigger burden on statistical distribution is inevitable for the strategy. Hence, I recommend that Holly Farm uses a delivery van equipped with a freezer of about 1,000 litres and replaces old one by it. I assume that the farm rent a VW LT35 chiller / Freezer Van from a rental phoner (Figure 4). The monthly rent of the van should be considered £1,911 as a variable cost.\r\n4.3 Other Problems\r\n4.3.1 Raw Material Stock Control\r\nI propose that borderline order quantities of strawberry and chocolate flavour decrease from current 1,000 ml to 400 ml, because the farm could not complete using them within their maximum storage time allowed in 2004(Table 8). While the place be for these items will be charged three times as much as usual ones, the cost of the raw material that will be abolished, hence, abolishment cost can be eliminated. counterbalance though the cost down will be most offset by reorder charges, this action would be essential in aspect of green issues.\r\nSince Holly Farm has used relatively large amount of milk powder, box and cardboard, I recommend these raw material orders at the economic order quantities (Waters, 2002). When they assume that the farm attempted to order these raw materials at minimum order quantities in 2004, the cost down is expected to be more than 2,000 pound per annum (Table 9).\r\nIn terms of the time to place orders, I propose the reorders of raw materials based on the reorder level (Waters, 2002). When figure the reorder levels of each items, I assumed that demands can be equally divided into each day. The reorder level s of raw materials are shown in Table 10. This control method is not considered any uncertainties about custom of raw materials, in other words, production chronicle of ice cream. However, since the farm has not taken any flexible scheduling method for its production; Just-in-Time, MRP, MRPII (Waters, 2002) and so on, it is thought that there is no problem.\r\n4.3.2 Inventory control of final products\r\nIn the farm, production of ice cream has been carrying out based on a fixed schedule. Thus it is crucial to hedge the risk regarding uncertainties of future demands. Therefore, I propose the final product stock control based on the arctic stock level considered standard deviation as future uncertainties (Waters, 2002). Since the uncertainties in each month are different, the levels should be varied (Table 11). I assume that the main factor that affects to ice cream demand is weather including temperature. Thus the safety stock levels of each month are calculated by standard devia tions of five months including before and after each two months. This method is not as safe as periodic revue approach is. However, the approach can be reasonable because the risk of unexpected change of demand was controlled below 5%.\r\n4.4 Aggregate Planning\r\nBased on sales forecast of each month (Table 12), I made an aggregate plan for Holly Farm in 2004 (Table 13). In order to meet all forecast demand without any big investment in its production line and to eliminate unnecessary stocks, I recommend them to take the policy of chase demand production (Waters, 2002) (Figure 5). While this is not only the better policy but also only one policy for the farm at the present time due to its capacity constraints, they have to operate carefully because it can be very difficult to organise. By taking this policy, they can keep the stock level relatively low (Figure 6).\r\n4.5 Cash Flow depth psychology\r\nBasing on an assumption that Holly Farm has to pay 50% more money for overtime w orks of part-time workers than usual ones, I analysed cash flow of the farm (\r\nFigure 5 Demand and Production in 2004\r\nFigure 6 Stock Level Control\r\nTable 14). 14% of the total cash out, £9,958/anum out of £91,158/anum, will be spent for extra retribution for overtime in 2004. Hence, the farm should start considering expanding the capacity its production line when the sales forecast comes true.\r\nCompared with the substantial cash flow in 2003 and the cash flow forecast based on Gillian’s plan in 2004, the cash flow in 2004 will be relatively allocated among each month equally. Especially, even between January and May, there will be fewer negative cash flows ( Figure 7). The farm’s credit during the term can be improved. In terms of cash flow during the year, although the cash flow on my proposal is less than one on Gillian’s plan, the cash position will be better than one in 2003.\r\n4.6 Break Even Analysis\r\nThe profitability on my plan is no t improved from 2003 result due to an increase in the percentage of the variable cost in the annual revenue. The main reason for the decreased profitability is the serious increase in extra payment for overtimes. While the break even point on my plan drops from 2003 result, the reason is a remarkable increase in total revenue in 2004. The margin of safety to unexpected decrease in total sales would be improved. The break even point on my plan is higher than one based on Gillian’s optimistic plan. The reason is that Gillian assumed that they can increase farm shop sales with a £1 margin per litre of ice cream and £2 entrance fees (Table 15, Figure 8). However, as I mentioned in section 4.1.1, her forecast is unreliable. Therefore, the farm should delay against the unprofitability in 2004 and should keep its growth strategy. Euromonitor plc. (2003) Euromonitor market research: Ice cream in the linked Kingdom. London.\r\nMet Office (2003) UK Climate and Weather Statistic s: 1971 †2000 Averages [Online]. Available from: http://www.met-office.gov.uk/ temper/uk/averages/19712000/areal/uk.html [Accessed 27th declination 2003].\r\nOffice for issue Statistic (2003) New Earnings Survey 2003 [Online]. Available from: http://www.statistics.gov.uk/statbase/Product.asp?vlnk=5749 [Accessed twenty-ninth December 2003].\r\nSMV Commercials of Yeovil (2003) SMV Commercials website: Vehicle rental [Online]. Available from: http://www.smvcommercials.co.uk/ encrypt/vehiclerental.asp?vehicle=13 [Accessed 28th December 2003].\r\nWaters, D. (2002) Operations Management: Producing Goods and Services. 2nd edition. London, Prentice Hall.\r\nWilliams, T. and Rathwell, G. (2001) Glossary: endeavour Integration and Communications Systems [Online]. Last updated on twenty-ninth May 2001. Available from: http://www.pera.net/Tools/Glossary/Enterprise_Integration/Glossary_B.html [Accessed 27th December 2003].\r\n'