1.0 Introduction
From the case study it is evident that the nature of Farmac Plc’s contracts is changing from long-term high volume to short-term medium volume contracts. Their operations will need to be advanced accordingly. Before addressing the aspects of the operations that should be reviewed we will first discuss the differences between previous and current operations, classify the operations in terms of process layout and type, explain the production policy and also discuss material management at Farmac Plc.
2.0 Question 1
Classify the previous and current operations of Farmac Plc’s manufacturing using the 4V model. Discuss the major differences.
The 4V model gives an insight into the costs associated with production. The ‘high’ end of the volume dimension is on the right in order to keep all the implications associated with low cost on the right (Slack, Brandon-Jones and Johnston, 2013). If variety, variation in demand, or visibility increase this will result in increased costs. This is helpful when comparing the types of strategy implemented in different types of organisation and also when understanding how to become more cost-effective. In addition to this the 4V model can be used to find out the position of an organisation within a certain market. To demonstrate the current and previous operations at Farmac Plc a graph is included in Appendix 1.
2.1 Firstly, due to the fact that large scale, long-term contracts have simply been replaced by medium volume third-party contracts for retail chain stores and pharmaceutical companies, there is very little difference in the volume of production. However, as is explained by the manufacturing manager, the time taken to change production from one product to another could negatively impact the maximum volume of production. This is because of the increased variety of products. Whilst the volume may not necessarily be lower, it has become more difficult to repeat each task due to the time lag when switching between products and systemisation is also lower due to the increased involvement of staff members.
2.2 A main difference that has been established is the fact that the variety of products has increased from batch sizes between 250,000 and 1 million that were produced on a regular basis to medium volume contracts with much lower batch sizes between 15,000 and 500,000. An increased variety also creates the practical problem of having to change production where changeover times vary between one and six hours. As there is an increased need for customisation due to differing customer needs flexibility becomes a key factor in determining the success of the Farmac Plc. As a result of the increased variety communications between the Sales and Production Operations department have increased. Whilst the increased variety has placed more of a strain on the operations, the result of this is the ability to address a larger amount of customers’ needs.
2.3 Variation in demand has also increased. There is a striking difference in that previously Farmac Plc had been operating on orders that were received on a monthly schedule and now they must adapt to medium volume orders with short lead-times. This leads to the problem of Farmac Plc having to deal with the displacement of production runs when new items must be produced. As a result of this the organisation is unable to predict the times at which it will be operating at capacity but this does not mean they are unable to anticipate when organisations may be most likely to place orders. Moreover, the increased variation in demand equates to higher unit costs which may also strain the organisation’s monetary resources if it is not accounted for.
2.4 Visibility has partially increased since Farmac Plc changed its operations. Though the customer’s direct view of the process may not have changed, it is evident that customers are now much more involved in Farmac Plc’s operations. This is due to the fact that customers can now order and ask for specific delivery dates as they please. As a result of this they have a short waiting tolerance which means the Sales team not only has to increase its communications with the Production operations and transport departments, but also that it now must maintain higher customer contact skills. The lack of a monthly schedule previously allowed for the storage of products and this would have allowed them to have relatively low unit costs and a high amount of staff utilisation. In contrast, now that orders are mainly processed according to demand, staff may not always be utilised to their full potential and there would be high fluctuations in the demand for staff. Thus the combination of this and an increased order variety lead to an increased unit cost.
3.0 Question 2
Classify the operations of the manufacturing plant in terms of: process type, and process layout.
3.1 The process type relates to the management of activities associated with production. In Farmac Plc numerous factors indicate that it is a batch process as is described in the article. Many items are produced at a time on the three production lines and all the products go through a similar process. The organisation has been able to classify its products based on batch size rather than product type as demonstrated in appendix 2. This is one of the key factors to consider when differing between a jobbing process and a batch process. Moreover, there is no variation between the products in Farmac Plc’s batch processes. This is demonstrated by the fact that in one production run up to 1 million products can be made. Furthermore, it can also be deduced that this is not a mass process as the products in a batch do not require modification after basic production as there is no variation between them.
3.2 As it is a batch process and since the production of different products occurs on three separate production lines it can be inferred that this is a cell layout. That is to say there are three product lines and that the resources to be transformed are all moved to one of these. A single product line is seen as a function and all the required transforming processes are located together. This is because it is easier for the products to flow through the various processes rather than to bring the transforming processes to the products. Though the requirements of the products are fairly complex Farmac Plc uses specialised equipment for each stage of the process and this allows them to send the products on complex routes during production. Having this equipment on a large scale allows Farmac Plc to produce huge quantities of the same product at once. Due to the fact that they produce a variety of products it cannot be a product layout as not all the products undergo the same base level processes as the products are not completely standardised; the tablets or formulas themselves and the immediate packaging is dependent on the specific product.
4.0 Question 3
Explain the “production policy” and the factors of Capacity used at Farmac Plc.
5.0 Question 4
Discuss the management of materials at Farmac Plc.
5.1 The materials used at Farmac Plc include the tablet, packaging (blister pack, box, carton or bottle, labels, shrink wrap plastic, boxes for distribution and instruction sheets (Gilmore and Smith, 1996). Whilst this may not seem like a very difficult task on a small scale, the increase in varying demand and the variety of products Farmac Plc must now produce places a strain on the management of materials. The objectives of materials management are to ensure that the organisation has the right quality, quantity, source of products, right price and right timing (Materials management definition, no date). From this it can be inferred that a few of the activated involved in materials management include planning and control, purchases, control of inventories and distribution. The change in the control of the organisation from push where Farmac Plc was able to forecast demand and produce accordingly, to pull where Farmac Plc must respond to order requests and deliver within a short timeframe means that a master production schedule is difficult to make and material requirements are hard to determine. Having said this since the materials involved in production are limited this can be used to their advantage.
5.2 As batch sizes batch sizes and large sale contracts have decreased simultaneously the only material that may need to be ordered in is the tablet or formula itself. However, a consequence of this is that more space will need allocated storing pre-production inventories. However, this is positive as less space is required to store finished goods as Farmac Plc now responds to demand rather than sales forecasts. An advantage of having a lower inventory is that it frees up capital which can be used to invest in inefficient parts of the production process. Other materials involved in production such as packaging and labels can be stored before production in order for Farmac to respond to customer lead times. Lean synchronisation is now key in Farmac Plc as it must quickly meet demand with good quality products in an efficient manner. It would therefore be wise to control materials by replenishing stocks to a reasonable level in accordance with the product groups through the use of production plans. Finally, as Farmac Plc is dependent on demand by producing products only as needed, materials are not wasted through the over-production of goods. In engaging in the aforementioned activities Farmac Plc is able to address various constraints such as inventory, operating expenses and the production process. This will in turn increase profit through enabling faster and more efficient production. Farmac Plc should therefore combine lean synchronisation with material resource planning in order to for it to be as efficient with its materials as possible.
6.0 Question 5
Identify and discuss aspects of the operations activities which Farmac Plc needs to review and/or will need to adapt to meet the ongoing demand of its customers.
6.1 As discussed in question one, addressing the increased variety and variation in demand prove to be particularly challenging for Farmac Plc. They are required to be more flexible, make the production process faster and more streamlined, they can no longer use the warehouse as a buffer to address demand, and they are also required to have much more extensive communication between departments. Various things can be done in order to adapt to these pressures.
6.2 A lack of flexibility makes it difficult for the organisation to respond to customer lead times and this is what may be used to differentiate between Farmac Plc and other competing pharmaceutical companies. This can be easily rectified by firstly either replacing or fixing line 1 so that it does not breakdown. Secondly, to cope with smaller order sizes and an increased variety of products Farmac Plc should also install a minimum of two extra production lines which cater to different batch sizes. This also means that each production line will be able to cater each product group and that resources like electricity will not be wasted it operating machinery that can produce batches of up to one million when only 250,000 pills may be required.
6.3 To meet increasingly shortened customer lead times Farmac Plc should streamline. This can be done by eliminating defectives that may come as a result of the breakdown of a product line. Again this can be resolved by either replacing or fixing line 1. In addition to this, Farmac Plc can ensure that the equipment is operating as efficiently as possible and that only process that are directly related to adding value can occur at times of high demand. This means that orders with shorter lead times should be a priority and that as much labour and equipment as possible should be devoted to meeting those lead times. Lowering these types of waste and those mentioned in the previous paragraph, should contribute to lean synchronisation within Farmac Plc. Whilst the production layout works well at the moment, if demand steadily increases, in future it may be required that Farmac Plc groups its products and adjusts its production lines in accordance with the requirements of the product. This is because of the increased amount of line extensions which may require more specialised procedures and equipment.
6.4 The warehouse can no longer be used as a buffer to product Farmac Plc from demand spikes due to the nature of their current contracts which are short-term and on a smaller scale. They must deliver products as soon as they are ready which means that not as much space is required for the storage of raw finished products. However, the organisation can use this to their advantage as currently the warehouse requires 40% of the factory’s space. This can therefore be reduced to around 20% where 10% can be allocated to finished goods and 10% to raw materials. This increase in floor space will make way for the extra production lines.
6.5 As highlighted by the sales manager, a higher level of communication between departments becomes a requirement when the organisation can no longer operate on long-term contracts. This suggests that there is no automation in communications which can lead to a decrease in the efficiency of production. This would have a negative impact on the lead times discussed above. When an order is placed with the organisation, an automated system would scan the inventory and automatically order extra materials if required. Concurrently, the production operations and transport departments would be alerted. As this would happen in real-time, each department would be given the maximum amount of time to schedule and ensure that processes within the departments are as efficient and timely as possible. Communications are vital and a lack of investment into this could potentially lead to a loss of future orders when their products are not delivered on time. Computerising communications and other parts of their operations will provide Farmac Plc with the means to accommodate both current and future orders.