The Oak Hills facility a part of a company known as The Oil and Gas Services Company (TOGS) with its headquarters in Houston, Texas. The company provides upstream services to both public and government owned public companies. The company has been affected by the ongoing slum, characterized by low demand and poor prices in the industry. TOGS in keeping with trends in the industry acquired Triangle Corp, a major competitor in the industry. Pasadena Services, another larger competitor in the industry, is in the process of acquiring TOGS and aims to consolidate redundant operations, so as to reduce operating costs. The facility majored in production of a testing instrument that was sold to both internal consumers, such as the company’s Exploration and Extraction Unit (E&E) and other external customers. External orders are characterized by enough lead times, while the internal ones usually have small lead times, therefore, resulting to rush jobs, since the facility lacks information on E&E projects that require the testing instruments. The facility, thus, has to make sure that enough raw materials are held in order to be able to fulfill the rush orders. Cases for the testing instrument are sourced externally while the sensor board, another part of the instrument, is sourced internally from the Black Dome, an internal unit of TOGS. Lids used to cover the cases are manufactured at the Oak Hill facility where the Materials Requirements Planning (MRP) system is used to order raw materials. The manufacturing process, however, requires re-engineering process to facilitate the better work flow. Management aims to reduce manufacturing and operating costs, such as inventory cost and at the same time improve the customer service through the adoption of lean manufacturing (Visich & Wicks, n.d)
Key Issues Affecting the Oak Hill Facility
It is the general idea that the facility is experiencing the following key problems:
i) High cost of operations
ii) Low employee morale
iii) Lack of sufficient supply chain information.
High Cost of Operations
The facility is experiencing high inventory holding costs which, in turn, increase the company’s operating costs. High inventory costs stem from the rush orders which have low lead times, thus, necessitating the facility to hold excessive raw materials which result into high inventory holding costs. Rush orders also increase the delivery costs and lead to overtime pays for employees at the facility.
Low Employee Morale
The morale in the company is low, as employees are worried about losing their jobs since some of them have already been laid off. The benefits program at the company where employees are rewarded in teams could also be associated with the poor morale. The work process seems to be tiring, since it involves a lot of movement in a situation that is made worse when dealing with rush orders. Some of the machines, such as the assembly machines, are worn out, thus aggravating the situation. Employees’ skills in dealing with production process issues, such as skills on statistical control techniques, are lacking further lowering morale.
Lack of Sufficient Supply Chain Information
One of the major reasons as to why the company experiences rush orders is because there is a lack of communication and coordination within the supply chain. Managers at the Oak Hill lack sufficient information on the inventory requirements of E&E and other internal projects. Coordination between various players in the chain is poor, as evidenced by late deliveries and reschedules between the Oak Hill and Black Dome.
Alternative Course of Action
Adoption of Supply Chain Management Practices
High operating costs in the company seem to stem from high inventory costs associated with high inventory holding costs, high cost of transporting inventory and packaging costs. Supply chain management assists organizations in building partnerships with trading partners and link internal processes (Power, 2005). Amongst the factors that drive the need for adoption of supply chain management is demand planning, increased competition and pressure prices, complex but shortened product life cycles and increased integration with suppliers. Adopting the supply chain management practices will enable optimization and efficiency in the production process at Oak Hill, thus leading to the competitive advantage (Croom, Romano & Giannakis, 2000).
Process Re-engineering and Training of Employees
Business process re-engineering involves analyzing and re-organizing the workflow either internally or between organizations. This is necessitated by the need to lower costs, increase service quality and improve time management (Rouse 2009). TOGS should redesign the workflow within the Oak Hill to ensure that the production processes are redesigned and tasks are aligned in a parallel manner. Tasks should be organized according to the outcomes and resources centralized, so as to reduce the havoc that is experienced by employees especially during rush orders.
Employees should also be trained, in order to boost their morale and facilitate a successive re-engineering process. Skills on statistical control techniques will enable to empower employees to make decisions through integration of information processing in their jobs and control work processes at their work points. An aspect of individualized benefits should also be incorporated within the reward system of the organization, in order to motivate individual performance and reduce the social loafing in teams where individuals take advantage of other individuals’ hard work. The machines used in the company should be regularly services and repaired to make the work process more efficient.
Adopting Technology to Boost Flow of Information
Management at TOGS should ensure that technology is adopted in order to improve the general work process and especially assist in the logistics management activities. Logistics management activities, such as order processing, inventory control, warehousing and transportation, would benefit from incorporation of technology into the company. The flow of information during the order processing would be boosted by the use of fax, emails, Electronic Data Exchange (EDI), web portals or through the Resources Planning (ERP) systems (Magutu, Lelei & Nanjira, 2010). Inventory control could benefit from the use of the Warehouse Management Systems (WMS) which would then translate into reduced inventory costs, increased efficiency in production and enhanced customer service and profits due to an increased return on inventory (ROI) and return on assets (Viale, 1996).
Adopting Supply Chain Management Practices
The adoption of supply chain management practices would enable the Oak Hills to improve efficiency in the production process through enhanced inventory control and improved information sharing, leading to the improved organizational performance, improved customer relationship and enhanced competitive advantage (Croom, Romano & Giannakis, 2000).
Process Re-engineering and Employee Training
By adopting the re-engineering process, the company is bound to enjoy benefits, such as improved and better work flow, improved morale in the organization due the increased job satisfaction, improved time management and lower production costs. However, the process may be hindered by resistance from employees a phenomenon that can be mitigated by the employee training. Training of employees will empower them to make better work related decisions and, at the same time, improve their morale. Training activities may, however, come with related costs and disrupt work processes.
Adoption of Technology
Though the adoption of technology is usually cost intensive and may require employee retraining, the benefits associated with technology are immense and border around the improved performance, productivity, quality and enhanced competitive advantage.
One would recommend the Oak Hills to adopt supply management practices and supply management information systems so as to ensure efficient inventory management and reduce the lead times experienced, especially when dealing with internal customers. Adopting supply management would also enhance inventory control and, thus, reduce the inventory holding cost due to the adoption of warehouse management systems (WMS) that will ensure that the right amount of inventory is held at one particular time. These systems will also enable planned and scheduled production, as compared to rush production. Oak Hill management should also adopt motivation strategies, such as personalized bonuses, where individuals are rewarded for helping out the other team. Training employees would also serve to empower employees to make decisions with regards to their jobs. Motivation of employees can also be done through re-the engineering work process, so as to eliminate scenarios where employees keep running up and down in order to accomplish the task. The production planning would also serve to reduce idling by ensuring that employees are always occupied, as opposed to the current situation where employees are very busy during the rush order production and idle on other times. Technology, though expensive to adopt in, would be essential in ensuring that TOGS achieves the lean manufacturing.
The adoption of lean manufacturing requires that organizations partner with suppliers in order to ensure the improved customer service, aligning production to customer demands, so as to meet requirements and being innovative in managing inventory in a bid to maximize the flow and reduce the inventory. Emphases on quality, employee empowering and efficient work flow designs are other important aspects of the company that adopts the lean manufacturing. The benefits associated with lean manufacturing border along reduced wastages, improved employee morale and empowerment, improve product and process quality, and improve control and better customer service. TOGS should, therefore, deal with the discussed issues, implement the stipulated recommendations and then commence to adopt and enjoy the benefits of lean manufacturing.