Introduction
This report presents a case analysis of the Morrison Company that produces smart tags in both pharmaceutical and retail lines. The paper details the major facts about the organization and its products, as well as providing information about its earnings and the manufacturing process. The problems the firm encounters are addressed and analyzed. The report includes a capacity and utilization analysis, discusses the lines’ competitive advantages, and offers recommendations for improvement of the company’s position.
Major Facts
The presented study features the Morrison Company, an organization that manufactures goods that use ratio frequency identification (RFID) technology. Products include smart labels for retail and pharmaceutical industries (Wheelwright & Myers 2011). The organization has more than 150 competitors; as such, the smart tags market can be considered highly competitive. In 2011, the Morrison Company offered four varieties of product, including basic and premium versions of smart tags (Wheelwright & Myers 2011). Most of the organization’s sales are high-frequency (HF) chips with around 22 cents per unit. In 2010, the company’s net earnings before taxes were $6 million for the pharmaceutical line, and around $370,000 for the retail line (Wheelwright & Myers 2011).
The organization is based in Colorado, where all of its departments are located. The manufacturing process is performed both by employees and via automated machinery. The company has 10 machines that produce around 20,000 units per hour (Wheelwright & Myers 2011). As many units require personalization, the organization uses four machines for this purpose. Production planning and control are supervised by two production and inventory control executives, a purchasing manager, and an administrator responsible for quality assurance. The company manufactures about 240 supplies, around 160 of which represent 80% of the total outlay (Wheelwright & Myers 2011).
Major Problems
Several operational problems in the Morrison Company can be outlined. The first challenging issue is the lack of a fixed schedule for the production of standard products. The organization has sixty hourly production employees, whose tasks are to select parts, receive and inspect material, test and produce inlay, assemble tags, and package items (Wheelwright & Myers 2011). In addition, some of the tasks are performed automatically and do not require close monitoring.
However, as the plan for manufacturing of standard products is not established and workers receive tasks at the beginning of their shifts, it is impossible to assign operations effectively due to potential factors that might interfere with the production schedule. It results in an ineffective use of machines and poor productivity as many employees are inefficiently engaged in the working process.
The second problem that can be identified is supply shortages and the challenges that presents. Due to the economic recession, the Morrison Company is not able to receive the necessary number of chips and other supplies because manufacturers cannot meet high demand for their products. This can result in up to ten-week delays beyond the scheduled date, which can affect the organization’s relationships with buyers and stakeholders (Wheelwright & Myers 2011). Moreover, some of the orders can only be completed partially, which means that the manufacturing process and use of time are highly inefficient.
The company’s capacity is another significant issue that can be outlined. The organization is not able to compete with other suppliers in this period of growing demand for the pharmaceutical line as it is impossible to introduce more machines, and the establishment of a second shift may require a significant financial investment.
Questions
Capacity and Utilization Analysis
A capacity analysis shows that one machine can produce 20,000 units per hour, while the production time per month is 160 hours (Wheelwright & Myers 2011). For example, the total output for the pharmaceutical line is around 165,000 smart label rolls per year while the expected number is almost 180,000. For the retail chain, the total output is approximately 110,000 per year, while around 125,000 items are forecasted (Wheelwright & Myers 2011).
This means that at its current rate the organization’s production capacity is relatively low. In addition, it is impossible to increase the number of machines in operation as there is a lack of space at the production site, which means that the Morrison Company cannot process the number of orders compared to demand. Therefore, the physical capacity of the facility is decreased as well. The mechanical capacity may be considered average as the company has a large number of machines that serve various purposes.
Many operations are automated, which is a significant step to improving productivity and the quality of products (Krajewski, Malhotra & Ritzman 2016). However, it is evident that the organization needs to implement more changes to increase its capacity and expand its production.
The utilization measure allows for the evaluation of the proportion of potential economic output. A utilization analysis can be performed by dividing the actual output with the potential output and multiplying the result by 100 (Kenton 2018). As mentioned above, the actual and potential outputs for the pharmaceutical line are 165,000 and 180,000 correspondingly; for the retail chain, these numbers are 110,000 and 125,000 (Krajewski, Malhotra & Ritzman 2016).
Thus, the utilization rate is around 91% for the pharmaceutical field and approximately 88% for the retail line. This analysis shows that the company has a relatively high utilization rate. However, it is necessary to note that the organization should work on improving its performance further.
Production Processes
The product lines at the Morrison Company vary, with each of them having a distinct set of features. The pharmaceutical line originally consisted of standard smart tags that were available in two options (Wheelwright & Myers 2011). Within three years from its establishment, the company acquired a 30% share of the smart tag market in this field. More than 85% of the sales include HF chips; 15% of orders in this line are personalized.
To test the set of products and identify their detailed specification, the Morrison Company works with a major pharmaceutical organization. The sales for this line account for two-thirds of the organization’s total annual revenue (Wheelwright & Myers 2011). The retail line presents a high level of customization at almost 85%. The average price per unit is slightly more than 10 cents; the line accounted for one-third of the Morrison Company’s annual revenue in 2010 (Wheelwright & Myers 2011). The manufacturing process for the product lines included receiving supplies, replacing broken or missing parts, inlay fabrication, testing and verifying products, and packaging.
It is possible to state that the pharmaceutical line has more competitive priorities than the retail one. The reason for this, as mentioned above, is that the company has 150 competitors in the smart tags market, with the majority of them producing retail products (Wheelwright & Myers 2011). It is necessary to note here, however, that the pharmaceutical line offers a smaller variety of items compared to the retail line. For example, the only option for customization in this segment is optional label printing. In comparison, products for retailers are manufactured in various colors and sizes.
The characteristics of the products match the processes at the Morrison Company. As the items are based on RFID technology, the inlays are fabricated using two automated inlay assembly systems. Inlays involve a variety of integrated circuits (ICs) or microchips priced between three and four cents (Wheelwright & Myers 2011). The production process requires a high level of precision because ICs and antennae must be placed correctly; an error of even one millimeter can lead to the tags’ inability to function.
As mentioned above, the organization uses machines not only for tag assembly and fabrication, but also for personalization of products. It is necessary to note though that employees ensure the high quality of performance at each stage of the production process. Such an operational approach explains the relatively low rate of customer returns, which comprises about 3% of all shipments (Wheelwright & Myers 2011). However, as there are significant problems in the production stage, as previously described, it is highly likely that the company may experience a decrease in productivity unless measures are implemented promptly.
Recommendations
There are several recommendations that could be offered to resolve the problematic issues presented in this report. First, it is necessary to address the problem of a lack of schedule. Shauna Breen can suggest changes in the timetable that would not be based on day-to-day decisions. For example, she can develop a more stable schedule for standard products that do not require customization. Considering the fact that even personalized items do not introduce a high level of uncertainty, such a solution would enhance the speed of production and make the assigning of tasks to each employee more efficient.
Second, as the organization lacks space for new machines, two changes can be suggested. As the Morrison Company has to expand in order to meet growing demand, it may be necessary to buy an additional facility for new machines. An alternative solution would be the implementation of a second shift as, currently, the equipment is not used at night. This solution would require significant financial investment as future employees might want to receive increased remuneration for night work.
Finally, it is vital to implement policies aimed at enhancing the company’s competitive advantage by eliminating the delay in supplies. The organization should ensure that its services are better than those provided by other manufacturers to remain competitive and establish positive relationships with its customers (Kareska & Marjanova 2016). The suggested policy may state that the due time for orders should include any potential delay based on the availability of materials, as well as provide legal protection for the Morrison Company in case delays occur due to reasons beyond its control.
Conclusion
This analysis shows that although the Morrison Company’s position in the market is relatively strong, it is vital to suggest changes to ensure the success of future productivity. It is necessary to make the production schedule for standards products more stable, implement night shifts or expand the facility, and incorporate policies aimed at addressing supply delays. Currently, the organization’s capacity is low, while its utilization rate is relatively high.
Reference List
Kareska, K & Marjanova, TJ 2016, ‘Aspects of competitiveness – achieving competitive advantage of organizations in Macedonia’, Journal of Economics, vol. 1, no. 2. Web.
Kenton, W 2018, Capacity utilization rate. Web.
Krajewski, L, Malhotra, M & Ritzman, L. P. 2016. Operations management – processes and value chains, 11th edn, Person Education, Upper Saddle River.
Wheelwright, SC & Myers P 2011, The Morrison Company. Web.