OM consultant to the TEA DROPPER

OM consultant to the TEA DROPPER

1. Assignment Task

You have been employed as an OM consultant to the ‘TEA DROPPER’ and you are requested to:-

• Analyse and evaluate the current operating practices, process controls, approach to Quality & Production Planning, Inventory Management, Capacity planning, Risk Management and Customer fulfillment
• Provide a set of practical recommendations that will help ‘TEA DROPPER’ gain an appropriate and robust control of their Operations.
• Integrate insights drawn from current best practice and OM theory

To complete this study you will be provided with:

• A word file containing detailed background information on the company and its current situation.
• An Excel file containing data on the TEA DROPPERS operations management and performance, including sales, production performance, inventory data, customer service levels and dashboard KPI’s that highlight performance levels and overall effectiveness.

It is important to note that for this assignment, OM principles that engage with both the Word and Excel files must be applied, in helping to answer the assignment question. (Data analysis must be part of your answer.)

Your assignment must be written in a report format and should specifically contain the following four sections.

• Section 1: Introduction (15%)
• Section 2: Operations Design, Location, Flow and Performance (25%)
• Section 3: Demand, Capacity and Inventory (25%)
• Section 4: Conclusions (15%)

2. Indicative Answer

In this assignment marks, for overall quality of presentation, communication and use of sources will be applied in the above categories.

An effective answer should consider the following:

This report should be presented in an appropriate and professional style with a coherent structure, logic and connected line of analysis, evaluation and reasoning. The structure and indicative content of the report should be based upon the following main sections:

Full reference details must be included in respect to the academic literature and all other sources of information used (reference to and use of material from such sites as ESSAY.com, Google, YouTube or Wikipedia is NOT acceptable).

3. Background & Context

This assignment is based around the context of a small but growing company which has to this point had limited formal application of OM approaches.

The TEA DROPPER was founded in 2017 by four friends from Edinburgh, who create and sell crafted tea products.  They began trading in January 2018, selling only two products directly to hotels and restaurants. They have quickly built their business and now have 29 staff, and sell through a further three routes to market (on-line shop, retail and wholly owned tea shops).

The ‘TEA DROPPER’ has experienced significant growth in sales, believing that through its core strengths: Super Premium Quality products & Strong branding / Customer Brand awareness that it has real potential to further penetrate the market.  However, during this period of growth, the founders have become increasingly aware of internal mistakes, external complaints and a strong feeling of frustration from their staff about the level of planning and organisation in their wholly-owned operating plant.

The TEA DROPPER grew from a micro business that was characterised by informality which meant that any OM issues and needs were dealt with primarily as they emerged.  One of the founders has some limited OM experience and has so far been taking the lead on decision making. OM principles and practices have not been formally built into ‘what they do and how they do it’.

The owners now realise that this is a crucial point in the company’s development, and have decided to seek assistance in understanding how the design and planning of their operations can help in arresting the difficulties they have already experienced, and position themselves to be in a much better condition to grasp the market opportunities for growth, that they firmly believe exist for the company in the current and future market. 

4. Location

The manufacturing plant where TEA DROPPER has been based since launch is in the Business Park in Leith area (around 2 miles from Edinburgh city centre). The manufacturing plant is owned by TEA DROPPER.

Diagram 1 (not drawn to scale) highlights the following:

• Overall location and layout of on-site facilities.
• 3 production lines with the current work flow
• Location of the Materials in and Products Out zones of the factory.
• Proximity to the neighbours (garage on 1 side, vacant lot on the other).
• Limited warehousing (both materials and products) at the rear of the building

The site is around 10 miles from Hermiston Gate (start of the M8), 6 miles from the Millerhill Junction of the A1; and 10 miles from Edinburgh Airport.

General traffic and parking (especially customers visiting) in the Business Park can have an impact on accessibility at peak times during the day.

Surrounding the area of the property is a two meter-high perimeter wall with residential properties beyond.

Security on site has been challenging, as it is in a busy, near city location. The Business Park does not have a front gate to restrict/control access. The only security provision is locked access to the sites, front door, back door and rear fire exit. TEA DROPPER has very basic CCTV coverage.  As it is apparently easy to get from the back wall onto the flat roof of the property, unfortunately several break-ins have already occurred.

Materials / product marshalling is carried out in the Warehouse area highlighted on Diagram 1. Marshalling refers to getting all the components ready to start production.  Marshalling takes place in one location for ease.  A relatively small area (to the right of the lines) is where all goods go to a location for selection, repacking orders, distribution to customer order fulfillment.  There are 2 warehouses noted on the factory footprint in Diagram 1.  It is up to you to determine which one TEA DROPPER would use for marshalling and which one to store finished products.

On the diagram, Goods in and Goods out share the same docking area with zones clearly marked for each. General traffic and parking (especially customers visiting the Business Park) can have an impact on accessibility.

5. Production Lines

In Diagram 1 there are 3 production lines at the TEA DROPPER site. From start-up when they had a single line, which ran in a ‘U’ shape from the inbound door and sweeping round and finishing at the outbound door. This layout was changed when a second line was added, (early 2019). Lines 1 and 2 were repositioned to create space between them, moving to the ‘L’ shape design they still have. To increase production capacity, a third line was added (early 2020) this was squeezed into the gap between lines 1 and 2. (The U shape highlighted) on Diagram1

Management highlighted that the site layout, direction of flows and relationship between production line flow with inbound and outbound goods is a crucial factor that they would like advice on.  This has become a particular priority as preliminary data, (in the Excel file), does indicate particular problems with the KPI’s in production. Informal insights from line operators suggest that they are being repeatedly asked to carry out production line changeovers.

Operators are unsure if these are special orders, rush orders, promotions or oversights in supply planning that all have to be accommodated, but they all have a significant  impact on efficiencies and plant effectiveness. Operators have also expressed ongoing concerns on the increasing levels of waste and common mistakes, space is at a premium because the plant floor area is littered with boxes, sub-assembly parts, Work in Progress (WIP) and unused machinery. This generates a perception of congestion, crammed facilities, unnecessarily busy production floor and indeed an “out of control mess” almost on a daily basis.

• Production Output

The current plant and equipment at the premises produce on the basis of one 8 hour shift. Some data on capacity usage and output is included in the Excel file. Output varies and also does not necessarily reflect what can be produced. An estimate of the design capacity of the plant and lines is however estimated in the Excel file.

• Warehouse, Storage and Logistics

The current on-site warehouse offers very limited storage space, storing approximately 3,000 boxes in total. If this is utilised to its maximum, it impacts on the space available for incoming materials and packaging to less than 3 days’ supply (at optimum output levels).

The inbound and outbound bays are clearly marked at the front of the property. However feedback from production indicate that the situation to be worse than management realise. The prime example of these daily problems is caused by parked cars. Cars frequently encroach on one or both of these bays (making access for HGV’s difficult / impossible). Blocking these bays results in delays on the (delivery / dispatch) Lorries gaining access to the raised loading platforms.  This results in loading slots being missed. When loading is not carried out effectively this has a serious knock on effect throughout the entire Operations (Inbound goods, production, warehousing and outbound goods to customers).

TEA DROPPER’s management suspects that these challenges are one of the main reasons that lead times have increased as well as rising customer complaints.  Recent customer insights state that lead time variability is a factor that they find particularly disturbing and disruptive to their business.

6. Sales

Sales, is a clear success story at TEA DROPPER, however success can bring operational problems. The company’s aggregate sales are up, month on month, quarter on quarter for most of the last 3 years. Sales volumes have more than tripled (Module Coordinators note: These numbers depends on your own specific data set) and while there is variability between brands on the level of success/failure, overall trends are positive and suggest real potential for future growth.

Clearly there is also a degree of seasonality demand for the products, however the owners have not quite captured the subtlety of demand patterns or how these can be very useful information for planning production and planning capacity.

This inherent lack of formal operations management approach and clearly defined Operational roles does appear to be a factor in their current Operations position.  Historic focus has been on creating, making and shipping products, solving problems and working around (rather than confronting) the day to day challenges. Disturbingly, where sales will be in 3 year’s time is not a factor that has been considered in any great depth.

Following on from this fundamental question, is the real issue of whether Tea Dropper would have the required capacity to be able to match the confident sales projections, this is a question that must be analysed and considered as a matter of priority.

7. Level of Inventory

Finished goods inventory are held in the warehousing and distribution areas. The target level of inventory for all product lines is 2.5 months of total demand. The rational is based on observations of the owners and the need to balance the costs, risks of stockholding, with customer service and the increasingly limited space for on-site warehousing and storage. The warehouse space is currently ‘on the floor’, with some stored on pallets and some in boxes.

The impact this tactic has on customer service is (surprisingly) unclear.  The availability of Finished Goods inventory for key brands has at times been low which has seriously impacted the ability to respond to new, special or promotional orders (or indeed react to Customer returns).

As a result, the owners are keen that Inventory Management is a core area of your analysis, this maybe how they currently execute this crucial part of the business, considering other best practices or in looking at inventory models. They are aware that inventory calculations are typically more refined (than their average method), and request that your assessment of the inventory policy incorporate these into your analysis, study and advice. Increasingly, more flexibility of finished goods inventory is required to be able to meet new customer demands, and to eliminate the current issues with lead times.

8. Quality, Customer Care and Returns

The TEA DROPPER prides itself on having the highest quality in their range of products. This is the prime reason that drives sales and marketing when trying to get a (new) product into a hotel, on-line Customer, restaurant or retailer. The outer packaging will be to the highest standard and fully compliment the position of the brand at the premium end of the market.

The plan for the Tea Dropper is that product and packaging quality is managed by a strict set of quality controls and guidelines created by Annie Stacey, the Operations Director.

However, it is worrying that the Sales & Marketing Director has over the last year, been taking calls about Customer returns at a much higher level than ever before. The Director was distracted by the day to day role and on the assumption that “more sales will naturally equal more Customer returns”. The rate of Customer returns is currently unclear and not properly recorded or acted upon.

As noted earlier, recent customer insights state that lead time variability is a factor that they find particularly disturbing and disruptive to their business. As such a key question that you are specifically asked to consider:

• If Customer returns (due to poor quality) may be linked to the current challenges in the operation environment at the production plant.

The company has provided Customer relations data (satisfaction, complaints, time to reply etc.) in the belief that this will help bring a realistic and factual perspective to the situation. You should analyse the data provided on this and summarise the key lessons and make recommendations in the final report.

9. Owners Role

The TEA DROPPER was founded in 2017 by four friends from Edinburgh. Over time each of the founders assumed one of the four director roles in the organisation, not necessarily because of their individual expertise, but with the need to divide the growing tasks and gain control over the company.

The four founder owners’ current roles are:

• Annie Stacey: Operations, warehousing, distribution and supply
• Hannah Danvers : Sales and marketing
• John Rudd: Accounting and finance
• Lottie Romanov: MD, Legal & HR

10. Staffing

Total staff at TEA DROPPER is currently 29 (4 owners, and 25 staff) working broadly under the 4 areas of Operations (14) Marketing (6), Accounts (3) and HRM (2). Operations have the largest staff pool, which covers warehousing, distribution, logistics and supply chain management. Annie has indicated her lack of formal training in core operations areas is a real concern.  This is particularly relevant in the technical, production and supply chain knowledge base of the staff.

• Staff Turnover

Staff turnover at the TEA DROPPER is relatively low. They are a living wage employer and have (as part of their ‘Values and Standards’) clear commitments to work life balance, staff wellbeing and morale. However the recent frustrations around production challenges, quality returns and both inbound and outbound transport have started to creep into meetings. The partners are worried about the possible negative impact that this can have on the working environment, staff motivation and ultimately turnover.

11. Health and safety reporting

Operational Health and Safety (OH&S) reporting to the Operations Director has only been established in the last 3 quarters of the financial year.  Before this OH&S reporting was not a routine standing item on any meeting agenda and data was not collected or recorded. In response to growing reports of accidents (and near accidents) in the workplace, OH&S reports per monthly period are now collated.

The instigation of the OH&S reporting was commissioned due to an informal opinion that the addition of line 3 has had a significant impact on the ease of working on site. Whether design or protocols there is a legal requirement (and duty of care) to address the OH&S of employees in the workplace.

The owners have requested that you investigate this issue thoroughly and advise what should be done to address and improve the situation.

12. Partnerships

Relationships with key supply chain partners has until now been very good. A major concern has been raised by the main Distributor (transportation). The growth in Sales volumes is pushing them to the limit of their current operating capacity. As a partner they would appreciate being actively involved in the TEA DROPPERS growth strategy.

The owners have indicated that with the increasing and various supply routes to market, it is an appropriate time to “Stop & Think” more strategically about our Distribution partnerships.

13. Strategy and Future

• Quality: TEA DROPPER competes through Super Premium Quality products & Strong branding / Customer Brand awareness
• Innovation: Tea DROPPER considers future growth being driven through innovative and disruptive flavor combinations. (Like the recent launch and very successful Liquorish and Toffee flavor tea).
• OH&S: Must be the #1 priority for all our staff (and visitors) to our production site.
• Sales development : Consider launching a subscription based monthly Tea Club, (delivered by a distribution partner)
• Operations: Production Capacity, we must have a more strategic view and action plan of what we can do, when we can do it, what are our constraints and a contingency plan.