Operational Inefficiency, Essay Example

The firm may have been experiencing high costs because it still has not adopted some of the best practices in the industry, instead choosing to stay with older, less efficient methods of production. There may be some processes in the production process that could be automated but the management is hesitating. First of all, the management may only be looking at the capital costs of installed automated equipment and ignoring the long term financial and non-financial benefits from such an investment. Second, the workforce on the operating floor may be resisting because such an investment will force them to learn new skills as well as change the working styles they are used to (Peter Barron Stark Companies). The firm may not have a flexible organizational culture that encourages learning and evolving with the rest of the industry.

The firm is having quality problems because it may not have a comprehensive quality monitoring system at work such as Total Quality Management (TQM) which is a commitment from everyone in the company to ensure high quality standards and customer satisfaction (ASQ). The firm may not have any quality inspection system at work which may ensure that only quality products are shipped to the customers. If correct, this doesn’t just result in customers’ dissatisfaction but also higher costs to the firm as products are returned and repaired. If a firm installs proper quality monitoring tools, this will not only improve relationships with customers but also lower costs as fewer products will be returned. It is also possible that instead of problems with production processes and lack of quality monitoring tools, the firm may be purchasing low quality raw materials and other inputs. If correct, this means that the firm doesn’t inspect its supplies or merely purchase inputs on the basis of price, ignoring the quality elements in the process.

The firm may also have an inefficient inventory management system which doesn’t keep track of production and sales data. The result is either too low or too high inventory levels. If there is more-than-necessary inventory, it means that the firm’s capital is not only tied-up unproductively but also results in unnecessary storage costs (Logistik). If the inventory is below the efficient level, the firm incurs unnecessary expenses due to frequent ordering. It may be that the firm doesn’t have a reliable supply chain system either because it doesn’t make payment on time to its suppliers or it changes suppliers frequently in search of low prices. As a result, it may be forced to order more frequently or keep high levels of inventory because the suppliers can’t be relied upon for timely deliveries. The firm’s deliveries to its customers are late because it probably doesn’t have a proper order management system at place. The order receipt, payment processing, item retrieval, and order delivery tasks are not linked to each other, thus, every step of the order fulfillment task has to be manually performed. As a result, the whole process of order fulfillment is time consuming. In addition, because the inventory management system is inefficient, the order is often received for out-of-stock items.

Thus, the root causes of the firm’s major problems is that it is employing inefficient production processes, has not taken steps to effectively link different tasks with each other such as production, inventory, order processing, and order fulfillment etc., and has not taken steps to improve relationships with different stakeholders in the company such as employees, suppliers, and the customers. In addition, the management may also offer incentives to the employees to adapt to change and take steps to alleviate their fear of modern production technologies.

There will be few questions I would like to ask. First of all I will find out how the different processes within the organization (planning, production, ordering, payment etc.) are linked to each other. I will also try to find facts regarding firm’s relationship with other stakeholders such as suppliers, and if possible talk directly with the suppliers to find out their opinions. I will also inquire about the employees responsible for different tasks and processes within the organization so that I know who is responsible for what and how their performance compares against a chosen benchmark. In addition, I will study the organization and compare it with the competitors and the overall industry to determine the organization’s competitive position. I will also investigate who is responsible for ensuring quality and how the firm compensates its employees, i.e. are the employees’ incentives tied to their performance or are standardized. In addition, I will also talk to the management and the employees to learn about their opinions of each other as well as the organizational culture. Only after I have a better understanding of the overall organization, will I be able to determine the sources of the problems and make recommendations to the management as to how these specific problems can be rectified.

References

ASQ. (n.d.). Total Quality Management. Retrieved October 6, 2011, from http://asq.org/learn-about-quality/total-quality-management/overview/overview.html

Logistik. (n.d.). Impact of holding inventory. Retrieved October 6, 2011, from http://www.logisitik.com/learning-center/impact-of-holding-inventory.html

Peter Barron Stark Companies. (n.d.). Why Employees Resist Change. Retrieved September 28, 2011, from http://www.peterstark.com/why-employees-resist-change/