Background
Friendly couriers inc is a business company dealing with courier services in Toronto Ontario. The company has registered a decrease in its revenue by 10%. This is worrisome for Joe Sebarian, the owner and president of Friendly Couriers Inc. He heard from his dispatcher that the main reason for this loss is the mismanagement related to trucks. The operational cost of services is high because the maintenance cost for the trucks used for services is high. The services are given to the east and west part of Toronto by east and west team respectively. The company has been using these trucks for the last 8 years (Secchi, Roth, & Verma, 2018). The company faces financial losses due to suspension repair and brake repair costs related to trucks. There must be a prudent operational strategy to reduce the operational cost and supplying the services to customers at a competitive rate. This paper aims to identify the feasibility of many options which the company has (Kumar, Mookerjee, & Shubham, 2018). In the end, the most feasible option is recommended after carefully analyzing the previous year’s data present with the company.
An increased truck breakdown is leading to the loss of revenue. The maintenance cost is high because of suspension and brake repairs of trucks. In addition to this Joe is worried about the workers strike in the postal department. The peak season of business is passing without any major income. In order to further investigate the issue of truck breakdown, Joe consulted his dispatcher. Joe already knows that services of existing trucks are not economically viable due to their high maintenance cost (Netland & Aspelund, 2013). In order to find a solution to the problem, there is a need to have a sound operations management strategy that can reduce the maintenance cost as well as increase revenue for the company. The decision is to be made soon so as to take benefit of peak season. Joe was considering that the repair cost should be directly proportional to the mileage given by trucks. However, his dispatcher told that mileage may have a different impact on brakes as compared to suspension. In addition to this, the dispatcher told that driving habits of driver and conditions of the road also influence the truck maintenance. Hence, these are directly related to revenue generation for the company (Stefania Boscari, Netland, & Rich, 2018).
The operations management need to be taken into consideration. The operational management strategy must be such that input cost is reduced and revenue is generated for the company. The company needs to fix the problems related to maintenance and depreciation cost. the company should reach a decision only after a thorough analysis of the data provided in the table. There must be a reduction in operational cost if the company has to survive in the market of cut-throat competition. It cannot increase the services charges to pass on the consumer as competitors will be able to provide the services on reasonable rates. Thus, customers will be lost to competitors. To prevent this, the Friendly couriers inc must adopt the sound operation management strategy.
Data Analysis
The table provided regarding the operational costs of the organization is carefully analyzed. The number speaks; the sound numerical analysis will be able to yield positive results (Bendig, Strese, & Brettel, 2017). Thus, the president of the organization, Joe Sebarian will be able to take benefit of the peak season. There must be short term and long term goals for the organization so as to reduce the financial losses. The numbers revealed that the maintenance cost is high for East Toronto team. The west Toronto team has comparatively less maintenance cost, therefore, switching the truck between the two teams is not the solution to the problem. After careful analysis of data, it is found that brake repair cost of the east team’s trucks has increased from approximately $ 310 in 2012 to $ 472 in 2018. It attained the peak value of approximately $ 508 in the year in 2017 (Anand & Gray, 2018). The cost related to suspension in the east team increased from $243 in 2012 to $ 445 in 2018. The peak value of suspension cost in east team attained in the year 2018 itself. In addition to this, data findings reveal that trucks of an east team have also traveled more from year to year with the largest mileage traveled in 2018.
EAST TEAM
The maintenance cost in the year 2012 related to east team= suspension repair cost + brake repair cost
Thus, it was $ 243.54 + $310.80= 554.34
Average mileage traveled in the year 2012= 2171
So average maintenance cost as the per mileage was 2171/ 554.34= 3.91
The maintenance cost in the year 2018 related to east team= suspension repair cost + brake repair cost
Thus it is 472.44+445.76= 918.2
Average mileage traveled in the year 2018 is 6130
So average maintenance cost as per the mileage is 6130/ 918.2= 6.6
These numbers clearly suggest that maintenance cost is increasing in an east team with each passing year.
WEST TEAM
The maintenance cost in the year 2012 related to east team= suspension repair cost + brake repair cost
Thus, it was $79.74+ $113.16= 192.9
Average traveling mileage is 1702
So the maintenance cost as per the mileage is 1702/192.9= 8.8
The maintenance cost in the year 2018 related to east team= suspension repair cost + brake repair cost
Thus it is $ 213.36+ $ 228.42= 441.78
Average traveling mileage is 2753
So the maintenance cost as per mileage is 2753/ 441.78= 6.231
Thus, it can be concluded that the average fleet mileage has an effect on the overall repair costs. Along with this, mileage traveled has different impacts on repair cost related to brake in comparison to suspension cost. While in the case of east team the suspension repair cost is lower than brake repair cost, it is otherwise in the west team in which suspension repair cost is more as compared to brake repair costs. The East team does more work at a comparatively efficient rate. The maintenance costs of trucks in the west team are very high that must be reduced to again gain the lost space in the market (Ketokivi, 2015). There must be a prudent strategy to maximize the profit and reducing the operational cost.
East Team
Operations management can be defined as using the most efficient method related to men and material cost to maximize the profit of the organization (Lu, Ding, Peng, & Chuang, 2018). Operations management is a vital part of the policy of every organization. The operational cost cannot be higher than the competitors, especially in the globalized world of the 21st century. Having least operational cost gives competitive advantage; at the same time, if the operational costs are higher, the company can lose the competitive advantage leading to loss of market to adversaries or competitors (Hitt, Xu, & Carnes, 2015). The demands of the customers are exponentially high in this era of globalization; so the organizations aspire to give the quality services to consumers without deteriorating the financial health of the company.
The president of the organization is provided with some options of solutions which are as follows:
a) Switching the trucks between two teams
Joe considered different options like switching over the trucks between east and west team. But it was found from the data of previous few years that there is the difference between the wear and tear cost of trucks with respect to the team. The mileage of the trucks of the west team is comparatively poor, though in both the teams the maintenance cost is rising with each passing year (Bromiley & Rau, 2015).
b) Buying a lifetime warranty
Dispatcher of Joe has suggested him to buy lifetime warranty related to suspension and brake repair cost at the rate of $ 4500 per truck. This would lead to one-time payment but lifetime solution according to the dispatcher
c) Buying new trucks
Joe has another option of buying new trucks altogether but this needs to be kept in mind that the company is already facing the issue of loss in revenue.
Switching the trucks between two teams will not yield the intended result as there is lots of difference between average mileage and related maintenance cost of East and west teams. Buying lifetime warranty is also not the feasible option as it cost more than per year expenditure did on maintenance of trucks (Ta, Esper, & Hofer, 2018). This huge amount cannot be afforded by the company in situations of financial loss. Plus, it will not be a prudent decision to buy lifetime warranty at such a high rate (Meredith & Pilkington, 2018). The best solution is to do certain changes in the operation management of the organization. The short-term measure can be taking some trucks on lease and recruiting new drivers for the peak season. Recruiting new drivers does not mean that old drivers should be fired or ignored. They must be there but should be provided training to deal with efficiency issues related to operational costs (Barratt, Kull, & Sodero, 2018).
The drivers need to be provided training so that they can reduce the wear and tear cost. In addition to this, the threshold can be set up, above which, if wear and tear cost goes, the driver will have to pay for that. Where needed, new and efficient drivers can be hired. There can be the installation of Real-time positioning technology to track the location of the truck, thus monitoring the working of drivers. This will bring the efficiency in the working of the organization (Villena & Gioia, 2018). The condition of roads cannot be corrected by the organization, but definitely, the routes can be changed. It will also reduce the total delivery time along with providing fuel efficiency. Moreover, the company should implement any change keeping in mind the unique needs of the organization and taking every stakeholder into confidence. There must be an inclusive approach with giving respect to people from different backgrounds (Udenio, Hoberg, & Fransoo, 2018). This will ensure the smooth implementation of change. Diversity management and knowledge management are the subsets within operations management. These aspects must be heeded.
West Team
Conclusion
It can be concluded from above mentioned numerical figures and the explanation provided over operations management that the organization is facing the issue of bad operations management strategy (Hitt, Xu, & Carnes, 2015). The organization needs to concentrate on its daily operations and strategies related to it to bring efficiency in the working of the organization. There is a need to provide training to drivers so that they can ply on the roads with difficult conditions (Udenio, Hoberg, & Fransoo, 2018). In addition to this, the transportation route can itself be changed to reduce depreciation cost. Buying a lifetime warranty is not a feasible option for the organization as many new trucks can be bought in the mentioned amount of warranty. The issue of operations management cannot be left in limbo. There must be a sound strategy to maximize the profits by reducing the operational costs of the services provided by the company (Stauffer, Pedraza-Martinez, Yan, & Wassenhove, 2018). The operations management strategy must address the unique needs of the organization and there must be effected in the working of the company (Udenio, Hoberg, & Fransoo, 2018)
References
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Stauffer, J. M., Pedraza-Martinez, A. J., Yan, L., & Wassenhove, L. N. (2018). Asset supply networks in humanitarian operations: A combined empirical-simulation approach. Journal of Operations Management, 34-39.
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