Capacity Management Strategies
Discuss about the Failure and Restoring Reputation Markets.
Fonterra is a dairy manufacturing company. It is owned cooperatively by 11,000 New Zealand dairy farmers. Fonterra represents 30% of international dairy trade. It was established in 2001 by the merger of two diaries, New Zealand dairy group and Kiwi cooperative diaries. The vision of the Fonterra is to be the origin of dairy nutrition for all young and old. The company offers the dairy products that meet the need of customers such as health and wellness. The company carries the practice of goodness to generate customers around the world. This report has made an analysis of Fonterra. The analysis is made in the terms of capacity management, general locational factors, plant layout, continuous improvement, supply chain, inventory and material handling.
The capacity management is the procedure of planning resources which are required to meet demands of the company. It comprises capacity planning, forecasting, monitoring and performance analysis. The capacity management strategies enable the company to increase and decrease capacity to meet demand. The capacity comprises the factors like labor and equipment which can be scrambled to increase the output of a company. The capacity management strategies adopted by Fonterra are:
Lead strategy: The lead strategy is the most aggressive strategy adopted by the Fonterra. As per this strategy, the company increases it’s production capacity in advance to meet expected increase in demand. It is also used to appeal to customers away from the competitors. This capacity management strategy is more effective when the competitors are exposed to the inventory shortages and the demand rises steeply. It is an upfront investment in the capacity more than needed (Kazerooni, et. al. 2015).
Dynamic strategy: The dynamic strategy is the most effective strategy used by Fonterra. It maintains the capacity of production based on the forecasts. It adds or reduces capacity as per the demand of customers. It is the ability to assimilate and reconfigure internal and external capabilities to address changing environment. The dynamic strategy concerns development while maintaining capability standards to ensure competitive survival (Manzini, Bozer & Heragu, 2015). Whenever the demand increases, the managers need to makes the use of existing resources for the future process change. According to the recent updates, Fonterra has doubled it’s manufacturing capacity for the locally sourced anchor.
The location of factory determines a geographic site for it’s operations. The locational factors comprise different characteristics such as tangible and non-tangible. The tangible factors include wages and production costs and represents characteristics such as reliability, availability, and security. The non-tangible reflects % of employees which are unionized and can be measured as well. The plant location is categorized on the basis of nature of the corporation which is general and specific locational factors.
General Locational Factors
The general locational factors embrace the controllable and uncontrollable factors for Fonterra. The general location factors are discussed below:
Closeness to markets: Fonterra is anticipated to serve it’s customers by offering goods and services at reasonable price and the time when it is required. The company chooses to locate facilities close the market to keep in mind the concern of buyers. The location near to the market is preferred because dairy products are delicate and prone to spoilage. The dairy products are required to purchase almost on daily basis (Mio, Venturelli & Leopizzi, 2015). The shelf of the product is also low which causes closeness to the market to ensure a regular supply of products and reduction of cost of transportation.
Transportation facilities: The speedy transport facility ensures timely supply of raw material to Fonterra and final products to the customers. The transportation facility is a criterion for the location of the plant. There are 5 models of transportation such as road, air, train, water, and pipeline. The preferred method of transport mainly depends upon the costs, convenience, and appropriateness (Pavlovich, Sinha & Rodrigues, 2016).
Labor and wages: The adequate number of labor having specific skills is a significant problem in the consideration of plant location. It is seen that importing labor is a costly process and involves more administrative problems (Taleizadeh & Nematollahi, 2014). So the productivity of labor is an significant factor which should be deliberated. The current wage pattern and cost of living should also be stressed.
Government policy: The state government and local government policies stress on the labor laws, making codes, safety, and more demands attention. The government offers incentive packages to entrepreneurs in order to promote the stable regional growth of industries. The incentive packages can be in the form of exception from taxes and excise duties for a certain period. The government also offers easy and soft loans which are easy to repay.
Supporting industries and services: Fonterra does not produce all the factors by itself. It subcontracts to the other companies for the ingredients and as well as for the semi-final products. So, the supply of sub-products is an important factor which influences the location (Pang, 2017).
The plant layout is a plan for the optimum utilization of facilities for the manufacturing of products. It includes the efficient and economical arrangement of machines, personnel, material, storage and supportive services. The plant layout minimizes the material handling and facilitates the progress of manufacturing by maintaining a balance (Verma, Dixit & Bajpai, 2016).
Plant Layout
The principle of space utilization: The available space should be effectively utilized that is horizontally and vertically. The space used by the company causes extra costs to the company as sometimes space is more than the required. As a result, it costs more to the company so space should be utilized efficiently.
Integration of factors: Fonterra integrates all the essential resources such as men, machines, and materials in order to optimize the level of production and maximum effectiveness. The facilities and services should be incorporated fully into a single operating unit in order to minimize the cost of production (Bromiley & Rau, 2016).
The total quality management requires quality in all aspects of Fonterra. The elements of total quality management are:
Total employee involvement: The company has 16,000 employees and one of the largest successful dairy companies. The employees participate in Fonterra towards achieving common goals. The company has been successful in achieving total employee commitment after preventing fear from the workplace. The management has been successful in providing the proper environment after the occurrence of empowerment (Mahdavi & Olsen, 2017). The high-performance work systems incorporated continuous improvement efforts with the operations of Fonterra. The self-managed teams of the organization are one of the forms of empowerment. The shareholders permit the board and executive team of Fonterra to run the company on their behalf.
Process-centered: Fonterra has redefined the milk industries of the country and became one of the efficient dairy plants. The total quality management focuses on the process thinking. The process is conducted by implementing steps that take inputs from suppliers and converts into the outputs which are conveyed to the customers. The performance measures are constantly monitored as a process to discover unexpected variation. Fonterra has optimized efficiency with Schneider Eco structure plant. It meets the strictest requirements of safety and quality (Gladisa & Susanty, 2018).
Customer focused: The customer is the king and regulates the level of quality. In order to focus on customers, the company fosters quality improvement by training employees, assimilating quality into the designing process and buying new measurement tools. Finally, it is the customer who decides whether the efforts are worthwhile or not. The company has also expanded it’s infrastructure to match larger milk processing site which is known as Darfield. It is the first Greenfield site developed by the company. It is the first Greenfield site. It has made functions compatible for the greater production capacity. It produces 30 tons of whole milk powder per hour.
Continuous Improvement
The concept of the supply chain has become a vital consideration of Fonterra. The concept of the supply chain comprises considerations of distribution, transportation, customer relationship, and marketing. The company needs to focus on the supply chain management due to market uncertainty, global procurement, technology and increased competition (Abdelkafi & Pero, 2018). There are 3 main constituents of supply chain management:
Business processes: The business process states the activities and flow of information within the Fonterra. For instance, order processing, customer service, distribution and more. It is significant to gain an appreciative of the business process by directing business process analysis. The supply chain empowers the process to be enhanced by streamlining, eradication of redundant processes and cope up with enhanced processes. The standardization and continuous improvement have helped the company to adopt an efficient business process. Fonterra is using materials from ‘101 benefits of standardization’ to improve economy, environment, and quality of life. The company also runs a continuous improvement programme called operational excellence. It helps people to understand how things are done by Fonterra. The programme ‘Plan, Do, Check, Adjust’ cycle has enabled the company to carry process effectively (Amirjabbari & Bhuiyan, 2014).
Network structure: The network structure recognizes the partners who are collaborated in the supply chain. They are also imperative business players. The relationships also take place in the categories like strategic partners, manufacturing, operational and reserve list. The logistics and shipping professionals of Damco work with Fonterra to as a beneficial and evolving partnership. Such partnership has extended beyond transactional or operational transportation solution. It is a deep strategic collaboration which has implemented beyond the expectations. Such partnerships are regarded as a single business entity (Davidson, et. al. 2017). The company’s global manufacturing and local logistics are tied with the global coverage and supply chain solutions.
Management components: This component comprises the philosophy of Fonterra for doing business and the methods which are deployed in order to carry out business. It is vital for the managers to embrace the culture of the company. The culture is clearly revealed to the customers and the persons who work in the Fonterra. The focus on the supply chain is necessary for the wellbeing of the company in the long term (Jacobs, Chase & Lummus, 2014). The proper understanding of supply chain risks is given importance by the management of Fonterra as it has an effect on the reputation of the company. It is a value creation process where the company requires raw material at reduced prices so that value can be created for the final customers. The performance of suppliers and manufacturing can be enhanced through the involvement and support of suppliers in the supply chain process (Ambriz, et. al. 2017). The management is responsible to correlate some factors which are positively related with the manufacturing performance of company such as quality and performance of products and involvement dimensions of suppliers.
Supply Chain
The inventory is an sluggish resource. It is required to retain some inventory in the business to indorse smooth and efficient running of the business. It allows flexibility of operations in the business. The company produces as per the availability of inventory. The inventory control system manages inventory, products, warehouse, and orders. The functions of inventory are:
Product history: The ins and outs of inventory can be tracked in the movement report such as adjustments, purchases, sales, return, and exchange.
Damage adjustments: Often the inventory damages due to the short life cycle of dairy products. Such adjustments should be tracked and labeled whenever happens.
Reorder feature: Fonterra should maintain stock in order to safeguard the rapid sale of products. Fonterra focuses on inventory reordering to avoid going out of stock. Whenever the items fall below the limit then the purchase orders are issued to the suppliers (Harvey, Heineke, & Lewis, 2016).
Exchange and returns: A credit note should be attached to the invoice at the time of issue. The inventory is resolved for exchange and returns.
Inventory report: The available and physical inventory should be tracked in the inventory listing report.
Warehouse management
The warehouse management includes the following functions:
A detailed report of warehouses: The exact inventory of every product should be known. There should be general inventory valuation of each product or warehouse.
Pick and pack list: The shipment should be picked individually to generate a list of pick and pack.
Standard shipping labels: The standard shipping labels should be a stick. The information required is displayed on the labels.
First in, first out: The products which enter the inventory should be sold first. The cost price of each batch of products should be taken into consideration in the system and accurate costing reports should be generated (Hitt, Carnes & Xu, 2016).
Exchange and returns: If the invoice has been dispensed for the product returns than the company is able to spontaneously issue a credit note in order to match with an invoice.
Material handling is the process of moving goods or materials within short spaces in a storage area. It contains loading, unloading, palletizing and depalletizing should be known should be known as palletizing. Fork-lift trucks are used in the material handling. The objective of material handling is to reduce the costs, increase capacity, improved working conditions and improved customer service.
Standardisation principle: The standardization principle is applied by the Fonterra to encourage standardization of handling methods, quality of products and equipment. This principle is used to achieve the objective of overall performance (Jacobs, Chase & Lummus, 2014). The company faced lack of capacity at Crawford street facility as cargo was often averted to expensive facilities.
Inventory and Material Handling
The slow-moving stock kept units left sitting in the Crawford Street which is designed to export container packing facility. Based on both scenarios, the warehouse management team of Fonterra added a weekend shift and increased cross docking volume. These changes resulted in exported over 3,000 TEU per month which was 1,000 TEU more per month compared to the same period. The CLASS model helped the company to develop long-term solutions. The company was able to modify it’s operations within a short period of time (Chen, Zhang & Delaurentis, 2014). The packing issues were relieved at Crawford Street due to seven days a week operations.
Environmental principle: The environmental impact and energy consumption is considered in the material handling system. This principle eliminates the negative impact on the daily actions on the environment. The intentional contamination of melamine in food was a major topic of attention for Fonterra. The company notified the government about the contamination of infant formulae with melamine. After this news, 22 Chinese companies tested positive for melamine. As a result, Chinese made baby food was banned as precautionary measures.
Fonterra produces and manufactures Stolle milk products in the Waikato region. The milk was processed into three products, milk powder, milk protein and whey protein concentrates. The products are made available to the customers in different forms like sachets, capsules, chewable tablets and beverages. These products have a good impact on the environment as it includes health claims such as immune support, joint health, muscle recovery and lower blood pressure.
Conclusion
- Fonterra is capable enough to maintain it’s capacity by making use of two strategies such as lead strategy and dynamic strategy. These strategies are helpful in meeting expected increase in demand and add or reduce capacity as per the demand forecasts.
- The locational factors decide the geographical location for it’s The general locational factors are both controllable and uncontrollable for the Fonterra. These factors are proximity to markets, transportation facilities, labor and wages, government policies and supporting industries and services. The plant layout of Fonterra is a plan for the optimum utilization of facilities for the manufacturing of products. The plant layout principles applied by the company are the principle of space utilization and integration of factors.
- The total quality management requires quality in all aspects of Fonterra. The aspects covered in the total quality management are total employee involvement, centralization of the process and focus on customers. The supply chain of Fonterra includes concerns of distribution, transportation, customer relationship, and The components of the supply chain are a business process, network structure, and management components. The company has two important inventory functions such as inventory management and warehouse management. Fonterra has an efficient material handling system comprises standardization and environmental principle.
References
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