CASE STUDY ON TOYS, INC. INTRODUCTION
As it is explicitly stated in the case, TOYS, INC. is the reputable company manufacturing Toys and Board games for about over 20 years. Despite this fact, the company has faced declining sales during recent years. The production manager a ttributed lack of sales growth to “the economy” and devised two methods to improve the situation. These are minimizing minimizing cost
of production and lay off in the design and product developments. developments. The vice president of sales has been concerned with customer complaints about defective model products provided by the company. The assistant of the vice president proposed the following actions to be taken:
Replacing malfunctioning models with new ones, repairing the defective products and selling it at discounted discounted price, and Letting the current workforce to repair the faulty products during slack time period. Moreover, the production assistant suggested the 100% inspection of finished models before delivering them to the customers, as the way to avoid the problems. Therefore, this paper is designed to identify and analyse the real situation of the company and recommend some measures that we would undertake, if we were in the shoe of the consultant called in by the company’s president. DISCUSSION AND ANALYSIS
As it is elaborated in the case, the fundamental problem that challenged the company was diminishing sales which in turn made the profit to slip. But, the company couldn’t manage to identify identify the root cause of its problem. problem. Different Different figures in the company company attached different different factors factors to the issue. Hence, there there was no consensus consensus among people people about what the radical radical cause of the declining declining sales and profit profit margin is. Similarly, Similarly, different different personalities personalities in the company proposed various measures to resolve the same problem. According to our analysis, this coordination failure created the vicious cycle on the company in the attempt to resolve the problem. The production manager stated that a cause of sales decline was “the economy”. According to our analysis, even though, the production manager was prompted to undertake the belttigh tighte teni ning ng move movess like like cost cost redu reduct ctio ion n and and layof layofff in prod produc uctt desi design gn and and deve develo lopm pmen entt 1
department, there is no need for lay off as the way to deal with the issues of inefficiency in the company. Instead, the company could deploy various actions to achieve efficiency in the process. Specifically, in order to cut the production cost, the following alternatives could be opted. First, emphasizing on quality as the way to eliminate non value adding (NVA) activities like rework, scrap, inspection, storage, transportation, etc. NVA activities are those activities which neither support business process, nor considered as valuable in the eyes of the customers. Since these activities are wastage activities, the company must get rid of them in order to make efficient use of its economic resources and time. Second, taking advantage of economies of scale through large volume production, it is possible to minimize fixed cost per unit. Third, using the product design tools; like value analysis and modular design in product design process. The value analysis is the method of improving the product in the customer’s eyes by increasing its usefulness and reducing the costs without compromising the quality of the product. It can result in great cost saving or a better product for the customers. Similarly, modular approach to product design makes it possible to have relatively high product variety and low component variety at the same time. To the customer, it appears that there is great number of different products. To operation, there are only a limited number of basic components and processes. This makes it possible to produce more efficiently for larger volumes while also allowing standardization of processes and equipment. Fourth, investment in automation and information system- If the system is automated many operations are performed by computers and robotics which are faster, accurate and diligent than human beings. Besides, it can produce large volume of products within shorter time and thereby achieving the company’s performance objectives like fast delivery, quality and low cost production. To sum up, the company should look for the options such as attacking NVA activities, achieving economies of scale, Value analysis, Modular design, automation, etc. in order to cut the costs of production. The customers’ complaints about the company’s defective models production had been
considered as one of the cause for diminished sales and profit. To address this problem, the provision of products with warranty had been proposed as the solution. In a sense, the company was supposed to replace the malfunctioning models with the new ones. Well! This 2
is an appeasement policy towards dissatisfied customers and it also demonstrates the company’s goodwill. But what about the cost that company is expected to incur in order to replace each and every defective models? The cost would so high as it is one kind of external failure costs. The external failure costs are the costs of producing defective items that has been detected by the customer. They include cost of settling complaints, return of merchandise, warranty cost, product liability cost, lost sales cost, etc. Usually, the external failure costs are the highest costs of quality that must be avoided. We can partially avoid these costs by focusing on preventing the error to happen, i.e. producing “zero defects” products. This is based on the assumption that prevention is cheaper than correcting the
error after the fact. Repairing defective models and reselling them at discounted price is the good option to reduce the total failure costs. And also if the repair work is performed by the company’s regular work force, the company could save the costs of hiring new employees. But, what about the opportunity cost of doing so? It would be great! This is because if new staff were employed, they might have come with innovative idea, special skill and knowledge that are necessary to produce quality product. Other things remain constant, if the work forces are qualified, the likelihood of producing more defective products will be minimized. Hence, hiring new staff with caliber and providing existing employees with training is advisable if the company is to succeed. As it is mentioned in the case, the production assistant of the company proposed 100% inspection of finished model before they were shipped as the way to weed out any defective models and avoid the problems entirely. However, our analysis shows that inspection cannot resolve the fundamental problem of quality. This is because most of the inspection activities; if not all, are non value adding by their very nature. If after all the inspection is needed, we have to determine how much, how often, and at what point to inspect. It is neither possible nor economically feasible to critically examine every part of product. The cost of inspection, resulting interruptions of a process or delays by inspection, a manner of testing typically outweigh the benefits of 100% percent inspection. However, the cost of letting undetected defectives slip through is sufficiently high that inspection cannot be completely ignored . The amount of inspection needed is governed by the cost of inspection and the expected cost of passing defective items. RECOMMENDATIONS 3
Based on the problems identified and analysis made, we recommend the company to make emphases on the following points. Proper coordination between various functional units in the organization - In a
sense there should be a team spirit in the company, whereby every department have information about the plans of others and work towards the achievement of the overall organizations goal. This is to eliminate the coordination failure. Implementation of Total Quality Management (TQM) - Successful TQM
programs are built through the dedication and combined efforts of everyone in the organization. The company should find out what customers want and design a product that will meet (exceed) customers’ wants, design the production process to make things right the first time (strive to make the process “mistake- proof”). Prevention is cheaper than correcting the errors - Instead of repairing and
replacing the malfunctioning with new ones; the company must try to design the product of superior quality and produce zero defect products. Moreover, the need for inspection should be minimized by determining how much, how often, and at what point to inspect. Therefore, it is neither possible nor economically feasible to do 100% inspection of the products and processes. Continuous Improvement (CI) - the company should make never-ending
improvements to production process. The equipments, methods, materials and people should be continuously updated to keep the system match with the dynamic environments. The company that doesn’t engage in CI is more likely creating the gap between itself and the competitors. Hence, it cannot satisfy its customers as they may have better option to look for. Training for the employees- there is inherent need to shape knowledge, skills,
attitudes and perceptions of employees to increase the organization’s productivity in general and to upgrade their potential in particular. By providing employees with different training on various issues, it is possible make employees capable of operating modern technologies, efficiently using resources and producing quality products. Of course the list of advantages of training for employees and organization is not exhaustive. Generally, the workforces equipped with necessary caliber, could boost the productivity and minimize wastage. Therefore, it is mandatory for the company to provide regular effective training for its workforce. 4
Increasing efficiency of the process rather than layoff - if the cause of the declining
sales was the inefficiency, then the company should find the ways to cut the production costs rather than resigning employees. The various options to cut costs are attacking non value adding activities, economy of scale, Value analysis and modular design, Automation, etc.
REFERENCES
5
Richard B. Chase, Nicolas J. Aquilano and F. Robert Jacobs Operations management for competitive advantage; McGraw- hill/Irwin series; 9th ED
William J. Stevenson. Production/Operations Management, McGraw-Hill, 6th Ed
Joseph S. Martinich. Production and Management: an applied modern approach; John Wilay & Sons, Inc. 1997
6
