Operations Management – Assessment 2 – Toys (Cyprus) Ltd. Case study
Toys Ltd. was established in 1990 in a provincial town close to Larnaca in Cyprus with the stated objectives of producing high quality toys and educational equipment for principally, the Cyprus market and later the middle-east. Over the period of 20 years it has seen various ups and downs in fortune but has been facing increasing competition especially in the education segment of its business.
Recently it has experienced a downturn in its profitability which its management ascribe to the deteriorating economic markets in Europe and the ”knock on” effect in the Cyprus market. Various strategies to overcome this deterioration in its sales and profits have been proposed and cuts in the employee force and production techniques have been proposed. The management consider that these strategies together with more stringent cost controls and cost cutting will produce the desired results in the future.
One of the factors reported by the sales director, Kyriacos Dmitriou, is the increasing number of returns being received by the goods returned department. This phenomenon he says, “….. is not sustainable if the firm is to return to profitability. “
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The production manager has suggested that if 100% of items produced are inspected at the end of the production line then the problem of returns of defectives will be solved. This operation could be achieved by moving 2 or 3 of the more experienced workers from the assembly line and onto final quality inspection. Again, this strategy would not involve changes in staff numbers. It has also been suggested by the production department that a higher degree of self assembly by the customers/consumers could be used as this would again reduce production costs and place the onus of the defectives issue on the consumers.
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The Marketing Director, Stavrou Kiriacou, is concerned that so many items with working parts are being returned due to erratic or non-working parts. He is concerned that this will affect the reputation and image of the firm. His senior assistant has proposed that as a measure of good will the firm agrees to receive faulty goods back and replace them with new items. This, he says, will cure the image problems. He also suggests that the faulty units could be rebuilt and repaired then sold in the outlet shop. These could be sold at a compensating discount. He believes also that this would not detract from the sales of new items. Under this strategy no extra staff would be needed as regular staff could carry out the functions during lulls in their regular work.
It has been suggested by the accountants that the company should be looking for cheaper components even if they are considered lower quality as this would satisfy the company’s need for cost reduction in production. With the change in staff organisation, cheaper components, cheaper materials, rebuilding products and sales in outlets the returns problems and profit levels would be addressed. The accountants have asked for more accurate figures of returns, defectives, fault points and total production volume figures are provided to them. It could be they say, that the levels of returns are at acceptable levels. After all they claim, the percentage “defectives” may well be within the parameters laid down in industry standards and bench marks.
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Additionally, the accountants have queried if the firm can afford to choose strategies other than those they have proposed:
- buying cheaper components and materials
- working to industry norms on defectives and acceptance levels
- ”toughing” it out as far as returns are concerned by denying liability and resisting compensation by replacement of defective products.
You have been requested to provide advice and justified recommendations, as a new graduate of management studies, to the management of TOYS (Cyprus) Ltd. regarding their problems with their products and processes. They are particularly interested in your observations regarding their
proposals to overcome their poor performance in the markets they are in. They have asked that you provide them with justified reasons for recommendations. You are to write your recommendations, findings and observations with fully justified arguments.
Advice and Recommendations on How Toy Ltd. can Improve its Product Quality
Human beings have been conscious of quality in their activities for a long time. However, Dahlgaard, Khanji and Kristensen (2008) points that the first aspects of quality were observed in the 1910s when the FORD Motor Company released its first care model. The company had a list of inspectors who monitored, tested and compared the product with the project standard. The process was carried out throughout the production process in order to identify substandard product to be reworked or sold as low quality product. However, technological advancements have seen the improvements in quality processes in manufacturing companies. The aspects of product quality have now included the quality assessment of the supply chain processes and the entire production unit. The paper will provide recommendations to quality issues facing Toy Ltd., a manufacturer of high quality toys and educational equipment based in Larnaca, Cyprus. The quality issues in Toy Ltd. can be linked to the company’s production units and the raw materials supply chain.
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Advice and Recommendations on How Toy Ltd. can Improve its Product Quality
The main process in the product production which helps the final product to meet the consumer needs is the inspection and quality controls in the supply chain and the production lines (Dahlgaard, Khanji and Kristensen, 2008). Toy Ltd. must ensure it has quality inspection and controls in its supply chain and production lines. The company declining sales is as a result of low quality products that come out of its production lines. However, production lines depend largely on the raw materials that are sourced from the company suppliers. The quality of the final product depends on the quality of the raw materials from the company suppliers. When the suppliers provide low quality products, the final product is likely to be of low quality. In contrast, high quality raw materials would likely lead to production of high quality products.
Besides the quality of raw materials, the production process can have a significant impact on the final product in the market. In the case study, the Toy Ltd. is experiencing increased returns from its customers, which points to low quality products coming from the company production lines. This can be reduced if the company can ensure that the production processes adhere to quality control techniques. The production process of the product must undergo quality inspections throughout the product process until and including the final product. The final product must be tested to ensure it meets the quality standards that have been set and the customer needs.
In addition to quality of raw materials and the quality controls in the production lines, it is advisable that Toy Ltd. perform regular quality checks through a process termed as quality assurance. According to (Dahlgaard, Khanji and Kristensen, 2008) the quality assurance process involves the raw materials quality checks and the production lines quality checks, with the aim of providing confidence that the final product meets the consumer needs. This includes aspects such as the use of comprehensive quality manuals, development and use f quality control processes, and the audit of all the company quality systems. This shall ensure that any quality lags are identified and appropriate measures adopted before the product is released into the market for the consumers. Similarly, it is important the company employees have the appropriate quality assessment skills. The hiring and provision of the quality skills to the employees is important in ensuring any quality measures are implemented effectively. Employees who possess minimal skills on quality process will scuttle any quality attempts on quality improvement. In order to ensure that Toy Ltd. adopts and implements appropriate measures to curb the deterioration in quality of its products, the paper offers several recommendations that must be implemented by the company.
Toy Ltd. Should Establish a Quality Focused Human Resource Workforce
The success in the promotion of efficiency and effectiveness within an organization is a responsibility of all the top management. According to (Rawlins, 2008) successful implementation of quality initiatives are company-wide and must begin with the top management, beginning with the company Chief Executive, who must show total commitment to quality. Bose (2011) points that quality start with the intent of the management in the boardroom. In the case of the Toy Ltd. the company’s employees seem averse to quality management. In the case, the production manager suggests that quality inspection should be done only at the end of the production line, while the company accountants suggested the need for cheaper components. In addition, Stavrou Kiracou, the marketing director, suggests replacement of the returned faulty items with new ones. These suggestions fall short of commitment to quality improvements, but instead seek to make quick fixes on the quality problems inherent in the company. The company needs to instill the concept of quality from the top management.
Toy Ltd. should also extend the implementation of quality processes to the company’s employees. The deteriorating sales in Toy Ltd. are linked directly with drop in quality of the final products as shown with high number of returns. The company can correct this through training on quality and providing employees with favorable work schedules that ensure they thrive in their workplace. The organization employees are considered as internal customers (Dahlgaard, Khanji and Kristensen, 2008). Having a satisfied workforce rather than increasing burden on the workers just like Toy Limited does, is akin to creating unsatisfied workforce which is likely to compromise on quality. A quality conscious and satisfied workforce is important in system-wide quality control implementations. Toy Ltd. must establish a quality focused human resource workforce with workload that matches the available employees.
In addition, the quality initiatives must be communicated to the company employees by instilling the appropriate attitudes and skills. According to (Rawlins, 2008) the quality improvement initiatives must not be seen as a means of cost-cutting as implicated by the company accountants, instead is should be focused in the skills and attitudes change to instill appropriate culture and norms. The author suggests that the effects of successful implementation of total quality improvement will include benefits of cost cutting. As a result, there is need for shift in focus on cost-cutting as these can be achieved in the end with successful implementation of the quality initiatives. The Toy Ltd. must transmit quality imperatives through the hiring and training of employees who would promote effective implementation of the quality improvement processes.
Toy Ltd. Should Implement Quality Control Initiatives in its Production Process
Toy Ltd. should focus on process in its quality improvement if they are to be effective. According to (Bose, 2011) Kaizen, an important concept in the Japanese management stresses on the process-oriented principles of quality management. The principle is based on thinking about the process by checking with the result and not by the result. The process-oriented thinking is made possible through the top management stimulation and support, which enables the employees into making the improvements. However, there is need for the establishment of criteria for improvement to guide the employees. The company has focused on the final product as stated in the case. The production manager suggested that all the items from the production process should be inspected at the end of the production line. This exposes the product to variation in the production process, which would lead to low quality products being produced. Inspecting the products in the production process would allow the company production to correct any defects and ensure the product produced meet the consumer preferences.
Toy Ltd. Should Implement Statistical Techniques to Control Variations in Products
The major problem with the Toy Ltd. product is the low quality, which can be attributed to several factors including variations in the production process. The company must adopt and implement statistical techniques to ensure such variations are captured through data and appropriate and effective measures adopted before the final product is released to the market. According to (Bose, 2011) variation is common and affects every part of the production process. The author points that it is only through variation control that the production processes can be stabilized. Since variations can be common, it is imperative that the company understands its major sources. Bose reiterates that for an improvement to be attained, it is imperative that such variations be controlled at the upstream or the source (p. 35). However, these improvements are only possible if the production process is stable. The company can attain a stable process through statistical control.
The minimization of variations is only possible through the statistical controls that employ facts and data. According to (Bose, 2011) products of high quality and the processes differ markedly due to variations. The author points that these variations show statistical distributions. The company should endeavor to collect data and facts about the product variations in the production line in order to use them to determine the cause of the product variation and implement mechanisms to control them. It is important to understand that attempts to make adjustments should not be made as this could lead to an increase in variations, thus making the processes even more difficult to control.
Toys Limited must Partner and Train the Company Suppliers on need for Quality Raw Materials
The company can meet its product quality targets if they can obtain quality raw materials. This can be achieved through creation of partnership with the company suppliers and training them on the need to provide high quality raw materials. The suggestion by the company accountants that cheaper components is misinformed and would only serve to compromise on quality rather than cut down on the product costs. According to (Sinha, 2008) in the same way that the company employees and the customers are important, the suppliers are also a critical component of the production process loop. Bose (2008) also points that the competitive edge can be attained if the quality imperatives are transmitted to the suppliers. The presence of variances in the purchased raw materials cannot guarantee quality in the finished product, which sometimes can end up in higher cost of production. It is important the Toy Ltd. partners with its suppliers to ensure high quality products are delivered.
The partnerships may involve providing the suppliers with the minimum standards that the company desires in its raw materials. The company procurement staff with the production management can conduct visits to the suppliers to ascertain the quality measures in place. In addition, the company may consider appraising its suppliers to ensure they get only high quality raw materials that meet the set standards and offered at market competitive prices. Developing quality imperatives at this stage in critical in ensuring the quality initiatives involves the entire supply chain and the product system. The process has an advantage of sharing of production scheduling, which helps to level production that reducing wastage and reducing costs of production, thus allowing profitable lean production.
Toy Limited Must Implement Continous Quality Improvement
The concept continous quality improvement is critical in implementation of quality initiatives in processes. According to (Wagner, 2013) continous quality improvement has become a standard approach for quality-oriented standards such as ISO 9001. Continous quality improvements allow a company to continually identify areas of improvements instead of waiting for quality problems to be detected to respond. It is recommended that Toy Ltd adopt the Plan, Do, Check, and Act (PDCA) continous process improvement model. In this model, the company can identify potential, analyse the state and develop plans for making process improvements. This ensures the company remains within its set quality initiatives and the recommended quality standards.
The product quality remains one of the critical components in any production process. High quality products ensure satisfied customers, increased sales, and improved brand name. However, this can only be attained if the appropriate quality initiatives are implemented within the entire product process loop. The process should start with the company top management and involve the organization employees as well as the suppliers. This must be done on regular basis through continous process improvement to determine areas of quality that need process improvements.
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