You are on page 1of 12

Operations Management In January 2010, I took over the management of my recently

deceased mother's integrated farm, with no prior experience in farming. Koncious


Farms Nigeria Limited (Koncious Farms) was set up a few years ago. It is located i
n a remote village in northern Nigeria with no electricity, running water or goo
d roads. Currently, Koncious Farms has six full time staff, and several others w
ho work part-time. We rear broilers (chicken), turkeys, catfish and sheep, and a
re about to go into egg production. We also farm crops such as maize, groundnuts
and tomatoes. Our major clientele are in the hospitality industry (e.g. hotels,
restaurants and supermarkets) and rely on prompt delivery to meet their guests' n
eeds. Since taking over management of the farm, I have had to learn that running
a business requires not only careful account-keeping, but careful planning. Mos
t importantly, like any other organization, the efficiency of our operations is
crucial to the business. When the farm was first established, we had the problem
of over or under production, leading to either inability to meet our customers' t
argets, or being left with a surplus. Incidents like these have led to our exter
nal customers having to rely on other suppliers when we either fail to supply th
em or supply them with chicken that does not meet their requirements. This of co
urse has led to some of our customers permanently shifting their loyalties to ot
her producers, resulting in large losses in our revenue. After assessing the sit
uation, I discovered that the major reason for our inability to satisfy our clie
ntele had to do with delays along our supply chain. Many times, our suppliers of
day-old chicks failed to supply us our chicks when due or have even supplied po
or quality chicks, thus leading to us having insufficient chickens to supply our
customers, or having to supply customers with low-weight chickens; which they u
sually reject. Generally, we have often had to disappoint customers. Thus, the o
perational issue I will address in this assignment is the supply chain managemen
t in Koncious Farms. Supply Chain Management in Koncious Farms: An Overview Supp
ly chain management, according to Slack et al (2007), is a broad concept which i
ncludes the management of the entire supply chain, from the supplier of raw mate
rial to the end customer. It involves making sure that the interconnections
between organizations that lead to the provision of goods and services to the en
d consumer are well managed. A faulty supply chain means that the goods may not
reach the end user in the best possible way. Professor Marshall Fisher of Wharto
n Business School noted that there are two major distinctions between supply cha
ins: the efficient supply chain, which is needed in a functional market, and on
the other hand the responsive supply chains, which are required by innovative ma
rkets. Functional markets are more predictable, which makes planning of the supp
ly chain easier. Koncious Farms operates a functional market - the demand for ou
r products is generally stable year round, with fluctuations during festive seas
ons. For our chickens and eggs, there is a high demand year-round. For our sheep
and goats, the demand is also relatively stable year-round, but spikes during I
slamic festivities, as these animals are used for religious ceremonies. A notabl
e exception is that we sell turkeys mainly during festive periods such as Easter
and Christmas, when the demand is high. Therefore we buy turkey chicks over sum
mer, so as to ensure that they are ready for Christmas. To ensure that we satisf
y our end users, we need an efficient supply chain, one which anticipates our ne
eds as well as those of our customers. An efficient supply chain runs smoothly f
rom supplier down to the end customer. The major objective of any supply chain s
hould be to make sure the end customer is satisfied with the goods or services r
eceived. According to Slack et al (2007), to achieve this, the following perform
ance objectives must be met: Quality: A supply chain's performance will directly a
ffect the quality of the product that reaches the customer. If there are problem
s along the chain, it will eventually have an adverse affect on the quality of t
he end product or service. In Koncious Farms, this is clearly shown in the suppl
y chain of our broiler chickens, as depicted in the following illustration: the
hatchery produces poor quality chicks, perhaps due to receiving poor quality par
ent stock from a chicken breeder. Without inspecting the quality of the chicks,
the middleman sends them on a 6-hour journey to our farm, and the chicks therefo
re arrive exhausted. The farm employees further stress the chicks by hurriedly h
eaping them together and sorting them. The generator has no fuel, so the chicks
are not able to feed properly in a well lit environment, our feed supplier has r
un out of feed. At the end of the day the chickens do not reach their optimum we
ight and the customer is unhappy, and discontinues patronage. It is obvious in
the above scenario that every action along the supply chain affects the eventual
quality of the chicken reared. Speed: This has to do with the swiftness with wh
ich a consumer receives his product. On our farm, we have been able to score abo
ve average in this regard. Usually our customers place orders a day or two in ad
vance, and we are able to slaughter and process our chicken to meet up with the
deadline to supply. In some instances, we keep some chicken in stock and are abl
e to meet customers who place last-minute emergency orders. Dependability: This
can also be referred to as reliability. Customers need to know that they can rel
y on us to supply what they need when they need it. In our farm, our major chall
enge has been our inability to depend on our chick supplier to supply birds on t
ime. We have had chicks supplied as far as 3 weeks behind schedule. This sometim
es throws the entire supply chain out of sync. When we have such issues with und
ependable supply, we in turn cannot be depended on to supply products to our end
users. Of recent, we have tried to shore up our dependability by buying chicken
s from other poultry farms and supplying same to our customers, just to ensure t
hat we maintain the integrity of our supply chain. Flexibility: This can be refe
rred to as the agility of the supply chain. It is the ability of the supply chai
n to adjust to small changes which would otherwise adversely affect the end cust
omer. For example, fuel scarcity and power outages are recurrent problems in Nig
eria. Naturally, this has in no small way affected our flexibility. A flexible s
upply chain should be able to meet sudden fluctuations in supply along the chain
. Cost: This is one of the most important objectives of a supply chain. Even if
you meet all other objectives, a customer will only be willing to pay a certain
price for a product. It is therefore very important to minimize costs incurred a
long the supply chain, so that they are not passed on to the end customer. At Ko
ncious Farms, to ensure that we give our end customer the best price possible, w
e constantly negotiate with our suppliers to ensure that we get our feed and oth
er raw materials at the best price possible. When we find a cheaper, reliable su
pplier that can offer us good results, we switch accordingly. As an example, to
give an idea of the process our broiler chickens pass through, this is a process
map below: Farmers' market Supermarket Restaurant End User Koncious Farms Poultry
and Fishery Chick Hatchery Middle Man (Chick Supplier)Koncious Farms Supply Cha
in Fuel, charcoal Feed Seller (A) Feed Seller (B) One of our problems on the far
m stems from the fact that when the farm was initially set up, there was no clea
r-cut plan of how our supply chain would work. Originally, suppliers were genera
lly stumbled upon by accident. There was lot of trial and error, and when one su
pplier
failed we would simply try another. Thus, for the first two years of the farm's op
erations, the supply chain had knots and disconnections running along the chain.
Over time, we have discovered the folly in poor planning, and have had to go ba
ck to the drawing board and plan our supply chain thoroughly. For our chicken fe
ed, we currently rely on more than one supplier for our feed, i.e. multi-sourcin
g. This is because we usually purchase our feed under credit arrangements, and w
e are wary of heaping too much debt on a single supplier. Also, as noted by Russ
Banham on Cfo.com many suppliers have trouble funding their operations, so we d
ivide the burden of our feed orders among two or more suppliers, and are current
ly on the lookout for even more suppliers as our production rate increases. This
also ensures that there is product availability, as sometimes one supplier is n
ot able to meet our demands. For our chicks, which are more delicate, it is safe
r to rely on one supplier so as to be sure of the source and quality of the chic
ks supplied. However, because we have only one supplier, our dependency on a sin
gle source of supply has led to serious problems. Whenever our supplies are dela
yed (which of recent has been very often), it affects our entire supply chain. A
policy of e-procurement would have helped the flow of our supply chain, but unf
ortunately e-procurement is not an option as most of our suppliers are not IT co
mpliant due to their location in rural areas. However, one area in which we have
recorded recent success is in the area of partnering with our suppliers, using
the principles I have learnt while studying operations management. Slack et al (
2007 p 447) defines partnership relationships as: `... relatively enduring inter-f
irm cooperative agreements, involving flows and linkages that use resources and/
or governance structures from autonomous organizations, for the joint accomplish
ment of individual goals linked to the corporate mission of each sponsoring firm'.
Previously, our only criterion for selecting suppliers was that the supplier co
uld give us a credit line; however this prevented us from partnering with suppli
ers who could work with us towards the mutual growth and success of our business
es. In choosing suppliers, we are currently influenced by the need to find partn
ers who are able to do the following: give us favorable discounts;
give flexible credit line maintain proximity help us market our products; and ma
intain good links with dependable major suppliers Most importantly, we always se
ek suppliers that we can trust. Trust in the opinion of Slack et al (2007) is wi
dely held to be both the key issue in successful partnerships and is also by far
the most difficult element to develop and maintain Supply Chain Management Theo
ries as they apply to Koncious Farms' Operations I will proceed to assess two majo
r theories in supply chain management with which we have to deal in order to man
age the supply chain effectively. Just in Time (JIT). This is an aspect of lean
management, where unnecessary inventory is avoided. According to Slack et al (20
07) JIT can be taken literally: get your supplies Just in Time. It means produci
ng goods and services exactly when they are needed: not before they are needed s
o that they wait as inventory, nor after they are needed so that it is the custo
mers who have to wait. JIT originated in Toyota of Japan, and was created by Tai
ichi Ohno. The main goal of JIT is to reduce to the barest minimum, non value add
ing operations and non moving inventories in the production line (www.siliconfare
ast.com). It is sometimes referred to as stockless operations, as one of its mai
n features is the reduction of inventory levels. The three main pillars of JIT a
s stated by Slack et al (2007) are eliminating waste, involvement of all staff i
n operations, and the adoption of continuous improvement ideas. The advantages o
f practising JIT include: Less wastage: For us at Koncious Farms, this means tha
t we will engage in over-production much less. If we can accurately predict the
demand for our products for a particular period, we should not over produce, as
the leftovers may be ruined. Less damage to goods in storage: For example, at Ko
ncious Farms, pests often break into our storage rooms and destroy our bags of c
hicken feed. Better planning: Implementing JIT forces businesses to engage in pl
anning and forecasting. To successfully implement JIT, it is important that the
organization only has what is needed at every point in time. For instance, if a
company through forecasting knows that it only needs to supply 200 kg of chicken
per day during the summer months, then JIT advocates that only what is needed t
o produce 200 kg of chicken is kept on the farm. Any surplus should be avoided.
JIT is a pull system: in the context of
Koncious Farms' operations, this means that it is the demand from external custome
rs on the supply chain that should determine how many chickens are reared at the
farm. The practice of storing more raw materials than needed should be avoided
in order to eliminate wastage, theft, holding costs and so on. A good way of ach
ieving this is a system where the needs of the next stage in the supply chain mo
dulate the production of the preceding stage. A key component of JIT, which aids
in its implementation, is the use of the Kanban system. The word kanban is derive
d from a Japanese term that means card signal or signboard (www.encyclo.co.uk).
According to www.handsongroup.com a kanban system can signal the authorization t
o move material or product from the supplying location to the consuming location
. It can also be used to signal the authorization to produce additional product.
It is a system that is able to track each stage of production and thus limit in
ventory. If properly used, the workers on the production line know when and wher
e materials are needed on the production line. The kanban card, which is the maj
or tool of the kanban system, is both a transaction and communication device Gross
, McInnis (2003), which ensures that components on the production line are deliv
ered `Just in Time'. At Koncious Farms, our current level of production is still qui
te low. As such, kanban cards are not necessary. However, as we step up producti
on, we will seek ways to implement the kanban card system, so as to ensure that
the theory of JIT is fully adhered to. A good example of how our farm has operat
ed with respect to JIT is that until recently, we would purchase a tonne of feed
every week, without studying the consumption rate of the chickens per day. Wast
age was rife, as the farm staff would over-feed the birds just because the feed
was available. Leftover feed in our storage rooms would then be attacked and des
troyed by pests. Today, with improved planning and input from our staff, we have
been able to estimate the average amount of feed needed per week, and the amoun
t of feed bought weekly has significantly dropped. For example, recently, one of
the farm staff noticed that when the birds ate at night, they would gain more w
eight. With this helpful input, the birds are currently being fed less, but with
greater precision, and are therefore healthier. We are still working on forecas
ting accurately, and with our current progress, we will soon be able to buy
exactly what we need. If we are able to buy only the feed we need from our suppl
iers, we will be able to take less stock on credit, which would help us add valu
e to our suppliers' businesses, thereby partnering more effectively with them. Ano
ther area in which we are attempting to implement JIT on Koncious Farms is with
respect to our fuel purchases. Currently, because we have no electricity supply
on the farm, we routinely need petrol to power our generator. However, it is dif
ficult to stock just enough fuel for weekly needs, as our fuel consumption varie
s from week to week. An example of this is the need for constant water (which is
circulated by a generator) during the catfish hatching stage. This does not exi
st to the same degree at other times, and the catfish-hatching stage is not alwa
ys consistently timed. It is therefore clear that due to the limitations we face
as a growing farm business located in a rural area, implementing JIT in its ent
irety would be difficult, as it is easier to apply the theory to systems where p
roduction flows are consistent and do not change often, e.g. a factory where the
same processes are continuously repeated. However, we can and have already star
ted implementing some aspects of JIT. With JIT in place, we will improve our abi
lity in meeting our end users' demands and operating an effective supply chain. (b
) Total Quality Management (TQM) Another important theory which will affect prop
er supply chain management is Total Quality Management (TQM). This theory was fi
rst introduced by Fegeinbaum, but was made popular and developed further by the
legendary WE Deming. Others who contributed to the theory are JM Juran, K. Ishik
awa, G. Taguchi and PB Crosby. TQM,in Fegenbaum's words,is: an effective system for
integrating the quality development, quality maintenance and quality improvemen
t efforts of the various groups in an organization, so as to enable production a
nd service at the most economical levels which allow for full customer satisfact
ion'. (Feigenbaum, A.V. 1986) TQM has the customers' needs at its core. It is all ab
out customer satisfaction and ensuring that both internal and external customer
needs are met. In fact, one of the most powerful aspects to emerge from TQM is t
he concept of the internal customer and internal supplier (Slack et al (2007) wh
ich have been indispensable in supply chain management. Treating every one along
the supply chain as a customer and conforming to the customers' needs ensures tha
t quality is upheld. , Where
quality is not upheld, the cost of production is ultimately increased. A good ex
ample of this on Koncious Farms was our maize harvesting exercise early this yea
r. The maize was sorted manually after harvesting, and was stored in a poorly-ve
ntilated area, without the addition of preservatives. As a result, when we event
ually sold the maize, it was in such poor condition that customers offered 30-40
% lower than the normal price. Thus, we made poor sales and very little profit.
If we had stored the maize properly and bought the chemicals needed to preserve
them, we would have made significantly more profit. We would also have been able
to sell the maize faster, as the locals would have spread the word that Konciou
s Farms had good quality maize for sale. Instead, with every subsequent buyer le
ss was offered for the poor quality maize. The impact of this will likely still
be felt by the farm in the future, as chances are that when next we have maize f
or sale, potential customers in the area will remember the poor quality maize th
at we sold previously, and may therefore be reluctant to return. As stated by De
ming in his book Out of Crisis, defects are not free (Deming E.W 2000, p 11) For th
e defects in our maize due to our carelessness, we paid by earning low revenue and
even worse, perhaps a bad reputation. Like JIT, TQM requires a lot of employee
input and a much higher standard of management. Its successful implementation mu
st start from management. John S Oakland stated that in order to achieve quality
throughout an organization, the following questions need to be asked by the sup
pliers: Who are my immediate customers? What are their true requirements? How do
I find out what their requirements are? How can I measure my ability to meet th
ese requirements Do I have the capability to meet the requirements, and if not w
hy? What must we change in order to meet them? Do I continually meet these requi
rements? If not, why not? What stops me from doing my job properly? How do I mon
itor changes in requirements? For the customers, Oakland states that the followi
ng must be asked Who are my immediate suppliers? What are my true requirements?
How do I communicate my requirements? Do my suppliers have the capacity to measu
re and meet my requirements? How do I inform them of changes in my requirements?
(Oakland J, Morris P, 1997 p 10) If the above questions can be answered effecti
vely by both suppliers and customers, then TQM can be practiced effectively. Fur
ther implications of TQM were revealed by Deming in his
revolutionary book on crisis, Out of the Crisis, in which he offered 14 key prin
ciples which would make any business effectively manage its quality practices. S
ome of these principles are: Employees in different departments should work as a
team, and be aware of each department's operations. Training of all employees is
necessary, especially to instruct them on quality. Eliminate the need for inspec
tion by ensuring that quality is built into the product in the first place. Most
importantly, in relation to supply chain management, minimize total cost by usi
ng a single supplier with which one would have built a long-term relationship of
trust. It is impossible for a supply chain to be effectively managed if the ele
ments of TQM are not practised. This is because quality is at the core of any se
rious organization's practice. Once a product is known for its quality, then its c
ustomers remain loyal. On the other hand, where an organization has a reputation
for producing low quality goods, then customers will switch to a more reliable
service. In fact, as Deming opined, it is impossible to know the actual impact o
f an unhappy customer - not only will such a customer not patronize your busines
s, he/she will also discourage others from using your services. There really is
not any one way that TQM must be practised. What is important is that everyone i
n an organization must practice it according to the same set of rules, set by ma
nagement. As clearly stated in Out of the Crisis pg 11, low quality means high c
osts, and every business aims to reduce cost and maximize profits. Without quali
ty, this is not achievable. From the above, it is obvious that at Koncious Farms
, we have experienced a sharp decline in customer loyalty as a result of mismana
gement of the supply chain. Recommendations: Some of my recommendations for how
Koncious Farms' operations can be improved with respect to supply chain management
are the following: After carrying out supplier evaluations, we have decided tha
t our suppliers should be changed in order to enhance reliability and smooth ope
rations along the supply chain. In this spreadsheet (please see spreadsheet anne
x 1) based on a spreadsheet from www.inc.com, I have been able to pinpoint and e
valuate several areas which are essential to the smooth running of the farm's supp
ly chain. Using the results of these evaluations, the farm will now be able to c
hoose reliable chick and feed suppliers and ensure continuous product flow. We w
ill properly partner with
our suppliers to ensure that we are working together to achieve one common goal.
This will involve developing customised written policies and targets to ensure
that our suppliers have a clear reference point with respect to the farm's needs a
nd expectations, and that we at the farm likewise have a clear picture of our su
ppliers' needs and expectations; Improve on forecasting and proper planning, so as
to accurately anticipate the farm's needs at every point in time and ensure that
we carry out lean operations. Frank Burrit of Deloitte Consulting has noted that
forecasting demand is more difficult than ever. In spite of this, it is more im
portant than ever. We will make sure we carry out continuous improvements at var
ious stages of the farm's supply chain, such as improving the pesticides and equip
ment used on the farm. There are plans to introduce solar panels so as to reduce
our dependency on electricity. These improvements will be done over time so as
to be less stressful for the farm, but they will have a lasting and positive imp
act on our production. We will make sure that we fully engage and involve staff
at all stages of operation. Apart from generating useful ideas for improvement,
this will also increase staff morale and output, as they will take greater inter
est in the process We will engage in internal and external customer relationship
management (CRM) .This will help us to anticipate all our customers' needs and im
prove on the quality of products and services offered by the farm. For instance,
we will find out from our customers if they require increased flexibility with
regard to how we supply them with products. If this is required, we will ensure
that we create this flexibility Most importantly, we will improve the quality of
the end products that are sold to customers. When we improve the quality of the
final product, we will lose fewer customers, and will therefore be able to fore
cast demand more effectively. All the above recommendations, when fully implemen
ted on an ongoing basis, will lead to a more robust and effective supply chain a
t Koncious Farms. Reference List Deming W.E (2000), End of Crisis, first MIT pre
ss edition Feigenbaum, A.V. (1986) Total Quality Control, McGraw-Hill John M gro
ss,
Kenneth R mcinnis (2003)kanban made simple: demystifying and applying Toyota s l
egendary manufacturing process : AMACOM Div American Mgmt Assn Oakland J, Morris
P(1997) TQM a pictorial guide for managers; pictorial guides series, illustrate
d reissue butterworth-heinemann Slack N, Chambers S, Johnstone R (2007) Operatio
ns Management. Fifth Edition. FT Prentice Hall http://www.articleplanet.net/nego
tiation/11660 http://www.cfo.com http://www.datalliance.com/donovan.pdf http://w
ww.encyclo.co.uk/define/kanban http://www.handsongroup.com/lean-articles/taking-
the-mystique-out-of-ka nban -systems, http://www.inc.com http://www.siliconfarea
st.com/jit.htm http://hbr.org/product/...right-supply-chain-for-your-product.../
97205PDFENG -