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Applied Research Project Operations Management at Sarge’s Coffee CompanyPrepared for:Russel FlippoSouthwestern CollegeWichita, KansasPrepared by:Logan ComminsEXECUTIVE SUMMARYINTRODUCTIONI am a self-professed coffeegeek. Okay, so apparently, Microsoft does not believe that is an actual word; but it is. If you do not believe me, just Google it. Okay, so maybe it is actually a website rather than just a word. However, if you find the website and spend a little time looking around, you will realize that coffee is extremely popular. Who would have thought that one little bean that grows in some of the most inhospitable places on the planet could garner enough attention to have people dedicate an internet message forum to it. Ok, now back to me. After my career in the military is over, I am going to grow a wicked beard and start a coffee roasting distribution company. In this post-military endeavor, I will utilize the skills that I garnered from my degree in Operations Management coupled with my love for hot caffeinated beverages to build a successful company. We are going to have to name it something that I am comfortable with, so I think I will go with Sarge’s Coffee Company. After reading this paper, you will have an understanding of how I plan to utilize the lessons learned in Operations Management I & II to achieve my goals.ANALYSISOperations Management I and Operations Management II focused on teaching the skills that are necessary for somebody to be a successful production manager. A prevailing sentiment throughout the courses was of the virtues of efficiency and the benefit of technology in the modern production environment. These courses also focused on several of the methodologies that are associated with successful operations and production practices used by companies around the world.CONCLUSIONThese courses taught many practical lessons and operations principles that are vital for somebody that is considering a position where they will be leading a production operation. The information contained in these courses will be very beneficial to me as I set out to establish and operate my business in the future. RECOMMENDATIONThe skills learned in this class should be implemented at SCC in order to help my business succeed. Being able to employ forecasting into the production planning process will benefit the business and facilitate growth. An added benefit of the increased demand for efficiency is that it will help keep prices low, which should make the business more profitable in the end. TABLE OF CONTENTS TOC \o "1-1" \h \z \u INTRODUCTION PAGEREF _Toc126913727 \h 5SUPPLY CHAIN MANAGEMENT5INVENTORY MANAGEMENT6AGGREGATE PLANNING7MATERIAL REQUIREMENTS PLANNING8SHORT TERM SCHEDULING9LEAN OPERATIONS10MAINTENANCE AND RELIABILITY11CONCLUSION11List of IllustrationsFigure 1 Worldwide Coffee Consumption13Few products elicit such a devoted following as good coffee does. That is good news. Actually, for me, that is GREAT news! I plan to utilize my knowledge of home roasting coffee coupled with the skills I have received through my degree in Operations Management to build a successful wholesale coffee roasting company called Sarge’s Coffee Company (SCC). A recent survey found that 54% of American adults drink coffee everyday, another 30% partake occasionally, and that yearly we import over $4 billion of coffee from all over the world (Adley, 2010). With Americans facing the worst economic crisis to hit our nation in almost 70 years, many people are choosing to tighten their belts and forego their $4 morning cup of coffee and are instead attempting to make it at home. Although they are meeting their intent and saving money on their purchases, many of them will readily admit, that their homemade coffee is not the same as the store bought “Joe”. This is where SCC’s expertise will fill the gap and provide a first-class product to an industry in demand. I have learned a great deal about coffee over the past 10 years and the bottom line is that to make great coffee, you need to start out with fresh high-quality beans. Our goal at SCC is to provide great varieties of coffee that customers can learn about and purchase via our interactive website. To accommodate this, we will source green unroasted coffee beans from around the world, roast them to our strict specifications, and then ship them out to customers so they receive their beans at the peak of freshness. We also recognize the emerging popularity of the home roasting trend, so we will stock a selection of unroasted beans for our customers that wish to go the artisanal route and want to try their luck. In this paper, I will discuss the lessons learned from this course and how I will implement these principles in my business. The first area that I will cover concerns the benefits of supply-chain management in the modern manufacturing world and the benefits that are to be gained from adding it into the daily operations at SCC.SUPPLY-CHAIN MANAGEMENTThe first step for me to tackle at SCC in our quest to revolutionize the coffee-industry is to get a firm handle on the supply chain. According to The History of Coffee, (n.d.) coffee was discovered in the Ethiopian highlands by a goat herder that noticed that his goats acted exceptionally spirited after eating the fruit of a native plant. In the time since then coffee has been successfully introduced across many different regions ranging from arid Arabian peninsulas to lush tropical islands. The roasted coffee displays different characteristics depending upon the location it is grown and these changes manifest themselves as different aromas and flavors in a coffee drinkers cup. Any coffee merchant worth their weight should stock varietals from multiple regions if they hope to be able to satisfy their customer’s demands. Another important part of the supply chain that SCC will have to address is ethics and sustainability. When you couple the fact that coffee is the second most valuable commodity in the world, with the fact that it is traditionally grown in some of the poorest countries across the globe you have the perfect recipe for exploitation (Thompson, 2006). This exploitation is so severe in some places that the grower winds up operating much like an indentured servant. Because we recognize that this exploitation is wrong and we believe we can help correct the problem, SCC will be a supporter of the Fair Trade campaign. The Fair Trade campaign seeks to break the cycle of exploitation by establishing a partnership with coffee growers where they are paid higher than current market prices for their crops, which gives them the means to live a better life. Being that we are producing coffee and not manufacturing a product with a lot of sub assemblies and components, several of the principles in this section were not truly applicable. In a traditional manufacturing environment, outsourcing is commonly used, but it would not work very well for our operation. The success of our business depends on the quality of our product so it benefits us to keep our roasting process in house in order to keep oversight of the product that we are producing. The next area that I will discuss covers the importance of inventory management at SCC.INVENTORY MANAGEMENTThe process for roasting coffee is surprisingly quick and involves the coffee undergoing a series of ramped temperature changes, which stimulates an exothermic reaction within the bean. After reaching the proper internal temperature, it finally “cracks” open where it is then rapidly cooled to end the roasting process and lock in the flavor. SCC will primarily deal with raw material inventory and finished goods inventory in their daily operations. All of the coffee that SCC purchases will be freshly processed and unroasted “green” beans, which can last up to six months before needing to be roasted. Once roasted though, the coffee should leave the facility within 24 hours so it reaches the customer at peak freshness. Small-scale home-roasters will typically buy raw beans in bulk in small enough quantities that they are able to use them all before the beans go bad. A wholesale operation such as SCC will operate off this same principle but on a much larger scale. They should employ one of the inventory models to determine the most economical point at which to place orders for inventory. A benefit of the roasted coffee leaving the facility so quickly is the fact that the time that it remains on premises increases the organizations holding costs and subjects them to increased liability for the product being damaged or pilfered. Being that they will order inventory from different suppliers in different parts of the world, they may find that the need to utilize safety stock to make up for lengthy lead times. I will now move on to Aggregate Planning, which is another beneficial area that will help my future company prosper.AGGREGATE PLANNINGAggregate planning will play a pivotal role in helping manage operations at SCC. The fact that they will purchase green coffee from different regions around the world will be beneficial because each region has a different harvest schedule and this should allow them to schedule their operations around the different harvest times. Having a steady supply of fresh inventory arriving at regularly scheduled intervals will allow them to keep their workforce on a steady schedule while keeping their output at a constant pace. If SCC was to find that demand tapered off during a certain season, they could undertake measures to influence demand by running a promotion in order to increase their sales. They would have to watch this activity very closely though as the tactic could backfire and wipe out their stock of inventory forcing their regular customers to purchase their coffee from a competitor and risk losing future business. Another important tactic concerning aggregate planning that SCC should utilize is yield management. A good use of Yield Management would be if they were able to get a small batch of coffee from a very exclusive growing region that would demand a higher than normal price. An example of this is coffee from the Kona region in Hawaii, which is typically grown on smaller estates and due to the exclusivity of the region; it often cost upwards of 500% more than other sourced coffees. Now that we understand the benefits of Aggregate Planning for SCC, we will look at the benefits of Material Requirements Planning.MATERIAL REQUIREMENTS PLANNING The first step for SCC to accomplish in terms of Material Requirements Planning (MRP) is to establish a Master Production Schedule (MPS). This schedule will lay out the operating sequence for the different roast profiles that SCC is going to accomplish. During the early phase of operation, if SCC notices that some of their coffees are not turning out quite to specifications, they can make changes to their MPS to dial their roasts in to where they should be. Once they are sure that the MPS is accurate and producing good lots of coffees, they can construct a gross material requirements plan which is an all inclusive schedule that shows total demand for an item and when it must be ordered from suppliers or when productions must be started to meet its demand by a particular date (Heizer, 2010). Another beneficial concept to SCC is Enterprise Resource Planning (ERP), which is a computerized information system for identifying, and planning enterprise-wide resources needed to take, make, ship, and account for customer orders (Heizer, 2010). ERP is in action from the moment a customer places an order for beans from SCC’s website. The system will show accurate pricing and product availability for every item that SCC carries. On the production side of the house, SCC’s internal systems will show the same information but in greater detail. Their internal system will monitor production output as well as tracking inbound shipments of inventory giving them the ability to forecast demand and availability. Now that we have an understanding of the benefits of MRP and ERP, we will look at the benefits of short-term scheduling to SCC. SHORT-TERM SCHEDULINGShort-term scheduling is a very important part of the planning cycle for any business that is trying to make it in today’s tough economic times. SCC will need to utilize short-term scheduling in order to maximize their productivity. A good example of an area that will require short-term scheduling is in their coffee roasting area. Commercial coffee roasting machines are expensive pieces of sophisticated equipment that utilize computerized controls to oversee the precise ramp rates of the different roast profiles in order to bring out the desired flavor of the coffee beans. SCC will operate two of these propane-burning workhorses and each roast sequence will produce a different variety of coffee, so it is very important that they implement an effective schedule to be able to meet demand. Scheduling should be easy to accommodate for SCC because they can calculate their roast times beforehand and they can utilize products such as Gantt Charts to plan their weekly production schedule in order to maximize their workflow. This roast schedule will determine the overall number of employees that are required to be on shift at each time, which will be our main consideration as far as short-term scheduling. The downside to having a tight production schedule is that any unaccounted downtime (equipment failure, production errors) that is encountered will be a major setback for their operations and will put them behind the curve. Mastering short-term scheduling is the key to running a successful operation, now we will look at the effects that Lean Operations has in the modern production environment. LEAN OPERATIONSIn today’s business era, managers need to keep costs down and operate in the most efficient way possible. SCC will utilize lean operations and Just-in-Time (JIT) techniques in order to reduce waste and operate efficiently. Lean Operations build upon the principles and doctrine taught through the Toyota Production System that rose out of the Japanese automobile manufacturing sector. Lean Operations are a customer driven approach that gives the customer what they want, when they want it, without waste through a series of continuous improvements (Heizer, 2010). In our quest to become a Lean Organization, we will focus on reducing inventory at all levels, refining our systems as we continuously improve our processes, and reducing our footprint as a company as well as reducing our transportation distances. Our utilization of Lean Operations will focus on three fronts; eliminating waste, removing variability and improving throughput, which is the time it takes for orders to run through the production cycle. Focusing on these areas will ensure that resource consumption remains at a minimum and will eliminate needless expenditures of time and money. The second phase of SCC’s manufacturing plan involves utilizing JIT techniques to increase efficiency. The basic premise of JIT is to deliver each step in the process just prior to the time at which they are required saving storage and handling costs associated with maintaining excess items. Because SCC will only deal with producing one product, there will be almost near constant shipments of raw inventory that is arriving at our roasting facility. Another option that would be beneficial would be to build a JIT partnership with a supplier where they receive many lots of raw inventory; alleviating the need for a large warehouse full of product that is subject to accidents or spoilage. By incorporating JIT techniques in to the design of the production line, we will ensure that speed and efficiency are production elements with a similar focus on eliminating unnecessary stops in the process. Now that we have established an efficiently organized manufacturing facility to roast and ship our coffee to customers worldwide, we need to discuss what steps we will take to keep everything operating smoothly.MAINTENANCE AND RELIABILITYMany manufacturing facilities are full of automobile sized pieces of industrial equipment that require a steady maintenance regimen to keep them operating properly. I actually work in a place like this and I can tell you that it seems like we spend just as much time performing maintenance on our equipment as we do making parts with them. At my job, we utilize metalworking equipment to stretch, bend and shear sheets of metal eventually turning them into aircraft parts and panels. When a piece of our equipment is down, we are not able to perform a part of our mission, which can put personnel in danger on the other side of the world. Although my coffee business will not support a war effort, it is equally important for our equipment to be operational at all times. Our equipment and machinery will be our lifeline at SCC and in order for the business to grow and prosper; we will have to implement an effective maintenance schedule. In order to increase equipment reliability and reduce production downtime in the factory, our maintenance plan should focus on preventative maintenance and have contingency plans to accomplish breakdown maintenance quickly and effectively when the equipment fails. Our approach to maintenance relies more on preventative maintenance in order to reduce our unscheduled downtime, which costs us money due to lost sales and negatively affects the way they operate. If SCC can find enough documentation concerning the historical lifecycle of the machines and equipment we are utilizing, we should be able to calculate the mean time between equipment failures, which would help us select the most opportune time to perform maintenance, which will keep our productivity at the highest level possible. An additional factor for SCC to consider is the fact that the product that we will produce is a beverage so we have to ensure that our equipment undergoes proper sterilization and does not pose a risk to our customers. Customer loyalty will be one of our biggest success factors as an independent company. If it was ever determined that inadequate production practices were causing our customers to become ill after consuming our goods, we would lose credibility as a reliable producer and we might not be able to regain our customers confidence.CONCLUSIONIn this paper, I discussed many of the factors that will help ensure that SCC is a successful company. I started by stating what my vision was for my future business. After this, we looked at the importance of supply-chain management. The next area that we covered was inventory management, which highlighted the different types of inventory that we will utilize at SCC. After this, we delved into aggregate planning which highlighted the different factors that I could employ to influence demand. Next came a section covering Material Requirements Planning and Enterprise Resource Planning where I discussed the importance of the master production schedule and then went on to cover how ERP can be utilized as a cradle to grave automated tracking system to gauge production. The next section covered the importance of short-term scheduling by detailing the areas that I would apply short-term scheduling in my endeavors at SCC. After this, I discussed how I would utilize lean operations to meet my goal of continuous improvement in our production area thereby increasing efficiency and our operations tempo. In this section, I also covered utilizing JIT techniques and the benefits of establishing a JIT partnership. The last section that I covered touched on the importance of maintenance and reliability. The skills that I have learned in this course will be invaluable to my future dreams of owning and operating a wholesale coffee roasting company. Many small business owners start down the road of owning and operating their own business because they have a passion for a particular subject. Unfortunately, if they do not have a firm understanding of the world they are about to enter, they are likely to fail. A recent report highlighted the fact that 66% of small businesses fail within the first two years of business (Campbell, 2005). The skills learned from my degree in Operations Management will give me a strong foundation to build my business upon, and will help me as I strive for efficiency and precision as a workplace manager. APPENDICESFigure SEQ Figure \* ARABIC 1 Worldwide Coffee consumption Works CitedAdley, C. (2010, 0511). Facts and statistics about coffee consumption in the United States. Retrieved from Campbell, A. (2005, 0705). Business failure rates highest in first two years. Retrieved from Heizer, J. H., & Render, B. (2010). Operations management. (10e ed.). Prentice Hall.The History Of Coffee. (n.d.). Retrieved March 20, 2013, from , T. (2006, 0204). The dark story of poverty in your coffee cup. Retrieved from ................
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