Business organizations all over the world are increasingly been faced with enormous challenges coming against a backdrop of harsh economic situations and shrinking global markets for their products and services. The ongoing financial meltdown coupled with escalating costs of production has brought an ominous experience even to the most assiduous, experienced, and conscientious business managers. To cut a niche in the already saturated business environment, organizations must always ensure their core processes are well defined with the intention of cutting on organization-wide costs to enable the generation of profits for their shareholders. In the light of this, organizations have embraced technology, efficiency, value addition, innovation, and speed as some of the key drivers to financial breakthrough (“Process Improvement,” 2009).
Any organization – large or small – can be summarized as a collection of intertwined and interdependent processes. These processes form the core business activities performed to generate value, serve the needs and requirements of customers, create strategic differentiation, and generate profit. The success of any business entity depends on how well these processes are managed and improved (“Process Improvement,” 2009).
According to Webster (2008), these processes must never be viewed in isolation. CAN TECH Corporation, based in Hoffman Estates, IL, is in the middle of managing and improving such processes in some of its facilities across the United States. The problems afflicting some of the organization’s key facilities clearly show that some of the business processes might have reached their full potential, therefore heralding an era of restructuring and redesigning to bring about a breakthrough in its performance. The first part of this essay will dwell on evaluating the feasibility and economic justification for restructuring the organization by building a new liquid chemicals distribution facility in New York City.
The Marketing strategy utilized by CAN TECH Corporation has always been to provide a wide selection of products from a single location. However, the need to set, shape, and execute a new business dispensation owing to problems exhibited in CANTECH’s facilities in Toledo, Denver, and Huntsville cannot be wished away. In essence, CAN TECH Corporation is undertaking what is commonly referred to as a process improvement aimed at maximizing performance while ensuring that the return of such an investment is achieved. It is the function of business analysts to always undertake accurate feasibility studies and provide economic justifications to ensure the success of such critical projects (“Process Improvement,” 2009).
From the problems exposited by the facilities near Toledo, Denver, and Huntsville, it is clear that CAN TECH Corporation must tidy up its supply chain management and logistics management components to remain competitive. In equal measure, the operations management component at the Denver facility has given rise to problems in logistics, forcing customers to wait for long hours in gridlocks to pick up their products. The problem is even worse for customers who want to pick multiple products as they have to move from one point to the other to pick each product. This is not good for business. As such, it is unequivocally necessary to look at the above components in deciding the viability and economic justification of a new plant to be located in the Northeast.
Whereas operations management deals with the development and delivery of goods and services within an organization, supply chain management deals more with the flow of resources among various departments within an organization or between two or more firms (Webster, 2009).
These resources include raw materials, capital, information, technology, labor, and finished products or services. Logistics management deals more with managing the activities involved in strategically moving raw materials, components, and finished inventory from suppliers, between the organization’s facilities, and ultimately to the customers. According to Weber (2008), “logistics management is that part of the supply chain management that plans, implements and control the efficient, effective flow and storage of goods, services, and information between the point of origin and the point of consumption in order to meet customer’s requirements” (p. 5). All these factors must be put into consideration when deciding the viability of putting up a new liquid chemicals distribution facility in New York City.
To determine the feasibility of the proposed plant, technical, financial, and organizational factors must also be taken into account. In the light of this, a feasibility study aimed at understanding the current and potential market demand for the petrochemical products, the minimum efficiency level needed for production, existing and potential marketing channel conduits, the current structure of the petrochemical industry in the area, and the competitive environment must be undertaken before initiating construction of the plant (Ag Innovation Guide, n.d; Hopp, 2007). This analysis is aimed at determining if the plant is capable of recouping the value of the investment.
Through effective process mapping, it is indeed feasible to construct a new liquid chemicals distribution facility near New York to ease the burden experienced in facilities located in other states. According to Goldman (2009), process mapping in supply chain management is a simple yet powerful tool aimed at improving the performance of organizations. Effective process mapping must encompass the suppliers of raw materials, procurement processes, distribution networks, all the way down to the final customers of the finished petrochemical products. Information revealed by the sales and marketing managers from the industrial chemicals and specialty chemicals divisions suggests that a large market for the finished product does exist in the Northeast since the region is densely populated.
Distribution channels for the finished products are not bound to bring difficulties since the region can be easily assessed from a city in Eastern PA that is connected by three interstate highways and two major railroads. Such a well-established transportation system would ultimately curtail inefficiency and waste, thereby increasing the profitability and competitive advantage of CAN TECH Corporation.
Although two of CANTECH’s major competitors have already constructed their distribution facilities near New York, the information revealed by the managers indicates that it is indeed viable for the organization to set up a plant in the region. According to Hopp (2007), properly functioning supply chain management is critical for any organization to ensure customer demands are satisfactorily met. Webster (2008) argues that interruptions of the supply chain negatively affect the normal flow of raw materials, business processes, and finished products, ultimately exposing the organization to operational and financial risks. This is exactly what is happening in the already existing facilities. The costs associated with customer dissatisfaction, low quality of products, and organizational disorganization as exhibited at the facility in Denver, CO should be used to justify the establishment of a new facility in New York.
Within CAN TECH Corporation, the problems of distribution, product quality, inventory, and materials handling, and customer service are a sure recipe for financial turndown if a process of balancing customer value against the cost of organizational processes is not undertaken (“Process Improvement,” 2009; Webster, 2008). Available literature points to the fact that the costs associated with operating a facility in New York far outweigh the benefits. But if proper business process mapping is undertaken, the city in Eastern PA, which is well served by three major roads linking up three densely populated states and railroads, can be used to ship raw materials from the site to the Northeast.
The economic benefits arising from the above arrangement would propel CAN TECH Corporation to new heights in performance. First, it would be able to serve a large number of customers owing to the fact that the Northeast region is densely populated. Second, this facility will reduce the pressure being exerted on other facilities, not to mention the fact that it would stimulate customer satisfaction. According to Webster (2008), supply chain management is an exercise in futility if it fails to streamline business processes with the aim of offering maximum value for customers as well as offering maximum returns for the organization.
The market share and sales revenue for CAN TECH Corporation is also bound to go up if a new plant is built in New York and every step is taken to reduce the operational and transportation costs. It should be the function of business managers to ensure costs are kept at the minimum as they are detrimental to the performance of organizations. According to Webster (2008), the expenses derived from supply chain management, namely inventory holding, transportation costs, operational costs, customer management costs, and technological costs account for 25 percent of corporate budgets in the US. It, therefore, follows that building a new liquid chemicals facility in New York City may be of immense economic benefit if all liquid chemical products are shipped by rail or barge from Eastern PA to the Northeast.
Lastly, economic justification arises from the fact that the market share for CAN TECH Corporation is bound to decrease by 5 percent for five consecutive years if the plant is not constructed in New York. On the other hand, the organization’s market share will increase by an equivalent of 15 percent of annualized sales volume if the plant is put up. The proposed project will invariably reduce supply chain expenses within the organization. Webster (2008) argues that “supply chain cost reductions go directly to the bottom line” (p. 6). Logisticians agree that a $12 increase in sales revenue brings the same impact on an organization’s profit as a $ 1 savings derived from the supply chain (Weber). This, therefore, means that organizational efforts aimed at streamlining the supply chain structure like the building of the new plant in New York can bring immeasurable economic benefits to the organization.
Various factors need to be considered if effective excellence through quality (EQ) program is to be initiated in the organization. It is an open-held secret that CAN TECH has been grappling with issues of product quality especially in facilities based in Toledo, OH, and Denver, CO. According to Webster (2008), organizations must relentlessly monitor the quality of products and services they offer with the goal of achieving excellence. Kanji (2002) defines excellence as “an outstanding practice in managing the organization and achieving results…” (p. 62).
To develop an EQ program for the Central Engineering and Research Department (CERG), both the quality assurance (QA) and quality management (QM) processes within the operations of CERG need to be looked into. While QA deals with ensuring the quality of products and services, QM on the other hand deals with ensuring the quality of systems and processes within the organization (Hopp, 2007; Kanji).
The development of a good EQ program must comprise the provision of applying new knowledge to business processes. Plans for improvement must be clearly spelled out and set in a clear direction (Perry, 2004). Within the corporate level engineering and R&D groups, tangible processes dealing with product inspection, quality control, and product testing must be formulated to ensure compliance with ISO 9000 programs. Here, data and statistics dealing with problems of distribution, quality of products, and customer service under the supply chain structure of CAN TECH must form the basis of developing the EQ program (Webster, 2008). Such data will inarguably inform the development of an EQ program that will expressly encourage an organizational culture devoted to organizational-wide customer contentment through continuous process improvement (Kanji, 2002; Hopp, 2007).
Several requisite factors must be incorporated in the formulation and development of CANTECH’s EQ program. First, all facilities, including those undergoing difficulties, must strive to be results-oriented as excellence will only be achieved after all the needs and requirements of all stakeholders are achieved (Kanji, 2002). Second, all organizational processes should focus on the maximum satisfaction of customers as they are the final arbiter of the manufactured petrochemical products (Webster, 2008). In this regard, the EQ program must incorporate feasible ways of reducing the distribution problems, frequent gridlocks, and quality problems experienced in Toledo, Denver, and Huntsville facilities. This is attainable through process mapping to ensure smooth supply chain management (“Process Improvement,” 2009).
Leadership and management factors must also be included in the development of the EQ program. It is a well-known fact that behaviors exhibited by business leaders generate a lucidity and unity of belonging, purpose, and direction within an organization. Perry (2004) concurs with this assertion by arguing that organizational leaders must lead from the front by creating an environment for process improvement and change. It is therefore imperative for the EQ program to contain value-adding principles for senior management at CAN TECH that aims at propelling a quality culture while streamlining supply chain processes (Hopp, 2007). According to Kanji (2002), the proposed EQ program for CAN TECH must include mechanisms that will make all organizational processes well understood and methodically managed. Current organizational operations and future business process improvements must be made using reliable data that includes the perceptions of all stakeholders.
Many tools exist to measure and optimize the performance and integrity of a supply chain (Hopp, 2007). To achieve operational excellence, requisite data must be available. In Caltech’s case, data about its market share, sales revenue, and profitability or loss of each facility must be included in the process improvement analysis. Logistics measurement is critical in conducting any comprehensive business performance analysis (Webster, 2008).
In this perspective, data about the cost of transportation using the available channels must be available. The distance between the source of raw materials and the available modes of transport must be made available. Transport modes include ocean-going barge, cargo ships, road, and rail. The costs associated with customer satisfaction, customer service, customer delays, and poor quality products in various facilities must also be taken into account. Data about customer perception and best practice benchmarking in the industry is also valuable (Hopp). Data about the time taken for the raw materials and products to move before they are made available to the end-user, including data related to perceived costs of building a new plant in the Northeast, and inventories need to be made available.
To reduce transportation costs, products that can either be transported in large quantities either by barge shipments or rail need to be considered. Available information from previous studies reveals that potential growth in profitability for the proposed factory can be hampered by costs related to construction, operation, and transportation. The function of supply chain management is to keep such costs at a bare minimum so that funds are released for other core business processes (Webster, 2008). These costs can be fundamentally reduced by building an inland facility in Eastern PA for handling all liquid petrochemical products shipped either by sea or rail.
According to Webster (2008), the value of inventory in US industries is almost equivalent to 14 percent of the country’s Gross domestic product (GDP). In equal terms, annual costs associated with transportation and warehousing are equivalent to 9 percent of the country’s GDP. This, therefore, means that building an Inland handling facility for liquid chemicals in Eastern PA will be beneficial to CAN TECH interns of saving on operational and transportation costs. The liquid chemicals can be transported to a central distribution location in the Northeast for onward transmission to customers either by rail or tank trucks. To this extent, liquid chemicals that can be shipped in large quantities should be distributed through the new facility.
Many organizations propel themselves into unprofitability by not following proper management techniques and tools. But if practiced, various existing management tools such as Total Quality Management (TQM), Sigma Six, International Standards Organization (ISO) programs, and benchmarking techniques can go a long way in saving lots of money and time for the organization. In particular, the Sigma Six model developed by the Motorola group in the 1970s can be appropriately applied to manufacturing systems and construction processes (Hopp, 2007; Levy, 2008). According to the authors, ‘sigma’ is the sixth letter in the alphabet, often used by statisticians to determine the variability of any process.
The DMAIC process in Sigma Six can be used to estimate the costs of the new facility as well as its operating costs. In the former, DMAIC analysis will be used to ensure construction costs are known in advance, thereby reducing wastage and misuse. To estimate the construction costs, a better understanding of the project must always be emphasized. Factors such as costs of building materials, costs of transporting the materials, costs of labor, the safety of the work environment, timeline and duration, better understanding of market rates, and source of major wastes and delays must be incorporated in construction cost-analysis (Harrington, Esseling, & Nimwegen, 1997). Once the information on all of the above is received, a Sigma Six analysis should be undertaken to maximally utilize the minimum resources. Costs of defects and reworks in the construction process must also be taken care of.
According to Humphreys (2004), operating costs entail the “expenses incurred during the normal operation of a facility, or component, including labor, materials, utilities and other related costs (p. 77). Knowledge of operating costs is fundamental, especially in supply chain management and logistics as it determines the possible profitability of any given product, service, or business process (Webster, 2008). The operating costs of the new facility should be estimated by taking into account all costs associated with the day-to-day running of the facility. This should include overhead costs, direct and indirect costs, inventory and warehousing costs, and maintenance costs. The indirect costs must make provision for transportation and distribution costs of raw materials and finished products. The cumulative figure of all these costs should inform the pricing of finished products (Humphreys). Again, Sigma Six can be used to effectively manage the operating costs to a bare minimum so as to widen profit margins. If properly used, the process can reveal alternative project possibilities for business managers manning the facility.
The bottom line is that business processes must be viewed as collections of interrelated activities geared at generating value for the organization and customers while creating strategic differentiation (“Continuous Process,” 2008). Day-to-day management and improvement of these processes are critical for any organization to achieve success. To remain ahead of competitors and operate outside the norm, it is absolutely necessary for business managers to recurrently undertake a process improvement analysis to improve their business systems and ensure that wastage of resources is kept at a minimum. As organizations continue to grow within the realm of technological advancements, business processes must continually be evaluated with the aim of improving them to successfully meet the needs of customers. CAN TECH Corporation is at this juncture; action is needed.
References
- Ag Innovation Guide. (n.d.). Getting from idea to implementation: A checklist for producers starting a new value added agribusiness.
- Continuous process improvement page. (2008).
- Goldman, A. (2009). Supply chain management: Process mapping. Web.
- Harrington, J., Esseling, E.K.C., & Nimwegen, H.V. (1997). Business Process Improvement workbook: analysis design and management of business process improvement. McGraw-Hill Professional. Web.
- Hopp, W. (2007). Supply chain science. McGraw-Hill/ Irwin. Web.
- Kanji, J.P. (2002). Measuring business excellence. Routledge. Web.
- Levy, S.M. (2008). Construction superintendent’s operations manual. McGraw-Hill Professional. Web.
- Perry, J. (2004). Excellence through quality.
- Process Improvement. (2009). RUTGERS.
- Webster, S. (2008). Principles and tools for supply chain management with student CD-Rom. McGraw – Hill Companies. Web.