Introduction
China is considered the manufacturer of the world. Several manufacturers of computers, clothing and machinery, are made in China. The manufacturers are mostly located in the east coast provinces of China. The most important Chinese cities in the manufacturing sector are Shanghai, Dalian, Qingdao, Suzhou, Ningbo and Shenzhen.
The lower wages are the most important consideration the multinational companies establish its manufacture facilities in China. The minimum day wage evolves from USD 1.23 to 1.84 USD in China, compared with the minimum wage in Australia USD 16.88 and Germany USD 11.6. Additional to the minimum wage the availability of raw material, national or imported, and industrial sector that can provide all the supplies a company will need for its industrial process. This last characteristic doesn’t have it Africa and India whose minimum wage in some regions in lower than China.
The production processes in China have evolved from the man and animal force to the use of machines and modernization of the lines of production. The necessity of getting higher capacity in the same factory and with the same quantity of employees is a world trend.
In this paper, we analyze the company Forefront Manufacturing and its sister company Forefront Contracting. The current situation of the company, the challenges the company face about the manufacturing process, the strategies to optimize the supply chain of the company and get higher revenues in a very competitive sector.
ForeFront Manufacturing
What are the key operational issues/problems that you may identify in the case?
* Capacity constraint in the finishing department:
The company has a capacity in the three primary departments of the production process –cutting, carpentry, forming and assembly- of 350 door-sets per day. The bottleneck of the process is located in the finishing department, that is where the product gets the added value, and the installed capacity is 300 door-sets per day.
This constraint in the production forces to the company to use a second shift to achieve the capacity of 350 door-sets per day. Using the second shift increase the labor cost to 50% the additionally worked hour and 100% premium for the Sundays.
* The model of sister companies of Forefront Manufacturing and Forefront Contractor:
The model of sister companies create difficulties to the company if the both companies want to go public, that is, make an Initial Public Offer in the Stock Exchange of Shanghai or New York. The two companies need to separate the management and the accountability to have a transparent development of the company.
Having a sister companies model hides the problem’s one company has with another.
* The production is mostly sold in Hong Kong and Macau:
Almost 90% of the Forefront production is sold in Hong Kong and Macau Island. That increases the volatility of the company and depends on the development of these two economies. In 2001, the real state booming stagnated in Hong Kong affecting the sale numbers of the company. The company needs to explore new markets in the South East Asia. Singapore, Thailand, Malaysia, Indonesia, South Korea and Asia are interesting markets for the company and should be considered in a strategic plan of growth.
* The necessity to buy in advance raw material:
In the Case, Forefront buys all its raw material, that is, the Medium Density Fiber (MDF) and High Density Fiber (HDF) from North America and Europe. This situation gives to the company a supply time of three to four months to receive the raw material to build the door-sets.
This situation strikes with the schedules that the company receives from the contractor, where the time of delivering the door-sets are from two to six months. As a consequence, the company needs to buy raw material in advance, even when the company doesn’t have any order to sustain the acquisition.
The company needs new suppliers from Asia: China, India; which can offer fibers of the same quality as the North American and European do.
* The contradiction between the Engineering bill of material and the production process:
The company needs to create a robust plan of production, that every process of the company must me documented and measured in order to work against the plan.
The entire department must have a production plan, according to the strategic plan, production budget and the characterization of this production. The production result should be compared with the budgeted production and then analyze the deviation from the benchmark.
* The maintenance and the spare parts stock:
The maintenance is a factor that affects the operative continuity and the economic results of the company. The company equipment is from different suppliers, and each equipment has a lot of parts that are not standard or equivalent to another.
The company will have high expenditures if it has equipment in stand-by. The company should apply a strategy in the long term to standardize the equipment and the spare parts in order to have a stock useful for all the equipment of the plant.
The company must work with a limited quantity of firms that provide the equipment for the factory. The change of the company to a new building is a good opportunity to make those changes.
* No guidelines in the process:
The company needs to establish operative practices for each process. For every department, at least one guideline must exist. The use of guidelines will standardize the process and with time study and optimization the production capacity could be increased using the same resources.
What alternatives do you propose for addressing and correcting the issues from a supervisory or managerial perspective? Why?
* Make investments in the Finishing Department:
Working together with the Engineering Office and the Managerial Office propose, conceive and execute a project of increase the capacity of the Finishing Department. This department gives high value to the door-set and assures the quality that the clients of Forefront need.
* Create a new Board of Directors for the Forefront Contractors:
New managerial structures of Forefront Contractors guarantee that the companies will be administered with efficiency and transparency.
The selling of shares of the second company to a private investor previous to a future IPO could make easy this change in the management of the two companies. This new private investor need to contribute to the company with contacts and new clients from South East Asia, natural market of the company.
* Establish the business policies to each company:
The mission statement policy, quality statement policy and environment statement policy is an important step to the two companies in order to achieve the development of each company. These business policies serve as guidelines to the rest of procedures and guidelines the company need to establish in the operative level.
What are the possible obstacles and difficulties for implementing these proposals?
* The first possible obstacle of implement this proposals is the board of directors of the existing company. The owners of the company have to be convinced of this changes, changes that in the long run will generate higher revenues to the company and as a consequence to the shareholders.
* The second possible obstacle is to the worker and operator level, which does not have a guideline of how to make the things done. Is necessary the worker use a guideline to make every movement, cut, varnish and assembly of the door-set. The worker has to be tied with the time standards and the production budget of every day, month and year.
Conclusion
The Forefront Manufacturing is a company whose mission is to supply high end door-sets to the new construction developments in the South East Asia, mostly in Hong Kong and Macau. The Forefront Manufacturing has several challenges to deal in the managerial and operative sector. This paper recommends several actions in order to affront these challenges in order to be competitive in the market in quality and prices. In summary the recommendations are:
* Separate the management and operations of Forefront Manufacturing and Forefront Contractors.
* Diversify the suppliers and clients of Forefront Manufacturing. South East Asia is a natural market to the company.
* Create policies and guidelines that make measurable the management and production of the company.
* Increase the capacity of Finishing Department. This department gives to the company the added value of the product.
* Develop new strategies in the maintenance office. Standardize the spare parts and the equipment.
Reference List
Piper, C. and Goodwin , N. (2006). ForeFront Manufacturing: Production processes and change management in mainland China. Boston, MA: Harvard Business School Press. HBS Case # 906D20
