Power Unlimited Inc. The Next level
Power Unlimited Inc. (PUI) supplies power stability solutions to manufacturing, commercial, and business sectors. To date, PUI operates as a custom manufacturer and serves the needs of local businesses. Recently, PUI has realized the opportunity to expand operations by diversification of processes. In order to make this transition; PUI will develop from a job shop to a full-scale manufacturing facility. In addition, PUI will continue marketing custom solutions for its clients.
PUI, located near Houston, Texas, operates as a distributor, wholesaler, retailer, and service provider for power protection systems around the world. The current product line includes UPS (Uninterruptible Power Supply), surge and transient protection, power conditioners, battery chargers and monitors, and power monitors. In addition, power surveys are available to determine power disturbances, harmonics, power factors, power consumption, and thermal imaging. Likewise, custom battery cabinets and maintenance bypass switches are available (Think Energy p. 1).
PUI faces the challenge of moving from its current one-man operation to a full-scale manufacturing facility. Power Unlimited, Inc. faces constraints in finance, logistics, operations, human resources, and customer satisfaction. To direct PUI growth plans, the team used the balanced score approach to designs an operational structure. This real time solution will aid this company in this transition phase. PUI currently operates on a to-order basis. This well-defined process is attached as a flow diagram (attachment 1).
Currently, a customer places an order with PUI for their specific product. Following this order request, PUI places orders for all required components. Once all of the parts are received, the assembly process begins by workers laying such mounting points and panel openings required for the specific component to manufacture. This requires the use of templates, which are on file and match the requirements of the collection of components. Part of the process includes cutting and installing all required wiring and interconnections. Likewise, testing before shipping ensures the component performs as designed.
If the customer completes his or her own installation, the process is complete, initiating the billing process for the product. If PUI completes the installation, travel arrangements are confirmed to ensure support staff availability on the sight when the components arrive to complete the installation process. On completion of installation of the system to the satisfaction of the customer, and in compliance with local wiring codes, support staff returns to the company to prepare for the next order causing bill generation for the completed project.
As PUI adds stock items to the mix, new procedures implementation is required. Based on initial forecasts provided from a partner company located in Canada, PUI will set minimum stock maintenance levels in a limited warehousing operation. Such minimum stocking will ensure that finished goods are shipped as orders are received, causing the tracking or monitoring system to be created to ensure stock is available to fill the order. This system will also prevent excess inventory from being created.
Using the new process, when an order is received from a customer, personnel must decide whether the order is for a custom or stock item. If it is for a custom item, the traditional flow will be maintained; however, if a stock order is received an initial check will be conducted to verify the item is currently in stock. If the item requested is not currently in stock an order is placed with the factory floor to complete processing of sufficient product to replenish stock. In the case of an out of stock item, the generated order matches the established minimum level, and causes delay of the order for 72 hours. However, the established minimum level lies within the ability of the manufacturing facility to produce within 48 hours. After 48 hours, the order is reviewed to ensure available stock. Once the item shows in stock, a review to verify sufficient material is available to fill the current order is completed. Again, if the quantity is not sufficient, an order to build to the minimum is created causing another 48-hour delay in filling the order. Each order is handled in a first-in first-out fashion for all stock purchases.
Once sufficient quantity is in place to fill the order, the stock is pulled in full to complete the order. If pulling this order creates a below minimum condition to occur, a new minimum order is created. Filling and shipping the order according to established processes completes the order. As each order is pulled from stock, the next order enters the fulfillment process. The Supply Chain Manager will control the minimum levels of inventory. In addition, the SCM adjusts the minimum level to prevent out of stock conditions from occurring. With this process in place, the quantity of stock on hand should not be excessive, while allowing customers orders to ship in a timely fashion.
By tracking the order fulfillment process, with emphasis placed upon on-time order shipping, the success of stocking items is measured. Due to the nature of the product, a reasonable level of stock must be maintained. However, once this product is created it must not remain in stock indefinitely. Therefore, the need to adjust the minimum level is required. The decision to change an established level requires sound business decisions to be implemented, based on current and projected demand. Without proper review, this system can become unmanageable. With careful monitoring, all parties will be satisfied. The customer receives their standard order without delay. The company minimizes inventory holdings. Cash flow is maximized. Increased demand for products from satisfied customers and the acquisition of new clients drives future growth opportunities.
Along with maintaining an available inventory for shipping customers orders, it is important to develop a forecasting tool that can be used to aid in ordering raw materials in anticipation of building finished goods for shipment. As UPI enters an unknown market, completed probability studies indicate an existing market for the company’s product line exists. According to Chase, the author of Operations Management for competitive advantage, several effective forecasting techniques could apply like: Time Series Analysis, Historical Analogy, and the Delphi Method (Chase pp.467-490). Trials indicated that the moving average method determined the closest tracking results. Developing a modified formula achieves a weighted moving average. PUI’s first quarter operational simulation data helped in the design of the formula used to predict future demand. If the simulation and probability study are reliable and accurate, PUI will outgrow its current capacity by the end of 12 months in operation.
With this model in place, it is possible to develop a functional raw material inventory. The first requirement involves determining lead times for each critical component. In this case, all pre-fabricated mechanical devices and power supplies fall into this category. Other items such as nuts, bolts, wire, paint, and other related hardware are bulk materials and managed using a min-max system, similar to the Finished Goods inventory (FGI) system. Bulk items are those items consumed in the process of making the finished goods and not cost effective when ordered in small quantities. Purchasing these items by case or pallet quantities improves cost effectiveness. The level reaches a predetermined point causing order generation for a new case or pallet.
All critical items require tracking as they are used. When these items are pulled from inventory, they will be tabulated immediately. Following this process, the material pulled generates orders for replacement. Occasionally, a new min-max level may be established. This action will also trigger an immediate order to increase on-hand supply to the new level. Implementing these procedures for all critical and bulk materials ensures sufficient quantity on-hand to support manufacturing operations without process disruption.
With basic supply plans implemented, it is essential to address the heart of the operation. This includes implementing the balanced scorecard approach, which encompasses financial, business processes, learning and growth perspective, and customer service perspective. The balanced scorecard is a continuous step in improving SCM to meet the needs of the company, shareholders and customers (Chase, (2003), p. 467?). Furthermore, the balanced scorecard is a management system not a just a measurement system that enables companies to clarify their vision and strategy but translates them into action.
The system provides continuous responses around the internal business processes along with external vendors, suppliers, and customers in order to promote and improve strategic performance with results (The Balanced Scorecard Institute, p. 1).
Currently, financial issues continue to be a primary hurdle for the future growth of the company. After covering all expenses related to the manufacture of each custom job, the limited profits are reserved for supporting current R&D projects. Due to non-disclosure agreements, these projects cannot be discussed in this paper. This process has created a limited cash flow situation for PUI, causing the decision to explore seeking outside investors. However, the owner is aggressively pursuing additional capital by interested and qualified investors.
Since accounting maintains records via the “shoe box method” by stuffing financial and accounting data and records into a filing cabinet, a workable database should be developed employing Microsoft Access. Currently, the company’s finance perspective is unbalanced in relation to the other parts of the balanced scorecard. Consequently, management should endeavor to centralized and automate accounting and record keeping thereby leading the company into a more productive and balanced information situation.
In regards to the business perspective, this is in reference to the internal processes of the company. In the scorecard approach, established metrics allows managers to track the overall health of the company. For instance, the metrics tracks the products and services performance, to how well they conform to customer expectations requirements in relation to the company’s mission. Consequently, these metrics need to be carefully designed by individuals who know the company’s processes intimately, like the owner of the company (p. 1).
For instance, PUI has already acquired all required manufacturing equipment and has existing facilities in place. The equipment consists of test and monitor equipment, machine shop tools, required hand and power tools, and moving assistance equipment. The current space is sufficient for up to eight manufacturing work areas. In turn, the projected capacity will allow for the manufacturing capacity of up to twenty-five units per day. On average, each team member produces 3.25 units each day with minimal overtime expected. This allows for payroll control what the company continues to grow over the next year.
However, no documentation exists for these processes meaning that flowcharts and metrics do not exist. Normally when an order received, the customer customizes the order to meet its specifications; however, since PUI does not have existing metrics in place, it takes the company about four months of trial and error to complete the project. If PUI has multiple components of the same specification, the company can complete the following components in three-week increments. The metrics should include the Just-In-Time (JIT) concept. Having only one large supplier for a short period of time could increase profits although this can be risky for the company (Conrad, A. (1999), p.1). Therefore, management hopes to implement establish metrics that the company can follow.
Furthermore, the next issue to address under business processes is logistics. Currently, PUI uses FedEx and its subsidiaries exclusively. Although this is a long-term relationship, it is important to evaluate other options for transportation of finished goods, particularly as the business continues to grow. With the addition of standardized stock items to the company’s offerings, there may be benefits to developing a mixture of resources for shipping, including FedEx, UPS, and other long-haul carriers. Likewise, with the continuation of custom projects, it is important to maintain solid relationships with current carriers.
In the learning and growth perspective, this area of the scorecard concerned with employee training and corporate cultural attitudes as it relates to both the employees as individuals and the company self-improvement. In a knowledge-worker company, people are the company’s main resource (p.1). Consequently, PUI needs to address Human Resource (HR) management issues. As the company continues to grow, clearly defined roles and additional headcount is inevitable and training is essential to the success of the company. For instance, HR’s must find the right people to work within the culture and educational requirement of the company. With metrics in place, managers are responsible for ongoing training to improve further the organizational processes.
For example, in the current process two individuals handle all activities. One is primarily responsible for all administrative functions, while the other handles all manufacturing, installation and field support for the current customer base. With significant growth projected, manufacturing, operations, field support, engineering and R&D management roles will result.
Consequently, the company needs to identify an operations manager (OM) to complement the engineering manager currently operating the entire business. The operations manager responsibilities include all aspects of production and supply chain management. In addition, the OM will assist in expanding the current customer base and adding new clients as well. The operations manager will take over the day-to-day activities of the business, allowing the engineering manager to focus on product development and field support activities.
In addition, the current individual who is managing the administrative activities needs to develop an accounting division. The issues of accounts receivable and payable will be delegated to new staff members, allowing the current individual to focus more efforts on customer relations, further increasing the potential customer base for the company.
The creation of a separate customer service support group is also needed. In addition, the company needs to hire sales staff to aid in the marketing of the company’s products including several proprietary offerings currently available. These individuals will be responsible for marketing activities, which in turn, leads to additional growth for the business. In any case, learning and growth constitute the essential foundation for success in any organization fostering a knowledgeable worker company. Therefore, it is essential for PUI to implement this philosophy from start.
The last component of the balanced scorecard system is the customer’s perspective. Recently, a trend in management philosophy reports an increasing realization of the importance of customer focus and customer satisfaction for any business wanting to stay in business. Leading indicators shows when a customer is not satisfied, he or she will find another supplier that will meet his or hers needs. From this perspective, poor performance is a leading indicator of future decline for a business, even if its current financial picture is outstanding.
In response, PUI delivers a quality product above standard norms; however, it is imperative that PUI continues to listens to the needs of the customer. In addition, metrics must be in place to insure compliance with all aspects of the balanced scorecard. Furthermore, along with delivering a quality product, PUI needs to ensure cycle times are within acceptable standards for both the company and its customers. With these components in place, combined with proper positioning and strategic partnerships, the success of Power Unlimited Inc. is highly likely. This placement, along with the release of new products and additional long-term contracts helps to ensure the long-term success of the company.
In closing, as a company experiences growing pain, the decisions that management makes directly impacts the company’s position in the world market. Consequently, resolving these issues are essential to the success of the company. Specifically, when a company reaches its maximum capacity within its existing structure management needs to decide to maintain the status quo or grow to the next level.
By maintaining the status quo, the company will ultimately result in failure. By changing with the demands placed on it, the business will likely see continued growth into the future. Nevertheless, Power Unlimited Inc. is in flux. With the right people in place practicing the balanced scorecard system, and a strong integrated SCM communicating continuously with vendors, customers, and the organization will provide the foundation for PUI’s success. Finally, PUI is such a company to implement and build this strategy for success.