The company "Café Negro SA" is a small appliance manufacturing company, mainly focused on coffee machines and toasters. To obtain these finished products they use parts that are purchased through their suppliers and are assembled within their production plant.
analysis-case-black-coffee-miraclesBetween the years 1960 and 1965 “Café Negro SA” was a small company of small household electrical appliances; Its production and sale focused on a model of a 6-cup coffee maker and a roaster. The coffee maker was accepted for being low-priced and safe to use; It was bought by retailers and private label stores that sold it under their own name.
In the 1970s, during the military-socialist government, under the government's policy of tariff protection (high tariffs), the company significantly increased sales and introduced some new models of electrical appliances.
Until 1978, when the military-socialist government was ending, they had a large number of accumulated orders for the coffee maker and the standard roaster, it was the year when restrictions on the import of electrical devices were lowered. They had backorder orders, they used to draw up a quarterly production schedule.
Late orders in late 1978 caused a 4-week decrease in production, and the quarterly order system became increasingly difficult to follow. Due to the severity of the problem, the company hired a marketing manager to establish the proper forecasting procedures to avoid backorders and shutdown of the production plant.
After 1978 many new products were added, including drip-type coffee makers, large coffee makers in capacities from 20 to 100 cups, different models of toasters, grills, waffle irons and more, including an electric pot in three different sizes and a dozen heaters of different liquids. Although the marketing manager was very successful in developing and introducing new products, her forecasting ability was not as good.
One of the most serious problems was the fact that the component requirements (of the parts) were reviewed quarterly, at the time of preparing the assembly program. Although this system was intended to generate a fairly uniform amount of work for the plant, the imprecision of the forecast caused very serious problems in the production schedule.
Since 1983 , component inventories have increased steadily and considerably, apart from these problems, management is concerned with customer service that was being poor judging by industry criteria. The sales department maintained that the service provided by Café Negro SA was one of the worst in the home electrical appliances sector. This situation could lead to a decrease in sales.
In 1990, Mr. Negro, under strong pressure from his sales manager, called a management advisor to recommend improvements in the production control system that would solve the customer service problem. The advisor recommended applying Economic Lots or amounts of economic order (EOQ's) calculated by computer, for the acquisition of components and raw materials, his recommendations were put into practice. EOQs resulted in larger lot sizes.
In 1999, the current situation, there are still many problems. Component inventory has been increasing steadily and the level of work at the plant is very unstable, being more erratic than in the past. Customer service instead of improving shows more deficiencies.
Mr. Black recently called his executives together to discuss the problem. They discussed going to another advisor but agreed that their previous experience did not justify the expense. They have decided to hire a materials manager and act as a working group to help him analyze the problem.
- Applied Methodology:
For the analysis of the problems that the company is facing, the analysis of the value chain of Michael Porter will be taken into account. For Porter, the value chain of a company is a theoretical model that graphs and allows describing the activities of an organization to generate value for the end customer and the company itself. Based on this definition, it is said that a company has a competitive advantage over another when it is able to increase the margin (either by lowering costs or increasing sales). This analysis is carried out through the value chain, a concept that he presented to the world in his 1985 book, "Competitive Advantage."
Value chain
Each company is a set of activities that are carried out to design, produce, market, deliver and support their products. All these activities can be represented using a value chain, as can be seen in the image. The value chain displays total value, and consists of identifying value and margin activities.
The value activities: Are the various activities carried out by a company to generate the value that the customer expects the product according to the market it serves and these are divided into primary activities are the activities involved in the physical creation of the product, sale and transfer to the buyer as well as post-sale assistance and Support Activities are what sustain the primary activities and support each other, providing infrastructure, technology, human resources to the entire company.
Competitive advantage. For Porter competitive advantage is understood all the characteristics or attributes of a product or service that give it a certain superiority over its immediate competitors. These characteristics or attributes can be varied in nature and refer to the same product, the necessary or added services that accompany the base service, or the modes of production, distribution or sale of the product.
Analysis of the Environment and the market:
At the beginning of the activities of Café Negro SA, the coffee maker they offered to the market was widely accepted as a low-cost and safe-to-use device; It was bought by many retailers and private label stores that sold it under their own name.
Its clients are retail intermediary companies that sell electrical appliances to end consumers.
In the first years of activity of the company they had the protection of the government policy of tariff protection, which allowed the company to notably grow in sales and introduce some new models of electrical appliances. There were not many imports of household electrical appliances. For many years they had many orders, even delayed, which allowed them to produce for several years, until the restrictions on the importation of electrical devices were lowered.
Over the years, customer service becomes poor judging by industry criteria. The sales department maintained that the service provided by Café Negro SA was one of the worst in the home electrical appliances sector due to delays in order delivery and production.
The company saw the need to hire a marketing manager who would be responsible for viewing sales forecasts to plan production. The marketing manager was very successful in developing and introducing new products, but his forecasting ability was not as good.
Analysis based on Porter's Value Chain methodology: Each of the functional areas of the company and its general activities, the description of said activities, the sub-activities and the critical factors that exist in each area are shown graphically below., depending on what the customer needs.
Likewise, the Problem Tree is shown, an analysis that is carried out based on the identified critical factors, then the Objectives Tree to define the achievements or improvements to be made and the activities to develop the Action Plan.
- List of Problems encountered:
- Deficiency in customer service attention due to delayed deliveries. Sales area does not generate accurate sales forecasts. They diversified into many new products without doing market research. Delayed production orders caused the stoppage of activities in the production area.The quarterly component requirement led to delays in the production and delivery of orders. High investments in component inventories led to stock out and high costs. Complaints in the stamping area due to the control department of production, always requests additional to its component programming. Deficiency in the production control system. Bad production scheduling or economic order quantities or batches.Accumulation of unnecessary components and little presence of those that are important to meet 100% of the assembly requirements. Loss of credibility in deliveries on time. Existence of disorder and lack of organization in the plant. Use of components of the articles assemblies from previous (but incomplete) orders to meet new assembly requirements. Little production capacity of the plant. Little preparation of personnel to be trained in improving productivity for all types of items that are manufactured.Use of components from assembled items from previous (but incomplete) orders to meet new assembly requirements. Little production capacity of the plant. Little preparation of personnel to be trained in improving productivity for all types of items that are manufactured..Use of components from assembled items from previous (but incomplete) orders to meet new assembly requirements. Little production capacity of the plant. Little preparation of personnel to be trained in improving productivity for all types of items that are manufactured..
- Main problem:
- Lack of adequate sales forecasts and production schedules
- Action plan:
According to the analyzed problem, it can be concluded that the problems that are being generated in the areas of stamping, manufacturing, assembly, production control that are part of the company's production plant, mainly originate from inaccurate sales forecasts. and in the need to improve the management and programming processes in the production process.
It is required to carry out a Reorganization Project in the sales and production processes, to improve customer service and efficiently schedule production.
The sales area does not have accurate forecasts and this may be due to the fact that they do not have a Sales Plan, Market Studies and analysis for the launch of new products, the sales manager only states that customers are dissatisfied with the service Due to delays in the delivery of orders and because there are no new finished products in stock, however, the Sales Manager does not disclose customer studies or analyzes or sales statistics to make more accurate forecasts.
Regarding the plant and production area of the company, there are problems in scheduling, orders and process management, which causes chaos among workers, paralysis of activities, high costs, disorganization, confusion, and this because they do not take into account the most accurate sales statistics and forecasts, and even bring new products to the market without prior analysis and internal problem solving.
It is proposed that the Sales or Marketing area have:
Sales Plan: Set of activities, ordered and systematized, where sales are projected periodically that are estimated to be carried out in the following year. It is considered the most important future projection that a company has, from which the plans of the other departments of the organization derive. What the sales plan is looking for is "to sell more, to more people, more frequently and with a higher margin".
Market Study: Set of information that is collected to have a clear notion of the number of consumers that will have to purchase the good or service that they intend to sell, within a defined space, over a period of time and what price they are willing to pay. pay. The market study will indicate if the characteristics and specifications of the product correspond to those that the customer wants to buy. It will also tell us what type of clients are interested in our goods, which will serve to guide the production of the business.
Studies for the launch of a new product: It helps to have a more precise idea of what the consumer would be willing to buy. For this, interviews and surveys are used, an analysis is performed in order to know what the characteristics of the product are, if there are similar ones, the demand they have, the costs involved in developing it. All this will help determine the profit margin in coordination with the production area. With this useful and valuable feedback, you make the decision to launch a new product or make modifications to existing products.
It is proposed that the Plant and production control area have more organized processes through:
Production Plan: It serves to detail how the products that are planned to be sold are going to be manufactured (Sales Forecast).
It is about knowing the human and material resources that will have to be mobilized to carry the company forward. The questions that the production plan has to answer are:
Fabrication process:
- What will be the quantities to be produced (if you will produce by orders or will you have them ready from before)? What materials and / or equipment will be needed and what is the cost? How will you produce your product (s) and how Does the production and quality control process operate? What will be the production capacity of the plant? How will the final product be stored? How will it be transported to the customer?
Also take into account the facilities, equipment and personnel, production capacity, suppliers.
Below is a table with an Action Plan.
ACTION PLAN OF CAFÉ NEGRO SA
| OVERALL OBJECTIVE | SPECIFIC OBJECTIVES | GENERAL ACTIVITIES | SUB ACTIVITIES | RESPONSIBLE |
|
ACHIEVE MANAGE THE SALES AND PRODUCTION PROCESSES PROPERLY |
Improve customer service | Sales plan | Analysis of Products in stock | Head of Sales or Marketing |
| Analysis of current clients | ||||
| Monthly Sales Forecast | ||||
| Annual sales forecast | ||||
| Market study | Analysis of the Product, price, promotion place. | |||
| Competition analysis | ||||
| Analysis of risk and punctuality in the delivery of orders | ||||
| Customer Service Strategies | ||||
| Launch of new products | Needs of the potential client | |||
| Market potential | ||||
| Generation of new product ideas | ||||
| Schedule way
efficient production |
Production plan | Sales Forecast Analysis | Plant Manager | |
| Component Requirements Analysis | ||||
| Component cost analysis | ||||
| Component inventory analysis | ||||
| Analysis of investment in components | ||||
| Production orders by order | ||||
| Stock production orders | ||||
| Production processes | ||||
| New product design | ||||
| Quality control processes | ||||
| Equipment Requirements | ||||
| Production capacity | ||||
| Production Cost Analysis | ||||
| Packaging processes | ||||
| Transportation processes |
