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Operations management project Jan 2024
XXYY Juice manufacturing company
- Introduction
XXYY Co. juice manufacturing company is a leading Egypt-based manufacturer specialized in the production, processing, and packaging of juices ready to drink. The company was established in 2004 and began producing juices with a capital of 2 million pounds. XXYY Co. started operations in 2001 with one production line, growing to seven lines during 2018. The company is operating under a strategy that aims to provide the best juice tasting experience to its customers (differentiation strategy). The Company was seeking to increase their sales through annual contracts with major schools and institutions, and to seek more supermarket and hypermarket chains.
2. Forecasting
The General Manager of XXYY shared the latest shared the latest sales numbers of juice bottles. The average price per unit is EGP 12/bottle. He highlighted the constant growth in sales in years 2021, 2022 and 2023. However, the current conditions in Egypt and the world calls for reassessment of their future sales. Thus, the general manager highlighted the need to reassess the forecasting techniques that they currently use.
| Actual 2021 | Actual 2022 | Actual 2023 | |
| Jan | 305,000 | 335,000 | 375,000 |
| Feb | 280,000 | 310,000 | 345,000 |
| Mar | 290,000 | 320,000 | 355,000 |
| Apr | 350,000 | 390,000 | 435,000 |
| May | 300,000 | 335,000 | 370,000 |
| Jun | 325,000 | 360,000 | 400,000 |
| Jul | 340,000 | 380,000 | 420,000 |
| Aug | 315,000 | 350,000 | 390,000 |
| Sep | 320,000 | 355,000 | 395,000 |
| Oct | 330,000 | 365,000 | 405,000 |
| Nov | 340,000 | 380,000 | 420,000 |
| Dec | 345000 | 385,500 | 425,000 |
| Tot. | 3,840,000 | 4,265,500 | 4,735,000 |
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3. Capacity Planning
XXYY has 7 production lines with a max. capacity (Actual O/P) of 300,000 bottles of juice per month. During 2023, the capacity of the factory critically covered the market demand. It is forecasted that within two years, annual demand will increase by 7% and the company might face a problem to cover the expected demand in the future. Thus, it seems critical to rethink to increase the capacity to meet future demand. Operations manager proposed two capacity alternatives to increase their capacity. The first alternative is to buy a new production line. The second alternative is to outsource and to deal with a third-party producer. The following table indicates the annual fixed and variable cost per unit of each alternative:
| Buy a new line | Outsourcing | |
| Fixed cost | EGP 1,000,000 | None |
| Variable cost | EGP 7/bottle | EGP 10/bottle |
Besides, for the short term, there is a need to reconsider the use of the company resources while maintaining the same quality of their products. Accordingly, the operations manager proposed a process improvement initiative that reduces processing time for each bottle (The company operates one shift of 10 hr./day with 26 days/ month), so that output is increased by 12%, but 5 additional workers required for each production line. Originally, 13 operators are needed to operate each line (7 production lines). Operator costs are EGP 30/hour, and material input is EGP 2/bottle and operating line cost EGP 255/hr. Overhead is charged at 1.325 times direct labour cost (before and after the proposed initiative). As a member of the improvement juicem, you are required to assess the feasibility of the proposed initiative with respect to its effect on the productivity of the production lines (assume that the output is evenly distributed among the 7 lines).
4. Production process and quality
Generally, production in XXYY company could be considered as a batch processing that provides quite high volume and quite acceptable variety of output. As previously mentioned, there are 7 production lines that are used to produce the 5 different types of products produced by XXYY. Line 1, 2 and 3 are used to produce small bottle juice size (600 ML). Line 4, 5 is used to produce large juice bottle size (one litre). Line 6 and 7 are used to produce mix fruit juice (both small and large bottles). The production processes for the different types of juice produced are as follows:
The following are the key manufacturing stages: Selection and preparation of raw material Juice extraction, Filtration, Batch preparation Pasteurization Filling and bottling. Any fruit can be used to make fruit juice, but the most common ones include pineapple, orange, grapefruit, mango and passion fruit.
- Fresh Fruits delivered to the factory and stored.
- Fruits passed on to the fruit washing and grading section.
- Washed fruits would be fed to the inspection cum sorting conveyor where unwanted, damaged fruits would be separated out manually.
- Washed & graded fruits would be passed on to the fruit juice extraction unit.
- Extracted juice is passed to the heat treatment to avoid the quality degradation.
- The juice is fine pulped in pulper cum finisher to get fine juice.
- This juice will go for clarification in the juice clarifier.
- Clarified juice is used for to further processing to manufacture Clarified juice is used for to further processing to manufacture ready to drink juice or juice concentrate.
- In juice concentration section, fruit juice with 10-12 brix would be concentrated to 65brix in multiple effect vacuum evaporators.
- Collected concentrated juice would be pasteurized and packed in cans in canning line.
- For ready to drink juice, other supporting formulating ingredients like sugar, citric acid, etc., would be made ready for the formation.
- Formulation of the ready to drink juice would be done in formulation and blending tanks.
- Finally, formulated ready to drink juice would be pasteurized and packed in glass bottles.
Quality is strongly emphasized at XXYY. Employees are trained in quality concepts and the use of quality tools. Training is incorporated on-the-job so that employees can see the practical applications of what they are learning. Employees are responsible for performing in-process quality checks (quality at the source), and to report any defects they discover to their supervisor. In that sense, several quality checks are performed.
The close monitoring of step 5 revealed that the company is frequently facing problems with quality degradation of fruits. The accepted norm of degradation of fruits ranges between 5% to 7%. The standard deviation of the process is 0.325 %. So, the quality management of juice decided to collect a sample data (20 samples each with 5 observations) about the moisture content (in percentage) as shown in the following table:
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | |
| 1 | 4 | 4.1 | 4 | 4.1 | 4.2 | 4.3 | 5.2 | 4.1 | 4.1 | 5.1 | 4.4 | 4 | 4.1 | 4.3 | 5.1 | 4.3 | 4.1 | 4.1 | 4.2 | 4.2 |
| 2 | 5.1 | 4.6 | 4.7 | 4.2 | 4.2 | 4.2 | 5.1 | 4.2 | 4.2 | 5.2 | 4.1 | 4.1 | 5.1 | 4.2 | 4 | 5.0 | 4.0 | 4.1 | 4.1 | 5.0 |
| 3 | 4.8 | 5.6 | 4.2 | 4.1 | 4.1 | 4.5 | 4.5 | 4.1 | 4.1 | 4.3 | 4.2 | 4.1 | 5.2 | 4.3 | 4.1 | 4.3 | 5.2 | 5.1 | 4.1 | 4.2 |
| 4 | 4.2 | 4.8 | 4.4 | 4.2 | 4.3 | 4.3 | 4.3 | 4.2 | 4.3 | 4.1 | 4.1 | 4.2 | 5.4 | 4.2 | 4.3 | 4.1 | 5.0 | 5.0 | 4.5 | 4.0 |
| 5 | 4.4 | 5.1 | 4.1 | 4.1 | 4.5 | 4.2 | 4.2 | 4.1 | 4.2 | 4.1 | 4.2 | 4.0 | 4.1 | 4.2 | 4.6 | 4.4 | 5.3 | 5.1 | 5.0 | 4 |
5. Inventory and order fulfilment
The company attempts to minimize the amount of inventory. There is a real need to reassess this strategy for their purchases. The current model of ordering and inventory ignores calculating economic order measures as well as quantity discounts that might be offered. For example, the needs of XXYY from one of its raw materials (fruits), the raw; being as a crucial ingredient and imported from a local supplier has a total demand of 90,000 tons/year. Ordering costs are EGP 350 per order, carrying costs are EGP 65 per ton per year. Orders less than 800 tons will cost EGP 400 per ton, more than or equal 800 to 1000 will cost EGP 350 per ton, more than1000 to 1200 will cost EGP 320 per ton and larger orders will cost EGP 290 per ton. In addition, the company determined that the lead-time needed from placing an order until having the order is around 123 days on average with standard deviation 3 days, while the required service level is 97.5%.
6. Aggregate Planning
Planners of the company are about to prepare the aggregate plan that will cover 6 months. Assuming that the company identified the following forecast for the next 6 months:
| Period | Jan | Feb | March | April | May | June |
| Forecast | 375,400 | 3810200 | 351,450 | 363,000 | 441,300 | 372,000 |
They now want to evaluate a plan that calls for a sjuicedy rate of regular output (350,000 bottles/month), mainly using inventory to absorb the uneven demand but allowing some backlog. They intend to start with zero inventory on hand in the first period. They decided to use overtime to make up for lost output. The maximum amount of overtime output per period is 40,000 bottles per month. The regular production cost per bottle is EGP 4.5 while the overtime cost per bottle is EGP 7.5. The holding cost is EGP 0.75 per unit per month and the backorder cost is EGP 1.625 per unit per month.
Product mix and transportation (Linear Programming)
The company produces five types of juice which for convenience shall be referred as A, B, C, D, and E. The operations manager is thinking about formulating a linear programming model. This model can be used by the firm to determine the optimal product mix and production quantities in the presence of production and demand constraints with several “what-if” scenarios. However, the model is comprehensive and incorporates several diverse issues such as:
- Multiple products, each with its own resource usage per unit of the product
- Product demands per month
- Finite resource availability
- Distinct resource costs
The objective in the mathematical model is to maximize the firm’s profit. Therefore, the model assumes that each product has its own unique operating procedure, which we define as the parameters of a production process that uses a known amount of each resource and results in a specific production yield of that product. The resulting mathematical model in this scenario is a linear program. The outputs of the model give the firm precise information regarding which products should be produced, and in what quantities. Furthermore, the model should show which production and demand constraints limit the firm’s profits so that the firm can carefully study these problem areas. Since the model calculates the quantity of different products in advance, the results can also be used for comparison between optimal and actual amounts of production. The following table shows the requirements of each unit from the raw material, machine time and labor time as well as the maximum demand and the profit per unit.
– The monthly available raw material of the juice) is 35000 kilograms
– The maximum capacity of the production lines is 250000 units/month.
Suppose that the production of the five types of juice will be transported to the warehouses of the company. The company has three warehouses where the capacity of each one is 120000 units. Assume the five types of juice are produced in three different locations X, Y and Z. where, location X is specialized to produce type A and B juice, location Y is specialized to produce Type C, and location Z is specialized to produce type D and E. The following table shows the shipping cost per unit from the factories to the three warehouses:
Module assessment:
As an Operations Management Consultant, XXYY has hired you to help determine how it can improve its operations management (improving forecasting accuracy, minimizing waste, developing supplier relations, etc.) by using its current resources in a cost-effective manner. Furthermore, you should provide both short-term solutions to their problems and long-term ones.
You are required to undertake a group of (3 students) research project and to prepare a Management Report based on the case study provided:
- Analyse the sales numbers of the company and recommend a forecasting technique to use during the upcoming period and forecast 2024.
- Assess the two alternatives (outsourcing vs insourcing) and determine the appropriate decision based on 2024 forecast and determine when it is appropriate to outsource and which year the new production line is a must.
- Assess the proposed improvement initiative using the actual demand of 2023.
- Review and assess the process of inspection undertaken by XXYY.
- Review and assess the inventory decisions facing XXYY
- Prepare an aggregate plan for the first 6 months of 2022 based on the given forecasted demand.
The key aspects that need to be covered within the report are:
- Critically evaluate the key Operations Management issues faced by You must critically discuss each of these issues showing clearly, why it is actually a problem, how you see an opportunity for improving XXYY operations in that issue, and preferably you can also provide evidence from literature that these issues are common/not common in similar business contexts and how improvements are usually attainable.
- For each issue identified, critically analyse each issue using the most appropriate topics, techniques, methods, models and tools available that you would have possibly identified within the lectures and textbooks recommended in the first lecture (you can even use other operations management topics in these books that you might find relevant). You must clearly show why you selected any of these topics in the first place and in light of the case study, provide a detailed justification for the techniques, methods… that you have chosen.
- Based on what you presented in the previous points, you are required to critically evaluate and analyse different alternatives pertinent to each issue I expect you to use both quantitative and qualitative evaluations, show any improvement that you might achieve, use appropriate illustrations, charts, and tables.
- Reflect your findings in the light of how XXYY are currently handling their operations and in light of their expected
Report Structure and Layout
You need to follow a report format
The following main sections must be included in your report. Cover Page: Students Name, Students Registration Number.
- Executive Summary.
- Key issues identified.
- In each topic include 2 – 3 pages to summarize the topic include reference rather than the lecture text book or power points.
- Identification of the key approaches, concepts that apply to these issues
- Conclusion: Overall conclusion of your proposed action(s).
Further tips
- I would expect you to expand on the case study and bring in any further information you might find suitable and that would help in further analysis of XXYY You might even want to bring in examples from other similar companies, industries, or products.
- The report MUST have a proper reference list in the end of the Harvard style for both citations and reference list should be used.
- A pdf or word document should be submitted to the whole project include the full names of the student group
- Submit POMQM files
- Submit the project at the end of the course