Furniture bank case study. The objective of this report is to help create an operation and process strategy, that would contribute to our corporate strategy of growth and meet community needs.

by kjouda (student)

University Degree Business and Administrative studies

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Objective:

The objective of this report is to help create an operation and process strategy, that would contribute to our corporate strategy of growth and meet community needs, by evaluating and, prioritizing the ideas proposed by the board of directors in our last meeting held on 22 April 2008 and by assessing our operations capabilities in order to achieve that strategy.

Introduction:

As our operation function has a responsibility of the business cost, it is extremely necessary for it to keep costs under control while trying its best to generate revenue and get the best possible return on investment and to do so; it should lay down the capabilities that will constitute the long-term basis for future growth (Slack, Nigel 2009).

The characteristics of the processes within our operation are high volume, low variety, low variation in demand and low-to-mid visibility, which is ideal for any operation and can allow us to control the cost and at the same time generate more revenue.

For the Furniture Bank, the most significant operation performance objectives are cost, speed, quality and dependability. So any decisions we may take regarding our operation, should consider enhancing the tradeoff between these objectives.

Our board members had mainly suggested four ideas, as showing below:

Expand the trucking operation by purchasing new trucks.
Having IT system that would facilitate efficient procedures for operations.
Relocate the organization’s premises.
Create a franchise model for the bank which will allow the bank to have branches in the leading Canadian cities.

I believe all of the above ideas are extremely important. They are like a chain connected to each other, so they have to follow a designed procedure in order to implement them successfully. But the questions are: How to prioritize them? And what operations capabilities required implementing these ideas?

The below operation plan, I prepared, will try to answer the above questions.

Operation Plan:

Like any other process; the proper design of the operation’s process is the key of excellence, so we have to do planning, planning and planning and then execute to deliver while keep improving during all these phases.

In order to achieve our corporate strategy, the priority for us at this stage, is to make our operations more stable and self-sustaining by correcting the worst problems within it. That will lead our operations to be more cash generated at later stage. Company latest financial statement for 2006/2007 showing an increase on revenue, but it has also showed a large increase of expenditure. So the objective at this stage is to correct that situation. The operations activities are representing 35% of revenue, and being, not for profit organization does not mean that we do not have to be profitable. Because, as much cash we can generate from both operations and fundraising activities, as more we can expand our operations geographically and help more people in need.

In order to implement our operation strategy, it is worth to start with the dilemma related to the location of our operations. We need to take an immediate decision regarding that dilemma, as the location is fundamental to any operations and to the business as whole. Our current location is convenient for our operations. However, the City of Toronto who allowed us to use their land as a temporary basis, and who at the same time represents our main source of fund, has attempted to take it back and had proposed alternative locations, but we thought that none of those ...

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Of course, it’s better not to move at all as the cost associated with relocation could be high and apart from that, wrong choice of a new location can have a significant effect on the operation’s cost and its ability to serve our customers. Moreover, it can have a negative impact on the contribution of volunteers and other resources toward our operation. So first let us try reaching an agreement with City of Toronto to keep us where we currently are, but if have to move then, we need carefully evaluate alternative locations and evaluate the long-term risk factors associated with such decision.

During our last meeting, one of the board members had suggested a new location in the range of $1.5 to $ 3.5 million, which is hugely an expensive option for our budget, where I think, instead of paying that enormous amount; we can accept the suggested location by the City of Toronto.

From one hand; it’s a free of charge and can be suitable for our back office operation as the nature of our back office operation is low visibility and we are mainly responsible for picking up and delivery of furniture, so it does not really make a big different were to locate our back office operation as long as it has access to the public transportation, while our front office operation, which is basically the show room and the administrative office, can be located in the centre of the city and for that reason, we can buy or even rent a show room and the administrative office to be in the Greater Toronto area. That for sure will satisfy our customers and at the same time will keep cost lowerFrom the other hand; we will secure our relation with our major funder and we will avoid a risk being out of place, in case if the City of Toronto won a judicial writ to kick us out.

Next, we need to design, integrate and automate the operation’s processes (Figure 1 illustrate a proposed process), which will help us to enhance our day to day activities, and that for sure will require a sophisticated IT system which in turn would help us in many ways:

It would maintain our relation with funders, who represent 65% of our income, as the system will allow us to record all their information and track their transactions, billings, contracts, etc...
It can reduce the cost associated with high visibility of our operations, once we implemented the system; our clients can choose the furniture they need and can also schedule the delivery date which can reduce the number of calls to our call center.
Will automate and organize internal procedures in terms of the day to day operations activities such as scheduling of picking up and delivery of donated furniture.
It would help in planning forecast the resource capacity in order to meet the growing demand.
It will computerize inventory management and will keep an updated record of all inflow and outflow items.
It can automate the call center function, as we can integrate it with our telephony system where clients can directly choose from the menu, the option they want.

Keeping in mind the cost of the system is affordable, and the value that can be added to our operations and customer service is outstanding as “technology plays a major role in organizing effective coordination and communication” (Brühl, Horch & Osann, 2010).

Figure 1: The Suggested process for Furniture bank.

The first two steps mentioned above, are fundamental and have the most priority for our operation at the first stage and can be parallel implemented.

Once we have stabilized and structured our operation’s processes; next we can emphasize on the trucking operation, which represents the only source of operations revenue and 35% of overall revenue. Our trucking operation can be enhanced by linking the operation’s capabilities related to the supply chain to our operation performance objectives. The latest income statement showing particularly interesting figures; while the revenue from the pickup activities was zero in 2006 and became more that $100.000 in 2007, the expenses related to the trucking operation has dramatically increased for about 114%, that include both wages & benefits and vehicle expenses, Keeping in mind that the current vehicles are so old, and the risk of relying on them can be high plus the demand has exceeded the supply of furniture (eight weeks), so my suggestion is to look to the outsourcing option. If we can sign an agreement to outsource the pickup and delivery activities to a third party who are specialized in logistics then, we can benefit from this agreement as the risk and rewards of ownership can be transferred to that third party and we can have fulltime trucking operations instead of halftime plus we can avoid or at least mitigate the risk related to the failure of current trucks.

However, surely such strategic decision, require carefully evaluation of both options; buying two new trucks or outsourcing the trucking activity to a third party and sell the current trucks. To reach a decision, we should take in account two main factors; First: our four operations performance objectives; Cost (transaction cost): which option is cheaper for us in the long term period or in other words which option can minimize the transaction cost? Quality: which option will give better quality of furniture to reach the end customer? Speed: which option can faster serve the customer as well as decrease the time required for furniture to reach end customers? And finally, Dependability: Which option can more guarantee on time delivery of furniture?

Second; our supply chain (which is essential to achieve the first factor), where the heart element of it, is the capacity of our operation to deliver and meet the fluctuating of demand among the year (see table 1). Here, comes our operation’s responsibility to manage that demand and prepare the capabilities of trucks to response to that fluctuation, for example, outsourcing contract should include a service level agreement (SLA) to increase or decrease the number of trucks based on the forecast that should be made quarterly and revised every month. Our last income statement showing no expenditure on advertising and promotion which I believe it’s a strategic mistake. Advertising and promotion will increase the awareness of our business which will lead to increase both demand and the supply which eventually will lead to more revenue.

Table 1: Revenue from operation activities, adapted from Furniture Bank’s

Files,Cited in case study of Richard lvey School of Business.

The implications of all of the above will lead inevitably to the fourth idea proposed by board member, to create a franchise model of the bank with the ultimate goal of opening branches in main cities, in Canada, to reach all the needy of the community.

As we are not for profit organization, we don’t have the right to have the traditional franchise model where franchisees have to pay us for using our trademark; instead, we can approach other charities by funding them to carry out our operation’s activities.

finally, we need to continuously improve our operations ,and for that reason, a balanced scorecard system (BSC) would be an extremely helpful tool to communicate corporate objectives and measures to employees and volunteers and encourage them to set a challenged target (that would be linked to the corporate strategy) and to achieve that target. Therefore we have to have an incentives scheme along with BSC to reward the operations team based on their efficiency.

By implementing BSC, we will be able to track the operations performance against key performance indicators (KPIs) that would reflect our Performance Objectives. Table 2 shows a sample of these KPIs that can be used and related performance objectives.

Table 2: Sample of KPIs and Related POs

If you accept the above plan, I believe we will see good results in the near future; our next meeting’s discussion will mainly be focus on the evaluation of the proposals for both location and logistics.

Thank You.

List of References

Slack, Nigel (2009) “Operations and process management”, principles and practice for strategic impact.
James R. Kroes, Soumen Ghosh, Outsourcing congruence with competitive priorities: Impact on supply chain and firm performance, Journal of Operations Management, Volume 28, Issue 2, March 2010, Pages 124-143, ISSN 0272-6963, 10.1016/j.jom.2009.09.004.
Dr Alison Smart (2008) Operations Management”
Xiaosong, D., Schroeder, R. G., & Shah, R. (2011). Competitive priorities, plant improvement and innovation capabilities, and operational performance. International Journal of Operations & Production Management, 31(5), 484-510. doi:10.1108/01443571111126292
Brühl, R., Horch, N., & Osann, M. (2010). Improving integration capabilities with management control. European Journal of Innovation Management, 13(4), 385-408. doi:10.1108/14601061011086267
Stephan M. Wagner, Pan Theo Grosse-Ruyken, Feryal Erhun, The link between supply chain fit and financial performance of the firm, Journal of Operations Management, Volume 30, Issue 4, May 2012, Pages 340-353, ISSN 0272-6963, 10.1016/j.jom.2012.01.001.