Morrison Company’s Demand and Operations Issues

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Table of Contents

Introduction
Major Facts
Major Problems
Questions
Recommendations
Conclusion
Reference List

Introduction

The Morrison Company’s case study presents an example of a firm that could not adequately prepare for rising demand in its products. The CEO of the business, Jason Robbins, awaited the growth of his venture but did not create opportunities for expansion and innovation. As a result, the poorly anticipated development resulted in multiple production- and delivery-related problems. Shauna Breen’s evaluation showed that the current manufacturing schedules of the company and its relations with a limited number of IC (integrated circuit) makers were among the main issues that had to be fixed. This report aims to analyze the two main product lines that The Morrison Company had and offer recommendations to Breen to address the concerns that arise as a result.

Major Facts

In 2003, The Morrison Company was established by Jason Robbins, an ambitious entrepreneur who sold his two previous businesses prior to entering an entirely new market. The firm, named after the president and CEO’s maternal grandfather, is located in Aurora, Colorado, although it was created near Denver. The business develops and produces radio frequency identification (RFID) tags that are also called smart labels.

These labels can be used in different industries to track products in warehouses or during deliveries (Pérez, González & Dafonte 2017). In particular, The Morrison Company targets two types of clients – retail and pharmaceutical businesses. Previously, the firm only offered tags to pharmaceutical companies, and its earliest prototypes were developed at the time of the introduction of new standards for labels by the US Food and Drug Administration (FDA).

As a result, Morrison became a leader in the sector quickly, having patented its label design and technology to offer products of the highest quality. In 2007, Morrison expanded its target audience by introducing new tags for retailers.

All processes of the company happen in one building, a 28,000 sq ft facility. It hosts the administration, marketing, engineering, and manufacturing departments and is located in an industrial park among other developed businesses. The manufacturing process is completed by 60 employees who earn an hourly wage and work one eight-hour shift five days a week. They perform six activities: “receiving, inspection, and inventory, parts picking, inlay fabrication and testing, tag assembly and testing, personalization [optional], packaging” (Wheelwright & Myers 2011, p. 4). Assembly systems are fully automated, but the customization process requires some manual adjustment of the machines. Furthermore, workers check the result of each step in the manufacturing system.

Major Problems

One can identify a number of major operational problems in the facility. First of all, Morrison has a consistent issue of supply shortages – the recent economic recession of 2009 has had an effect on IC manufacturers, thus decreasing the range of potential supply chain members (Wheelwright & Myers 2011). The low supplier base shifted the choices of Morrison in working with other companies. The recovery from this crisis, as a contrast, led the growth in demand for IC’s and tags as businesses began advancing. The lack of supplies, Morrison started to deliver its products later, passing the deadlines for as long as ten weeks.

Next, the combination of the company’s shortage problem and its increasing offers for customized orders resulted in another concern – the inventory on the factory floor became filled with in-progress orders that could not be shipped (Wheelwright & Myers 2011). Stock-outs started occurring regularly, increasing trifold in the last six months. The unfinished orders could not be moved to another facility since there were no other buildings leased. The increased demand required additional manufacturing force and space, but expansion was deemed impossible.

The retail tag manufacturing had a series of bottlenecks since it had a high level of product personalization. Machines became overworked and required maintenance which disturbed the whole production process. Packaging and order delivery was further delayed as well, lowering the overall reliability of Morrison (Wheelwright & Myers 2011). Finally, the company has encountered the highest return rate ever which was caused not by low quality but by errors in shipment.

Questions

Analyses

The capacity analysis shows that the number of machines that allow customization is insufficient to deal with the number of orders from retail manufacturers. Only four out of ten machines allowed personalization of labels, while almost 80% of all products ordered by retail businesses chose this type of goods (Wheelwright & Myers 2011). If one looks at the number of items which were produced in the last documented year, it is clear that the actual output of retail labels (21,005) was higher than that of pharmaceutical ones (15,267).

Keeping in mind that the number of machines which could work on tags for retail businesses was lower, one can conclude that this is a problem of capacity – one shift of workers could not handle the incoming orders and perform all procedures in time (Krajewski, Ritzman & Malhorta 2016). It is also vital to remember that personalization slows down the process and lowers the capability from 20,000 units per hour.

The utilization analysis shows that 60 people working for the company may not be enough to cover the plan for the growing business. At least 20 employees are engaged with the ten assembly line machines, and other workers were engaged in the customization process, quality inspection, testing, and material handling. Since the production employees checked the goods after each step of production (there are six steps overall), the efficiency of the ten used machines was maximized with one shift and could not be improved without additional force.

Production Processes

As of 2011, Morrison focused on two main lines, pharmaceutical and retail. The first line is a pharmaceutical one – it creates tags that have to adhere to rigorous standards established by the Drug Enforcement Agency (DEA). Therefore, there exist only two available sizes of these tags, and the level of customization is minimal. RFIDs of this line are valued for their high quality – the company was among the first entrants to the industry, and it currently holds about 30% of the smart tag market. The role of these tags and their sales were estimated to increase by 34% by 2015 (Wheelwright & Myers 2011). Thus, the focus on the tags is an apparent aim of the company.

The competitive ability of The Morrison Company is high, and it does not have many competitors with the same outreach and recognition. Pharmaceutical clients are large and well-established, and their orders are consistent and reliable. The goals of smart tags in this sector are to increase the efficiency of inventory search, fight the distribution of counterfeit drugs, and ensure that all medication expiration dates are tracked continuously.

The manufacturing company prioritized quality, and the buyers were not concerned with pricing options. As a result, the tags from the pharmaceutical line cost around $0.22 per tag and accounted for 2/3 of the annual revenue ($36.3 million). Moreover, one should note that less than 15 percent of all labels were ordered to be personalized (Wheelwright & Myers 2011). This characteristic allowed Morrison to stock up on items instead of making predictions for each upcoming period.

The retail line introduced in 2007, was met with increased competition as many other players were entering the market. Initially, only a small range of tags was offered by Morrison, but the company introduced personalization in the form of color, size, shape selection as well as custom printing for large orders. Here, from 70 to 85 percent of all smart tags were personalized or had a degree of customization (Wheelwright & Myers 2011). This means that the process of production for these labels was much slower and demanded more attention from workers.

The competition, however, required the firm to lower prices with each tag costing about $0,11 – half of the price for an advanced pharmaceutical tag. Overall, this line brought approximately 18 million in revenue, a third of the total number. It is vital to note that the cost of customization brought the final income from this line down since the COGS for the retail tags was about $13,5 million, In comparison, pharmaceutical smart tags required $21,9 million but produced more revenue as an outcome (Wheelwright & Myers 2011). These numbers indicate an inefficient approach to the distribution of attention and resources to product lines.

Recommendations

The first recommendation for the company would be to improve its planning processes which are currently done by two managers. The sales forecast is based on inventory projections and people’s personal expertise – two managers meet and discuss the plans and then create their individual plans for the future. An ERP (enterprise resource planning) technology, rejected by the CEO earlier may be advantageous to making better predictions and dealing with resource shortages (Rajan & Baral 2015). This may also deal with the number of bottlenecks which are caused by unreliable IC manufacturers (Roser et al. 2017). Furthermore, Morrison should work with more suppliers of ICs to ensure on-time delivery and avoid unfinished orders.

To avoid the issue of delivery errors, a re-checking department for packaged orders should be added. The company also has to deal with the growing demand for its products. While it cannot expand the space to place more machines, it can introduce a second shift and hire more workers. It may increase the load on the equipment, thus requiring more highly skilled mechanics as well. Morrison should consider acquiring additional property to store in-stock items since its major products, the pharmaceutical line, are produced for stock and not for specific orders. The most radical change would be to lower the focus on the retail line and devote more machines to the pharmaceutical one, decreasing the range of needed supplies as well as customization efforts.

Conclusion

The Morrison Company has reached a point where it should take steps to innovate in order to stay relevant to its customers. The growing demand for products should not affect the quality of goods or change their prices significantly. Therefore, the CEO should aim to innovate the current resources. Additional quality control is also vital to decrease the rate of returns. In this case, the introduction of an ERP technology, new IC suppliers, a second shift, and a new re-checking department are the main recommendations for the business.

Reference List

Krajewski, LJ, Ritzman, LP & Malhorta, MK 2016, Operations management: processes and supply chains, 11th edn, Pearson, Boston, MA.

Pérez, MM, González, GV & Dafonte, C 2017, ‘The development of an RFID solution to facilitate the traceability of patient and pharmaceutical data’, Sensors, vol. 17, no. 10, p. 2247.

Rajan, CA & Baral, R 2015 ‘Adoption of ERP system: an empirical study of factors influencing the usage of ERP and its impact on end user’, IIMB Management Review, vol. 27, no. 2, pp. 105-117.

Roser, C, Lorentzen, K, Lenze, D, Deuse, J, Klenner, F, Richter, R, Schmitt, J & Willats, P 2017 ‘Bottleneck prediction using the active period method in combination with buffer inventories’, in IFIP International Conference on Advances in Production Management Systems, Springer, Hamburg, pp. 374-381.

Wheelwright, SC & Myers, P 2011, The Morrison Company. Web.

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