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MGT 300 PRODUCTION AND OPERATION MANAGEMENT

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American university in the emirates COLLEGE OF BUSINESS ADMINISTRATION- COBA   Management Department

MGT 300 PRODUCTION AND OPERATION MANAGEMENT


Summer II 2019-2020

Table of Contents

Mission 1: Introduction. 3

Project summary. 3

Introduction to company. 4

Company’s demand and supply. 5

Operations. 6

Productivity and recommendations. 6

Mission 2: Forecasting. 6

Mission 3: Capacity Planning. 8

Capacity strategy. 8

Actual production. 8

Cost volume analysis. 8

Mission 4: Inventory. 9

Mission 5: Supply Chain. 11

Supply chain strategy. 11

Supply design. 11

Major drivers to supply chain performance. 11

References. 12

Appendix. 13

Mission 1: Introduction

Project summary

Production management is an integral aspect of business activities. Production management associates the activities like planning, categorizing, organising, directing the activities and controlling the entire production.  It allows minimising the costs of production and ensuring the increase of volume of production comparatively cheaper level than the business competitors. The objective behind production management is to minimise the inputs and maximize the business outputs.

The purpose of the paper is to demonstrate the production management of Fujairah Cement Industries (FCI) for the specific product, Ordinary Portland Cement. Portland cement is a crucial element for construction; hence the production management of the specific product is beneficial for the profit generation of the company. The paper has portrayed the scenario of demand and supply of the Portland cement for the company. The way the organisation Fujairah Cement Industries allocate the resources to upkeep the operations and infrastructure has also been documented in the considered report. Trend line has been used to evaluate the performance data for the ordinary Portland cement. The paper also includes the capacity planning and inventory costs for the selected product of the organisation. The supply chain strategy and supply design of the organisation are also documented in the considered paper.

It has been found that the company ensures the production of the cement as per the market demand. The company has attempted to meet the market demand by availing the real time data for the market demand. Reduction of wastage of materials and sustainability are the motivation of the company. The seven stages of the supply chain have been identified in the paper.

Introduction to company

The Fujairah Cement Industries (FCI), the largest cement plant of the UAE was established on 20th December, 1979, in Emirate of Fujairah. It is a public joint company. Sheikh Mohammed Bin Hamad Bin Saif Al Sharqi is the chairperson of the company (Home – Fujairah Cements industries, 2020). The prime locations of the organisation are in Fujairah UAE (the head office) and the factories, plants, sales and administration activities are conducted from Dibba Fujairah.

Figure: Location of the industry

(Source: Home – Fujairah Cements industries, 2020)

The company belongs to the Cement & Concrete Product Manufacturing Industry of UAE. The vision of the organisation is to promote sustainability, conservation of resources, profitability and offer the superior quality of clinker and cement (Our Vision – Fujairah Cements industries, 2020). The organisation aims to ensure the promotion of health, environmental sustainability and the safety of the stakeholders of the business. The products of the organisation are branded as the Fujairah Cement (Product Range and Brand – Fujairah Cements industries, 2020). The best products of the organisation are the ordinary Portland cement, Moderate Sulphate Resisting Portland Cement, and cement Clinker for both ordinary and sulphate resisting Portland cement. The target market for the products of the organisation are UAE, the markets of neighbouring AGCC, Sri Lanka, India, Bangladesh and the African countries (Product Range and Brand – Fujairah Cements industries, 2020). The production capacity of the industry is of 4 million tons clinker per annum. Fujairah Cements industries are capable to produce 2.4 million tons of cement every year (Home – Fujairah Cements industries, 2020). The annual turnover of the organisation is recorded as more than AED 600 m (Home – Fujairah Cements industries, 2020). Apart from the production of constriction materials, the company emphasises on quality control of the products, centralised control for the entire organisational activities and the training and development of the employees.

Company’s demand and supply

In the year 2017, the supply of clinker was measured as 3518 million tons. The supply was cement was 2.359 million tons (Annual Report 2017, 2020). In 2018, the company supplied 3.744 million tons of clinker. The supply of cement for the FY 2018 reached to 2.211 million tons (Annual Report 2018, 2018). The company supplied 3.679 million tons of clinker in 2019 (Annual Report 2019, 2020). For cement, it was measured as 1.797 million tons.

Financial yearDemand of cement in the marketSupply of Portland cementPercentage contribution Percentage increase or decrease in supplySupply of clinkerPercentage increase or decrease
20175.95 million tons2.359 million tons39.49%     -6.27%3.518 million tons6.42%
20185.5 million tons2.211 million tons40.18%3.744 million tons
20194.47 mission tons1.797 million tons40.20%-18.72%3.679 million tons-1.73%

The analysis of the past three years of data of supply suggests that the supply of the products like the Portland cement and clinker has been comparatively reduced. However, it is noteworthy that the supply of the company for the market demand level has increased in every year. In 2017, the company was able to meet 39.4% of total market demand for Portland cement. In 2048, nearly 40.18% of the total market demand for Portland cement was met by the considered organisation. In the year 2019, the company’s contribution to total market demand increased to 40.20%. Hence, it could be said that the production management for the Portland cement is effectively executed in the company.

Operations

The focus of the operations conducted by the organisation is to ensure superior production and serve the gulf region with optimum quality of cement maintaining conservation of resources and sustainability.

The notable operation strategies of the organisations are

  • Improving cost efficiency of the product
  • Enhance the quality of the products, like the cement and clinker
  • Conserve the natural resources
  • Maintain sustainability through business operations

Productivity and recommendations

Maintaining efficiency: The organisation needs to maintain the efficiency of work in the plant, factories. To maintain efficiency, the market demand research is to be conducted. Based on the market demands, the company needs to set goal for the production and supply level. The alternative resources and productions are required to be identified to reduce the production cost. The workplace communication and knowledge sharing will enable the company to increase the efficiency in the workplace (Ebia, and John, 2019). Employees are to be trained and developed for better production output. Routine supervision of the plants is necessary to ensure the output is satisfactory.

Reduction of material wastage: For increasing the productivity, output should be more than the input.  Increasing productivity by 10% could be a challenge if the material wastage is high. Thereby, the company needs to ensure the wastage of material is low, and the input materials and resources are utilised at the optimum level.  Effective and routinely inventory management is essential to reduce material waste (Bølviken, and Koskela, 2016). If possible, resources are to be recovered, sorted and reused. The adoption of closed loop manufacturing system is recommended to increase the productivity.  

Mission 2: Forecasting

Part(a):

Quarterly Fujairah Cement (ton) Demand Analysis [ 2015- 2020 (Q2) ]

The overall trend for the demand of Fujairah Ordinary Portland Cement has been on a declining trend with the levels moving down from a high of 904,000 tons in the year 2015 Quarter 4 to the low of 400,000 in 2019 Quarter 1. Having the highest Total Annual demand in 2015 of 3,324,000 tons, it dropped to 1,797,000 tons in 2019. The reason highlighted in the Corporate report of the company is the imports from Iran along with the competitive pricing in the industry which leads to this declining trend in the demand of the company’s product. Apart from that the company’s profits also get a hit due to the increasing cost of production because of the higher cost of raw materials import from Oman and other Gulf states. Moreover, the increased general and administrative expenses is also a contributing factor to it.

The predicted value at Quarter 3 for the year 2020 using exponential smoothing method is 432,596 tons.

Part(b):

The Mean Absolute Percentage Error (MAPE) of the Forecast for Q3 of Year 2020 is 10.75% which is reasonably sound. This means that the Forecasted/Predicted value of 432,596 tons can fluctuate between a high of 479,087 tons (+10.75%) to a low of 386,104 tons (-10.75%). This will lead to the Cumulative demand for the year 2020 till Q3 to be anywhere between 1,329,087 tons and 1,236,104 tons. The graph below shows the fluctuations in the Quarterly Absolute Percentage Errors over the 5-year time horizon which gives a MAPE of 10.75%.

Mission 3: Capacity Planning

Capacity strategy

The company works in the Lag strategy. The lag strategy is one of the capacity strategies,  as per which, an organisation waits until the current capacity is stretched to the optimum limit before adding more capacity. As discussed earlier, the company is intended to increase the resource conservation and promote sustainability, it utilises the resources when needed considering the market demands and production goals and objectives.

Actual production

The cost of sales ratio was 67% (Equity Report 2020). The cost of sales ratio is the efficiency ratio which suggests the productiveness or efficiency of the sae operation of the organisation. Based on the results provided in the report, it could be said that the efficiency of the organisation is considerably high.  The equity report of the organisation suggests that the gross profit margin of the company was 33.0% (Equity Report 2020). The operating profit margin was 30.3%, while the net profit margin ratio was recorded as 31.1%.

Cost volume analysis

  • Total fixed cost: 36000
  • Variable cost per unit: 11
  • Sales price per unit: 210
  • Anticipated unit sales: 15000

For the anticipated units, the profit will be DH 2,949,000.

Total 181 units are required to be sold to cover the fixed cost.

Mission 4: Inventory

Part(a):

Expected Order Quantity (EOQ/Q*) = Square Root [ ( 2 * Demand per year * Ordering Cost per ton ) / Carrying Cost per ton ]

Expected Order Quantity (EOQ/Q*) =  Square Root [ ( 2 * 2,350,727 * 250 ) / 200 ]

Expected Order Quantity (EOQ/Q*) = 2424 tons

Part(b):

Expected Number of Orders (N) = Demand per year / Optimal Order Quantity(Q*)

Expected Number of Orders (N) = 2,350,727 / 2424

Expected Number of Orders (N) = 970

Expected Time between Orders (T) = Working days per year / Expected Number of Orders

Expected Time between Orders (T) = 260 / 970

Expected Time between Orders (T) = 0.27

Annual Total Cost = Carrying Cost + Ordering Cost

Annual Total Cost = 1,090,897

Part(c):

The Production of Fujairah Portland cement starts with the procurement of the Raw materials from various countries. After that the raw materials are crushed using the 2 crushers 1800 TPH which the company has into the product size of 0 – 25 millimeters. Then the crushed products are moved towards the Belt conveyor for grinding of the raw materials to take place and mixing it with the additive raw materials to achieve the targeted mix ratios of the product. The they are transported for further blending to occur at the designated hoppers. After that they are feed into the 5 stages of the preheater where hot gases is circulated through the mill for the strengthening and drying of the materials to take place. Coal grinding occurs next which is used to fire the kilns and finally collected in the Bag filters and mixed with the other materials coming from previous stages where this Fujairah Ordinary Portland Cement gets its final shape and are then stored in bags for dispatch to take place.

Bills of Material (BOM) Structure for Fujairah’s “Ordinary Portland Cement” is as follows;

  1. Portland Cement
  2. Water
  3. Plasticizer
  4. Gravel Stones
  5. Fine Sand
  6. 10mm aggregate bars
  7. No. 16 Tie Wire
  8. Lime Stone
  9. Shells
  10. Chalk
  11. Steel Grade A500
  12. Coal
  13. Petrol Coke along with Diesel Oil

Mission 5: Supply Chain

Supply chain strategy

The supply chain strategy is crucial for any organisation. The manufacturing, supply and inventory management of cement is conducted with care, as it gets easily deteriorated due to the environmental actions. The supply chain strategy of the company includes mining of raw materials, proportioning, grinding, and finishing. To ensure the optimum utilisation of resources at considerably lower price, the company is intended towards mining of the raw materials. Apart from personal mining, the company procures the raw materials from the local suppliers to reduce the transportation costs and promote social responsibilities. Proportioning is one of the strategies of the company, which ensures to sustain the quality of the products. The coal grinding is included in the supply chain management activities, it reduces the extra charges of procurements and the business becomes capable to maintain the quality throughout production. The company works on the demand driven model. The supply chain and manufacturing strategies are taken based on the real time demand insights. Based on the real time market data, the production process is planned to ensure the effective management of raw materials and reduction of wastage of materials.  

Supply design

The supply design of the organisation includes seven main phases, namely raw material mining and procurement, material proportioning, raw material grinding, coal grinding, clinkerization, pyroprocessing. After that, the grinding is finished. The final stage of the entire process is packing the cement and dispatching. For packaging, superior quality of packaging material is used and for dispatching, the cement stacks are covered with canvas to resist the interaction with oxygen.

Major drivers to supply chain performance

The two major drivers of the supply chain performance are inventory and transportation. The company focuses on managing the inventory to reduce wastage of the products and timely supply of the batch of cement. The inventory management is already discussed in the previous section 4. The transportation also plays a vital role in effective management of supply chain of the company.

References

Annual Report 2017 (2020) Fujairahcement.com. Available at: https://www.fujairahcement.com/wp-content/uploads/2019/05/ANNUAL-REPORT-2017.pdf (Accessed: 1 August 2020).

Annual Report 2018 (2018) Fujairahcement.com. Available at: https://www.fujairahcement.com/wp-content/uploads/2019/05/ANNUAL-REPORT-2018.pdf (Accessed: 1 August 2020).

Annual Report 2019 (2020) Fujairahcement.com. Available at: https://www.fujairahcement.com/wp-content/uploads/2020/04/Anuual-Report-2019-EN.pdf (Accessed: 1 August 2020).

Bølviken, T. and Koskela, L., 2016. Why hasn’t waste reduction conquered construction?.

EBIA, I.E. and JOHN, G., 2019. ORGANIZATIONAL COMMUNICATION AND WORKPLACE EFFICIENCY: A STUDY OF FLOUR MILLS NIGERIA LIMITED. International Journal on Transformations of Media, Journalism & Mass Communication (Online ISSN: 2581-3439)4(3).

Equity Report (2020). Content.argaam.com.s3-eu-west-1.amazonaws.com. Available at: http://content.argaam.com.s3-eu-west-1.amazonaws.com/154d4791-e539-49a7-9250-4075d9a454b1.pdf (Accessed: 1 August 2020).

Home – Fujairah Cements industries (2020). Available at: https://www.fujairahcement.com/ (Accessed: 1 August 2020).

Our Vision – Fujairah Cements industries (2020). Available at: https://www.fujairahcement.com/company-profile/our-vision/ (Accessed: 1 August 2020).

Product Range and Brand – Fujairah Cements industries (2020). Available at: https://www.fujairahcement.com/product-range-and-brand/ (Accessed: 1 August 2020).

Appendix

Note: “Refer to the Excel File for the Calculation”

Company Name: Fujairah Cement Industries (FCI)

Product: Ordinary Portland Cement

Sno.YrQuarterCement ton DemandExponential Forecast DemandAbsolute Error% Errors
12015Q1830000830000
2Q2800000830000300003.75%
3Q3790000812000220002.78%
4Q490400079880010520011.64%
52016Q160000086192026192043.65%
6Q259000070476811476819.45%
7Q35700006359076590711.56%
8Q4628000596363316375.04%
92017Q1580000615345353456.09%
10Q2570000594138241384.23%
11Q3620000579655403456.51%
12Q4589000603862148622.52%
132018Q1550000594945449458.17%
14Q25000005679786797813.60%
15Q36000005271917280912.13%
16Q456100057087698761.76%
172019Q140000056495116495141.24%
18Q2450000465980159803.55%
19Q3500000456392436088.72%
20Q4447000482557355577.95%
212020Q1420000461223412239.81%
22Q243000043648964891.51%
23Q3(Forecast) 432596