MLC, which was established in year 1998, manufactures a range of garden sheds and summerhouses using timber purchased from a various suppliers.The recently appointed managing director has expressed increasing concern about the falling in sales volumes, rising costs and hence declining profits over the last two years.
Discuss how business process re-engineering could help to improve the profits of MLC.
Business process re-engineering involves examining business processes and making substantial changes to the way in which an organisation operates in a manner. It requires the redesign of how work is actually done through activities. A business process is a series of activities that are linked together in certain manner to achieve the desired objective. E.g - material procurement might be viewed as a business process which could impact on the separate activities of production scheduling, storing materials, processing purchase orders, inspecting materials & payingsuppliers.
Main aim of business process re-engineering is to enhance organisational performance by achieving the improvements in business processes by focusing on simplification, improved quality, enhanced customer satisfaction & cost reduction.
What MLC needs is to be able to reduce its selling prices in order to compete in the market. This selling price reduction can only be sustained by a reduction in the MLC’s unit costs, however such a reduction must not be achieved by compromising on quality of product.
Business Process re-engineering can be applied not only to the manufacturing processes but,also to an extensive range of administrative activities. In the case of material handling of MLC might re-engineer the activity of processing purchase orders by collaboration with suppliers of timber & other components for their products by integration of their production planning system with suppliers. This would help to enable purchase orders to be sent directly to their suppliers thereby obviating the need for any intermediate administrative activity.
Additionally scheduled orders might be agreed with suppliers which would reduce the need to hold inventories of timber & other components. In circumstances where suppliers are working in close collaboration with MLC, it may be possible to roll the quality back down the supply chain and agree quality control procedures with suppliers which would reduce the need to inspect incoming deliveries of timber and components. Thus savings in material handling costs could be achieved via reduced storage, processing and inspection costs. It must be recognised that such costs do not add value to the final product and thus are of no benefit to the customer.
In conclusion business process re-engineering may be useful to MLC because they should may enable them to identify cost savings that do not directly affect their products and so would not have any effect on their customers View of the quality or value of the products.