Operations management is a dynamic field and challenges presented by global enterprise.

by Blogger of NepalAugust 17, 20150 Comments
Operations management is a dynamic field and challenges presented by global enterprise present exciting new issues for operations managers. Discuss one of the following emerging issues:
i. Increased regulation and product liability issues in domestic and foreign markets.
ii. Optimizing global supplier, production, and distribution networks.
iii. Increased co-production of goods and services.
iv. Managing customer touch points.
v. Raising senior management awareness of operations as a significant competitive weapon.
vi. Choosing foreign manufacturing locations and the accompanying political and operational issues.
vii. Other topics may be chosen, but must have approval of the instructor.







Chandeswari Gas Udyog Pvt. Ltd
Background
Chandeswari Gas Udyog Pvt. Ltd established on 2069 Mangsir is involved in Liquid Petroleum (LP) Gas refilling business. It was incorporated in company registrar office under license of Nepal Oil Corporation with total capital of 10 crore rupees among which 6.5 crore is equity and 3.5 crore is debt financed by Himalayan Bank limited.
It is located around 21 kilometers away from Kathmandu at Banepa, Thapagaun. People previously engaged in gas refilling job, mainly controller of the Chandeswari Gas Udyog worked as chief manager in gas refilling company, started their own company with the help of previous work experience in same industry. Total five shareholders of private limited company have invested equity capital in various proportions and are directly engaged in business handling.
Core business of this company is to bring LP gas in bulk from India and refill empty gas cylinders. Then these refilled cylinders are supplied to market for domestic and industrial use. Company has focused Kathmandu valley as market for supplying gas.
Business Strategy
Company has goal of achieving payback period not more than 8 years. As it has got huge lump of capital financed by Bank, considerable amount of profit goes in interest payment. Company is seeking to pay loan in 8 years period of time and no profit will be distributed till that period except small amount of drawings. Presently there are 8 people involved on gas refilling job and other three in overall management. They are expanding their human resource size along with introduction of new cylinders in market until they become able to refill and supply around 50 bullets of gas tankers in market. This is company's long term strategy. As supply of gas is not a problem, company has mission to utilize plant in full capacity and add further capacity so that they can be one of the largest LP gas re-filler in country. Currently they have targeted Kathmandu valley as target market but has vision of being suppliers of huge market covering whole country.
SWOT Analysis                
Strength
Even though company is new to industry, pool of well experienced controllers of business with decades of experience is the biggest strength of company. As a medium scale industry it has sufficient amount of financing. It is located around 21 kilometers way from Kathmandu which has made company to enjoy cheap factory location and easy market access. As its target market is Kathmandu valley, road from Kathmandu to Banepa is quite good which made transportation of raw materials to factory and finished goods to market very easy as compared to other parts of valley where most of industries face transport hurdles. 22 ropanies of factory premises owned by company is another strength which has made abundant place to manage inventory of cylinders collected from market for refilling and to store filled cylinders until supplied to market.
Weaknesses
While scanning through weaknesses of the company, it is found that biggest drawback of quota system of Nepal Oil Incorporation (NOC). There is excessive amount of demand in market compared to supply but this gas refilling company gets only allotted (selected) amount of gas from NOC. They get only 6 bullets of gas per month imported from India and have no contact to actual supplies. This has created monopoly in supply of gas to market.
One bullet of gas refers of a tank carried by a truck containing approximately 17 tons of liquid gas and will be refilled to 1256 cylinders containing 14.2 kilograms of gas per cylinder. They are allotted for only 6 bullets of gas per month by NOC but have refilling plant with total capacity of 50 bullets. This shows company is running in under capacity.  Only way to increase quota allotment is to increase numbers of cylinders supplied to market. Currently they have 32000 cylinders in market which they have bought from Nepalese company called Panchakanya. Adding up new cylinders requires huge investment, it takes long period of time to distribute cylinders in market and collect money as company already has huge amount of debt, it has no capacity to fund for more amount of cylinders. So company running below lower capacity seems to be noticeable weakness.
Opportunity and Threats
Even though the company is running below total capacity its plant with refilling capacity of 50 bullets, it can create opportunity to capture larger portion of market in future. Increasing amount of gas demand is huge opportunity. They are trying to add up 7000 new cylinders this year and further more in coming years which will allow them to get more allotments of gas so that they get opportunity to utilize their underutilized plant capacity.
Unstable political environment creating lack of proper management of NOC is the biggest threat to company. Different strikes also do create problems in transportation. Inability of NOC to get continuous supply of gas from India and unclear laws related to petroleum industry are also considerable threats.  Plant and equipments all were imported from India. So if there comes any severe maintenance requirement there are no skilled manpower available in Nepal. Only simple mechanical maintenances are done by Nepalese mechanics whereas regular servicing of refilling plant and cleaning of storage tank is totally dependent on Indian companies.

Refilling Process
Refilling empty cylinders with LP gas is the core business of the company. As supply of raw materials is always limited to fixed amount due to quota levied by NOC, supply of raw material is always less than market demand. Refilling machine is operated only once a day as its wastage is of 5 kilograms of gas whenever it needs to operate for refilling purpose. Approximate loss during operating machine is 5 to 6 kilogram. It only takes 40 to 45 seconds to refill a one cylinder.
First, empty cylinders are collected from market in the same day of refilling or a day before. They are brought to refilling facility and unloading then from Lorries manually by workers. They are queued up in a line and normally 3 to 5 refilling workers reload the cylinders using refilling pumps. Gas flows from main storage bullet to pipe line through controller and then to refiller and finally to cylinders. Cylinder loaded with gas is distributed in the same day or day after tomorrow. As it is very fast moving, company rarely has to hold inventory of filled cylinders.
 


                                                                       

         0.5                                                                    0.5
          -300 gm                      29.7                 +300gm
Fig: kilograms of gas refilling
The figure above shows the total kilograms of a gas refilled in it consisting of 29.7 kilograms of single cylinder. During the period of refilling the gas, sometimes it is rarely found that the weight of cylinder with gas is found below or above standard. In such situation, as we have mentioned in above diagram, the gas cylinder consisting below or above 300 grams would be rejected and those rejected cylinders would be maintained properly with proper standard through the other utility machines.
Conversion/ transformation process followed by Chandeshwori Gas Co. Ltd
The different conversion process as such job shop, batch processing, repeat processing and continuous processing are followed by the operating functions of various companies as per their nature and scope of the products and services.
And normally, the gas manufacturing companies follows the continuous processing system for the conversion of their semi-finished products. In Nepalese context, the gas manufacturing companies tend to follow this continuous process because the key is the volume for these companies in fact, the market quoted rate for these companies’ products are fixed by the NOC as it considers these products as a basic consumable requirement for household purpose. Beside, their 80-90 percentages of operational activities are performed by the high utility machines.
During our visit to the gasoline company, we observed that, the factory is being located at the wide territorial areas in fact; the numbers of workers at the factory are just 8-10 in numbers. Since, the investment is very high on these companies; they had a specialized equipment to create the values. Hence, the high utility machines play a significant role in the company and in the case, if the machine breaks down for an hour; the company has to suffer a massive loss on sales volume and market share.
Demand Forecasting of Chandeshwori Gas Udhyog Pvt. Limited
The demand forecasting of Chandeshwori Gas Udhyog Limited as per the data obtained are given below:
Month
Demand\month
Shrawan
5455
bhadra
9100
Ashoj
5231
Kartik
6836
Mangsir
6910
Poush
8058
magh
11275
Falgun
9896
Chaitra
8455






Table: market demand of Chandeshwori Gas (original source)
A Plot of the data indicates that a linear trend line is appropriate:












total
PERIOD(t)
DEMAND(Y)
Ty
(t)2
1
5455
5455
1
2
9100
18200
4
3
5231
15693
9
4
6836
27344
16
5
6910
34550
25
6
8058
48348
36
7
11275
78925
49
8
9896
79168
64
9
8455
76095
81
∑t=45
∑y=71216
∑ty=383778
∑(t)2=285

B   =          n*∑ty - ∑t*∑y
                 n*∑t2 –(∑t)2
     =           9*383778 – 45*71216
                 9*285 – (45)2
     =     461.62
   A   =    ∑y –b*∑t
              N
     =       71216-461.63*45
                   9
     =   1401.7
Thus, the trend equation is Ft =1401.7 + 461.62t. The next two forecasts are:
F10 = 1401.7 + 461.62(10) =6017.9
F11 = 1401.7 + 461.62 (11) =6479.52
Supply chain management
Supply chain is the sequence of organizations, their facilities, functions and activities that are involved in producing and delivering the products and services to the customers. It is also known as value chain because it creates the value of raw materials to the final product/ service to its customers.
Supply chain of Chandeswari Gas Udhyog Private Limited
All the raw materials and necessary inputs are supplied from India.  That means the gas is import from India to the factory located in Banepa. The supply chain is given below
 



                         





Fig: supply chain management of Chandeshwori Gas Company
Supply chain is not so complicated. It is simple in the sense that only supplier in country is NOC for all petroleum products. Controlled supply system of NOC however has caused hamper on growth of company to grow freely as it compulsory to follow mandatory rules of quota system of authority limiting freedom of company. First step in supply chain is to deposit money to NOC for allotted amount of bullets, and then tankers carrying gases that come through India are transferred to company.
They are unloaded and filled in storage bullets located in company premises. When there arrives empty cylinders, materials from storage and filled in cylinders and distributed to market, first it goes to its three main dealer and then they distribute cylinders to retail market, same happens during collection of empty gas cylinders, gas cylinders come back through the same channel through which they are distributed. 
Supply chain process
In this supply chain, the Chandeswari Gas Udhyog Private Limited imports gas from India and filling the cylinders from the tank. The raw material of this factory is liquid gas. The bulk of LP gas is imported through the help of Nepal Oil Corporation (NOC) from India. In such process, factory places the order of 6 bullets of gas per month to the NOC but such order is divided into two sessions. 3 bullet of gas get in 15 days and remaining 3 bullet gas get in remaining 15 days. That means they made payment of 3 bullets first and then after 15 days, made the payment of remaining bullets to NOC. The factory doesn’t have direct contact to the India’s suppliers but contact through NOC.
After the ordering of few days, the liquid gas is received in the factory and they store liquid gas in two storage tanks with the capacity of two and half bullet per tank. Then they fill up empty cylinders and those full cylinders are now distributed to the distributors.
The order of gas cylinders occurs from the phone calls from distributors. Then such full gas cylinders are distributed from company to the distributer at the price of Rs. 1410 per cylinder. There are three distributor centers of Chandeswari Gas Udhyog Private Limited which are located in Lalitpur, Bhaktapur and Kathmandu. From those distributors again the gas cylinders are distributed to the dealers at the price of Rs.1438 per cylinder. There are 44 dealers. Finally the dealers of Chandeswari Gas Udhyog Private Limited deliver the gas cylinders to the customers/ shops/ market at the price of Rs. 1470 per cylinder.



Wastage and management
While filling the gas into cylinder from tank, there is 5/6 kg liquid gas leakage occurs which is the wastage of gas and is the loss for factory. In winter season, this leakage will more occur rather than in summer season.  Per day, they use machine at a time to fill up the cylinder so that if the leakage occurs and the pins are broken then also there occurs the wastage of time and cost as well. They need to throw some gas which is in pipeline and then only fill up the gas in cylinder so that they need to wastage such leakage but if other type of leakage occurs then they maintain immediately.
Inventory management
Inventories are the key components of supply chain and the speed at which goods move through a supply chain is known as inventory velocity. Similarly, order fulfillment is the process which involves the order of customers. The term logistics is the movement of raw materials, services, cash and information in a supply chain. Inventory is the stock of goods and services which plays a vital role for any kind of organization. Managing inventory can helps to grave the competitive advantage.
Inventory management of Chandeswari Gas Udhyog Private Limited
In this factory, there is no such stock of gas cylinders. They place the order of liquid gas to Indian supplier through NOC and then such gas comes to factory within few days. Then holding it one or two days before they filling up into the empty cylinders and delivers to the distributers. They keep the stock of pins which are used in cylinder binding. They also have storage tanks which hold 2 and half bullet each tank. They store liquid gas in that storage tank but they don’t have any stocks of full gas cylinders. That means they use just - in –time inventory system.
They collect the empty cylinders from the dealers and distributors so it requires some space to store such cylinders until it filling up and send to the distributers. They have 6 bullets for a month which should not avoid by them. Even they don’t want to hold 6 bullets, they must hold because of NOC rule. Hence, they need to manage the empty cylinders and no more storage cost for storing such inventory.
It only holds transportation cost because the liquid gas is imported from India. Factory places the order of 6 bullets of gas per month to the NOC but such order is divided into two sessions. 3 bullet of gas gets in 15 days and remaining 3 bullet gas gets in remaining 15 days. That means, they made payment of 3 bullets first and then after 15 days, made the payment of remaining bullets to NOC. The factory doesn’t have direct contact to the India’s supplier but contact through NOC.
Hence, they use Just-in-time inventory system to maintain the delivery of full gas cylinders to the market. They use EOQ model not directly but indirectly because they do fix order size and with fix period as well. That means, they use fixed-order-interval model which refers that when orders of liquid gas is placed at fixed time intervals like twice a months. In this factory, they place the order twice a month like 15 / 15 days.
Capacity management
The maximum “throughput” or number of units a facility can produce in a period of time is design capacity. Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality is known as effective capacity. According to Stevenson, (2009), matching supply and demand is capacity planning. The science and art of predicting space and resources available in an organization to fulfill the customer demands and wants is known as capacity planning.
Capacity planning of Chandeswari Gas Udhyog Private Limited
Looking at the capacity planning of Chandeswari Gas Udhyog Private Limited, they have the maximum capacity of storage tank is of 50 bullets gas but they are utilizing only 6 bullets. One bullet contains 17 tons of gas and from which they can produce 7536 full cylinder gas. The company is in under capacity because they have the capacity of refilling plan of 50 bullet but they are using only 6 bullets. This is done through the quota provided by NOC because there is no direct link to the supplier.
They need to increase the new cylinder numbers to add the bullet and even they are adding 5000 cylinders they couldn’t increase such maximum production capacity because they need to again increase new cylinders and they don’t have such much fund to invest in cylinder. They already invest Rs.10 corore in such factory and they have yet not covered that fund. But they are going to get investment fund back within 5/6 years. Their market size is increasing and if the NOC increase the quota for bullet of gas then it will cover within the targeted period.
They are increasing the numbers of new cylinders because they start their factory using 10,000 cylinders throwing into the market and now, about 32,000 cylinders are available in the market and again they are adding 5000 new cylinders in the market. So, from this if the ratio of such increasing number of cylinders will be in future then, they can use the maximum capacity of 50 bullets of gas. From that they can gain profit and get back the invested fund within the targeted period.
 They can use bank loan to invest in purchasing new cylinders because if they increase the cylinders then NOC can increase the quota of bullet so that they can produce more quantity of cylinders and can cover the market.

Lean Management
Lean approach of operating management is that system which focuses on pacing production and synchronizing delivery of incoming supply and it is flexible system which uses fewer resources than of traditional system. It is about expanding values and removing of waste that helps to improve the operational performance in order to satisfy customers, reduces cost, quality increment and delivery of goods and services also by eliminating waste, variability and inflexibility.
After visiting refilling factory, it can be clearly seen that factory follows good lean management system, which is so important in this type of industry that it becomes hard to get profit without proper lean management. LPG received from Indian suppliers through distribution channel of NOC is not hold longer in storage bullets; it is normally all received supply is distributed to market in not more than 15 days in max. Most of time distribution commences in the very same day of receipt of supply from supplier.
As demand is in peal mode in market segment of company, suppliers received can be immediately distributed to market, this is a perfect lean management. This has helped to reduce inventory holding cost, shorten working capital cycle, less inventory management cost etc.
Quality and Quality Control on Chandeswari Gas Udyog
As we know that every product has their quality, and they need to maintain frequently. After visiting to the Chandeswari Gas Udyog what we came to know that, the company had maintained its quality at a standard level. Firstly, we need to understand that what the quality of the product contains and some of the important grounds that the quality must be ensure and these grounds are given below:
1)                  Reliability and consistence of the product
2)                  Timing
3)                  Durability of the product
4)                  Convenience of the product
5)                  Ease in using the product
6)                  Better service and delivery of the product
1)      Reliability of the product:
The quality of the product depends upon how well the product is reliable to the customer and also how they react on using the product. Here, in the case of the Chandeswari Gas Udyog, what we found that the product that they delivered in the market through retailer and distributor and other mediators, they are producing the product more reliable. Thus this is the important factors that need to analyze by the customer and it had done pretty much well by the factory.
2)      Durability of the product
 Concerning to the durability of the product, the company had maintained its product more durable.  The policy of the company on maintaining the products are more durable by testing the product each year. What the company had done for the product is that, once the products are made they can use it for 10years, in other words it has life time of 10 years. Here the product durable mean that it outer part which is made up of iron and made by the panchakanya industry. 
3)      Ease in using the product
Ease in using the product also made the company being more competitive towards other company because the product are very ease in using and they are more comfortable to use.
4)      More convenience
The product that that company had produced is much more convenience to the customer to use and they are easily available in the market, however the company is not smart enough to maintaining its demand and supply of  the product as the market demands for the product are relatively higher.
One of the important that every customer are seeking for is the international standard certified of the product and the company had not success in qualifying its product to meet requirement. The company hadn’t meeting its requirement on maintaining the ISO standard level because the space that product made hasn’t enough space according to the international standard measurement. However, the customers show their interest on consuming the product more and more. After visiting the field, what we came to know that there is no any company fulfilling the ISO standard level on the product. Its competitors are also facing these problems.
Quality control by the company
Looking on the perspective of quality control by the company, for every product, there need to maintain the quality of the product as the weight of the product, its refilling liquid gas on the product, quality of the processing the valve, quality on maintaining the inspection process, frequently check through on valve from where the gas are fill in and out.
As far concerned about the quality of the product, the company is maintaining the product to be more qualitative. The weight of the liquid gas to be filled in the product must be 14.2 kg and they are more consistencies in refilling the liquid gas in the product. However, there goes sometimes more liquid gas that is about 300 to 400 gram of liquid gas, and what the company does that product which are filled more liquid gas they are rejected and again refill it. The company had allowed up to 50 gram of liquid gas more in the product, and is easily accepted on the inspection process.
Talking about the controlling the qualities of the product, all the product are refilled manually through skilled workers and there is automatic system to filling up the cylinder. But there occurs the problem on filling the gas in the product, that is on the valve and they are easily maintained and repaired by the skilled workers.
Frequently the quality of the product is measured by the different government staff, through NAAP TAUL BIBHAG and also through oil corporation representatives. However, the quality of pipelines of products are not measured frequently because all pipelines and bullets are made in India, and none of representative from the India don’t come in the industry and check the level and quality of the pipeline and bullets. One point is clear that, the company declared the guarantees on the quality of the bullets are more qualitative and they can take all the risk if any incident happened in the firm.
On the other hand, there is no any scientific measurement procedure to check the level of the quality of the bullets and pipelines that the industry had. But there quality of the liquid gas are all depend upon the supplier which is delivered from Nagpur, India and they all assure that liquid gas are more qualitative. One of the defects occur in the product is that, breaking of the pin which is situated in upper part of the cylinder and out of 7536 cylinder there occurs 100 defects product and company is trying to reduce these risk that happened in the firms. There is no any scientific technology to make stronger and durable pins in the gas cylinder, the company is facing a challenge on reusing the broken pins cylinder and supply it in the market, because there is no any guarantee that the pin wouldn’t break again if they are made by the company itself.
Another aspect on maintaining the quality of the product is that tagging system in the product. The product is tagged through aluminum metal shield on the top part of the cylinder and it is also one of the important factors for maintaining the more qualitative. If the product are shield by aluminum metal then it helps to prevent the cylinder from any external damage, more secure of the product, chances of leakage in the product becomes rare and it also gives the product more attractive and more qualitative on the perspective of customer view about the product.
Development of distribution Channel
Looking on the distribution channel partner of the company, till now there are only three distributions channel of the firm, and there are many competitors in the market and it is a great challenge for those three distributors to maintain their stand in upcoming near future. Too much competition in the market leads the high competition in the one hand while they also provide the new opportunities for the distributors to capture the market and to expand the market in other way. The challenge part for the distributors is to grab the opportunities that are hidden inside in the market. For this the distributors of the Chandeswari Udyog, the manager of distributor must be smart enough to make a strategy plan so that they can cover up the market more and more.
As we know already the company is still not running in a full capacity, only the small percentages of the capacity are utilized by the firm. In near future the company is going to distributing more cylinders to its customer in the market if the quota has increased in the future. What the company wants in the near future is, they are developing a different strategy for expanding their product in the market. As we know that the company had distributed 32,000 numbers of cylinders in the market, as well as company wants to expand more 5000 cylinders now.



Sustainability
The one of the popular gas company, Chandeshowri gas is still in growth phase as it had just been a few years of its establishment. Since the company has a debt of 3.5 crore, the profitability ratio of the company is better and could pay off its liability within the period of its maturity. As NOC’s few policies and the regulations was not in favour of Chandeshowori gas companies and other gasoline companies as well since the corporation was not in favour to extend the numbers of gas cylinders as per the quotas provided to the companies although the demand of product is rocketing in the market day by day.
Therefore, the growing numbers of gasoline products in market makes us clearer that company doesn’t any cost for storage or inventory as the semi-products materials arrived at the factory were directly and ultimately used for the further processing of refilling and empty gas cylinders. So, the company seems to have good probability of sustaining in the competitive market.
Ergonomics
Ergonomics is a safety related issues concerning with the health hazards of an employee who works for any organization. It is also an issue related with the human and machine interactions as such height, width, lightening, and postures of working at any corners within the company territories. In the gasoline company of Chandeshwori, we observed that workers were not provided with any kinds of safety uniforms, masks, glasses, gloves etc although the fire precautionary techniques and methods like reserved water tanks is there.
Similarly, pipes and fitting has been properly installed around the factory areas which they had shown us with demo. It seems that company had maintained good precautions for the fire relating uncertainties. Therefore, except the above personnel requirement regarding the health issues, the factory environment and the working conditions were good, clean and green.
Conclusions and recommendations
            After going through all activities and refilling process of company, it can be concluded that company has been operating below its capacity. It seems like even half of facilities are not being used. This shows large portion of fixed cost has been absorbed by few numbers of produced cylinders lowering profit. so, it is highly recommended to increase quota allotted by NOC by increasing numbers of cylinders in market so that more numbers of bullets are allotted to company and facilities invested with huge money is utilized in full.  
The company is not meeting the ISO standard so it should maintain the ISO standard. Company had maintained good precautions for the fire relating uncertainties but the workers were not provided with any kinds of safety uniforms, masks, glasses, gloves etc although the fire precautionary techniques and methods like reserved water tanks is there.  So, the company should provide such safety uniforms, marks, glasses and gloves for the safety of workers.

References

Stevenson, W. (2009): Operation management (10thed). New York: McGraw-Hill

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