Kimberley Electrical Supplies Ltd and Capacity Utilization
The case of Kimberley Electrical Supplies Ltd. is not unique to what many business organisations experience in the current economic situation. Contractual agreement in the workforce has become a necessity in managing business organisations. Nonetheless, as much as some managerial problems would be difficult to resolve, the case scenario presents issue that can be addressed. Mr. Liam seems to be unaware of the available management options that can drastically change the working experience of the workshop and generate extra revenue at minimal additional cost. There is massive room for improvement (Axsater, 2006). This report seeks to highlight the main problems facing Kimberley Electricals with an intention of proposing managerial recommendations.
The Case Issues
Mr.Liam set up a sole proprietorship business that employs few workers (22 people). The firm employs a trainee technician who is paid half salary due to government compensation of the apprenticeship scheme. The two engineering designers that the company employ are on contract with each earning luxurious amounts ($120 per hour) yet they only work for 3 hours per week. They work interchangeably. This is an indication that Liam has instituted capacity utilization scheme that allow either of them time to address personal matters like family, health, and social welfare.
The janitor employed by Mr. Liam is desperate for work as he is always at work even when he should be resting. Due to his situation, Mr. Liam benefits from the old man as he works who is able to do odd jobs to sustain him. The managers’ wife handles three major corporate jobs that should be given to other staff. It would be inconvenient to have the wife do secretarial jobs, be the wages clerk, be the personnel manager, and handle complaints. The disadvantage of this arrangement is that it may lead to discontentment or biasness if the person handling wage has disciplinary cases with a given worker.
Lima’s stock taking policy needs redress as poor method of managing inventory. He seems to be contented with that fact that buying large volumes of stock brings is economies of scale. This benefit could be costly if stock management is inefficient. Handling manageable stock volumes is efficient and time saving in case of urgent delivery. Holding more stocks also adds the cost of warehousing. His workers waste much time when looking for their respective materials for the machining processes; something that at time leads to physical confrontation among workers.
A number of other poor management strategies seem to compromise the performance of Kimberley Electrical; for instance, working below capacity costs him revenue short of $800,000 per annum. Mr. Liam earns an annual profit of $158,000 per annum, a profit that is not commensurate to the revenues that the firm can generate under full capacity. Mr. Liam needs to rectify a number of managerial personnel to make the firm work to full capacity and make more profit (Muller, 2011). In addition, the poor stock management system needs instant review. This report proposes recommendations that would help the firm realise financial success and an effective workmanship.
Improving Stock Management
The case of poor inventory management at Kimberley Electrical Supplies Ltd. is definitely causing loss to the firm. Implementation of inventory management techniques would resolve the performance of the firm. This report recommends two techniques: maintaining minimum stock levels and carrying out stock review.
Minimum Stock Levels
It is a technique through which management of a firm keeps minimum stock level, also known as re-order point, (ROP). “Stock controls require that a reorder point be established, not only for each item acquired from the outside supplier but also for those manufactured components,” (Trenerry, 1999, p. 137). The process tells when available stock is just about to reach the maximum level or falls below ROP. Identifies when stock level reaches on-hand or when stock volume reduces below ROP. When the ROP is reached, an order is placed to restock. There are two possible ways of maintaining minimum stock level. It can be done through manual procedure or through installation of software that manages the process.
Stock review is a routine stock analysis process to check available stock against extrapolated future demands. The review process can either be carried out through manual method or through an automated ordering system that forecast future demands. Demand forecasting according to Lewis (2012), applies to commercial, retail, and manufacturing ventures, which in this recommendation, should apply to Kimberley’s Electricals. Manual methods employed by the firm can include visual control, tickler control, and click sheet control. The manual method will require recruitment of additional staff, which will further cut down the firm’s dismal profit. Kimberley’s Electrical Supplies Ltd. should therefore install the automated system that can be managed by an individual. The automatic system will also be free from human errors.
The current business environment faces many challenges caused by economic factors like the recent recession that has made many global economies to reviews labour policies. Workers struggle to keep their jobs and maintain adequate working hours necessary for the sustainability. The case of Kimberley Electrical is a perfect example to justify these claims. The firm is struggling to get adequate work hours as their two chief engineers are all on contract and work schedule. The unpredictable nature of job variability impediments to a flexible work programme, hence, evolving a need to develop a work schedule.
Work scheduling is a part of job design that shifts from the conventional way of hours of work to a more flexible work schedule. DuBrin (2011), writes that “Modified work-scheduling options include flexible working hours, a compressed workweek, an alternative workplace and telecommuting, job sharing, and part time or temporary work,” (258). Shifting staff is helpful as it brings a good working culture that is flexible during emergencies like attending to family issues, health reasons, and change in social life.
Capacity utilization is a business concept that measures the extent to which a business organization can fully utilize its installed production facilities. The concept defines the relationship between the actual production units and the full potential of the equipment and machinery installed were they to be put to full use. The potential output volume of the machines and equipment is a representation of the maximum units that can be produced using the existing assets of the business. Kimberley Electrical experiences high average cost of production due to increment in the cost of output prior to reaching the plant capacity of the production line.
By adopting this capacity evaluation model, the firm will be able to monitor the weighted average of the relationship between the actual output and the full potential of the production plant per unit time. Capacity utilization concept will make such comparison using the resources at the firm’s disposal. In addition, “High capacity utilization rates can also lead to new investment in factory equipment and plant expansion so that companies can increase output in the future,” (Baumohl, 2008, p. 146). High ratio of capacity utilisation will direct the manager on the need to expand his investment when the economic environment is vibrant. In addition, if the ratio falls, then the manger will be able to know that he needs to slacken production. Mr. Liam should also use capacity utilization ratios to gauge productivity of his workers as these two factors are closely related (Saxena, n.d). The overall effect of knowing the rate will give Mr. Liam maximum benefit from his venture and increase his profit margin.
The problems experienced by Kimberley Electricals are manageable if given enough time to remodel management systems in place. The problems highlighted in the case scenario can all be resolved if the recommendations suggested above can be instituted. If successfully implemented, the firm would experience rapid expansion that will not only be self-sustaining but also satisfy the needs of customers in the most convenient ways.