The Morrison Company: Major Problems, Capacity and Utilization Analysis

Major Facts

  • The Morrison Company has two separate product lines, Retail and Pharmaceutical.
  • It produces four different types of RFID finished tags (smart labels).
  • The competition in the market is intense and growing.
  • The Morrison Company has only one manufacturing unit.
  • Pharmaceutical line produces two types of smart tags and has a higher revenue, profit, and market share than Retail line.
  • Major proportion of sales of Retail line products are from customized tags.
  • Pharmaceutical line is expected to grow at a higher rate than Retail line.
  • The investigation reveals significant issues related to inventory management, production planning, and the manufacturing unit’s operations.

Major Problems

  • The first issue identified is the inefficient controls in the production process. Production lists are manually prepared as there is no system for organizing and managing them. This led to mistakes leading to inaccuracies in details. Control managers are unable to make decisions as the order management system is primarily used for decision-making. This also problems with budgeting as there were significant difference between production forecast and actual production.
  • The second issue is supply shortages caused by insufficient storage space and inefficient, outdated technology. The management decided limited storage space as a part of their strategy because they aimed to only keep the required stocks as its products may become obsolete. However, this affected the company’s ability to meet its customers’ demands and made customization difficult. The company’s suppliers also have issues fulfilling the company’s orders as they are often unable to deliver on time because of the inefficient production schedule.
  • The company’s third issue is the lack of communication between production workers and supervisors, which resulted in the misunderstanding of responsibilities and targets that needed to be achieved.

Capacity and Utilization Analysis

The output analysis shows that the company’s aggregate production plan of Pharmaceutical line was 172,769, and that of Retail line was 115,180 (Wheelright and Myers, 2011). However, the actual output of both lines was less than the forecasted output and aggregate production plan. The company’s production capacity is sufficient to meet the demand. The variation between aggregation production plan and actual output in both lines was 5%. Furthermore, the difference between forecasted output and actual output in Pharmaceutical line was 9.20%, and in Retail line, it was 14.67%.

Capacity Utilization

The utilization analysis shows that the production was efficiently. It is indicated that the retail segment orders 70% of personalized tags, which are produced by using only four machines. It is noted that utilization reached 113.4% in December through overtime but this has high cost factor associated with it.

Capacity and Utilization Analysis

The maximum annual capacity was 384,000, and the actual output was 274,237 with utilization rate of 71.4%.

Capacity and Utilization Analysis

It indicates that the company is inefficiently managing its production facility for personalization. Although there are no utilization issues, the company could increase its production to achieve forecasted demand for its products in both lines (Wheelright and Myers, 2011). Based on the growth expectations, it is analyzed that the company would face capacity issues as its current production would not be sufficient to complete forecasted orders as shown in the following table.

Capacity and Utilization Analysis

Production Processes

Differences in Product Lines

Market characteristics are also different for Pharmaceutical and Retail segments, which are also important for forecasting the demand for products and carrying out production to meet targets. Pharmaceutical line produces two different sizes and shapes of smart tags, which are HF chips and UHF tags. The average price per unit of these products was $0.22. The company only allow limited customization of label printing. Products in the pharmaceutical market are regularized and standardized, and clients prefer high-performing RFIDs rather than customizing them (Turban, Pollard and Wood, 2018).

On the other hand, 85% of products sold in the retail market are customized, which makes it highly challenging and competitive as customer requirements vary significantly. This market has few regulations depending on the product of a customer. The average price per unit of these products was $0.11. Pharmaceutical products’ sales were 66% of the company’s revenue, and its related profit was $6 million in 2010. On the hand, Retail line generated 33% of the net revenue, and its profit was just $376,000 (Wheelright and Myers, 2011). Therefore, Pharmaceutical line was more profitable than Retail line.

Competitive Priorities of Each Product Line

Each business line has its competitive priorities which are important for the company to consider in its planning and production. Pharmaceutical line gives more value to cost, time, and innovation because the use of RFID is crucial for controlling and monitoring drugs used by patients. On the other hand, factors, including quality, flexibility, and innovation are important for Retail line, which depends on meeting customers’ customization needs.

Competitive Priorities of Each Product Type
Pharmaceutical Retail
1 Low Cost Quality
2 High Performance Flexibility
3 Time Features

Product Characteristics and Processes

Product characteristics are consistent with The Morrison Company’s process, which has one production facility, and each line has separate machines used for producing RFIDs. Each line has its requirements and product specifications that the company follows. The production of smart tags requires 165 different components which are acquired from three different suppliers. Almost 30% of components are used in both pharmaceutical and retail products, which are manufactured by the same workers.

Product Characteristics
Pharmaceutical Retail
Price High Low
Market Size Smaller Larger
Rate of Product Change Slow Fast
Customization Only 15% 70%
Labor Content Low High
Stage in Life Cycle Growth Introduction
Growth Rate 34% 12%
Net Profit Margin 17% 2%

Recommendations

  • The company should increase floor space and storage capacity. This could be addressed by adding new space through purchase or lease or making infrastructural changes.
  • Implement an information management system for managing production schemes and output. This system could also be used for scheduling managers and employees for timely completion of tasks (Blazewicz et al., 2019).
  • Make changes to the structural organization by implementing effective production controls. This could be achieved by dividing the production based on standardized and customized tags. This would include assigning more machines to customized retail orders. This would help in managing the capacity utilization and avoid delays in production
  • Focus more on increasing the output of Pharmaceutical line, which generated higher revenue and net profit.
  • Prevent supply delays by creating policies and systems for ordering inventories from suppliers.
  • Develop practices for building confidence and avoiding miscommunication between employees and supervisors. Furthermore, training should be provided to employees to understand expectations and ways to perform their duties efficiently.
  • Formulate and implement flexible budgets for different products in both lines to avoid under-utilization of production facilities and avoid financial losses.

Reference List

Blazewicz, ‎J. et al. (2019) Handbook on scheduling: from theory to practice. 2nd edn. Cham: Springer.

Silva, E., ‎Stefanou, S. E. and Lansink, A. O. (2020) Dynamic efficiency and productivity measurement. New York, NY: Oxford University Press.

Turban, E., Pollard, C. and Wood, G. (2018) Information technology for management: on-demand strategies for performance growth and sustainability. 11th edn. New Jersey, NJ: John Wiley & Sons.

Wheelright, S. C. and Myers, P. (2011) The Morrison Company. Boston, MA: Harvard Business School.

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NerdyTom. (2022, August 31). The Morrison Company: Major Problems, Capacity and Utilization Analysis. Retrieved from https://nerdytom.com/the-morrison-company-major-problems-capacity-and-utilization-analysis/

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NerdyTom. (2022) 'The Morrison Company: Major Problems, Capacity and Utilization Analysis'. 31 August.

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