Operations Management: Product Delivery Problem, Cessna Aircraft Company

Introduction

In today’s business environment, effective management of primary processes is fundamentally critical for organizations to achieve the desired competitive advantage. More often than not, most primary processes within the organizational framework are directly related to the flow of goods and services (Lewis & Slack 2003, p. 13). Organizations have been wound up due to problems emanating from this area, especially in the delivery of finished products and materials to end-user customers.

Other organizations have survived to tell the story of how this particular segment is of immense importance in operations management. It is the purpose of this essay to describe a delivery problem that rocked Cessna Aircraft Company at the turn of the millennium and evaluate how best it could have been solved using the relevant operations theory and techniques.

Headquartered in Wichita, Kansas, Cessna is the largest manufacturer of small piston-powered single-engine aircrafts and business jets. Presently, the company employs over 16,000 employees, and commands a 50% share of the business jet market worldwide (Avery 2003, p.8). From its inception in 1927, Cessna Aircraft has manufactured over 191, 000 aircrafts, making it the leading general aviation aircraft manufacturer in the world (Cessna Chooses 2007).

The company has manufactured over 5,400 Cessna Citation business jets, making it the largest manufacturer of business jets in the world. According to its official website, Cessna is committed to its customers and offers the best customer service backup with its 10 organization-owned Citation Service Centres that are fully equipped to meet the inspection, maintenance and service needs of its customers.

In addition, the company has strategically positioned over 400 Authorized Service Stations in 18 countries around the world to offer outstanding propeller aircraft maintenance support.

The company practices an integrated supply chain management, revolving around an interrelated series of organizations, resources and processes that are concerned with the “creation and delivery of value in the form of both finished products and services to end customers and shareholders” (Purchasing.com 2000, para. 3).

In this type of supply chain, all decisions that influence the design and flow of raw materials into and through an organization to achieve the desired end products are integrated. Before the integration, the organization’s major business strategies were based on traditional approaches.

Problem Identification and its Relationship to Operations Practice

In 2000, Cessna aircraft was experiencing delivery problems due to its traditional structure in the supply, purchasing, assembly, and sourcing departments. The customer satisfaction rating had significantly dropped since Cessna could no longer honour the set product delivery dates. Indeed, statistics reveals that the organization failed to honour pledges made to customers for timely deliveries by over 35% in 1999. By this time, the organization’s production sales and inventory procedures were severely lacking (Avery 2003, p. 5). As a result, customers were asking for shorter lead times.

The above problem directly emanated from the operations practice of the organization before the introduction of the integrated supply chain management discussed above. For instance, the organization’s supply side was overly bloated and lacked clear direction that could add value to the organization.

Majority of the suppliers failed to deliver the requisite materials on time, making it almost impossible for the organization to make timely product deliveries to their customers (Avery 2003, p. 14). The traditional organizational structure also hindered efficiency and effectiveness in some core business processes such as sourcing and manufacturing of aeroplane parts. This in turn affected product lead time levels.

Processes under Consideration

From an operations management point of view, several business processes need to be considered to solve the delivery problem that had threatened to decimate Cessna’s customer base. The first priority would go to the organization’s assembly line since this is where most of the products are assembled. All the factors that increase the product’s cycle time within the assembly facility must be identified and put into perspective. According to Swamidass (2000), the term ‘cycle time’ is used in the management field to signify the duration of time taken by the production personnel to avail the product for onward shipment or delivery to the customer (p. 360). Product cycle time is affected by factors such as the number of production stages, in process inventory, employee orientation, nature and effectiveness of automation, among others The inventory system used by the organization also need to be put under a microscope since inefficient inventory processes often lead to delays. The push production system used by the organization caused it to carry huge amounts of inventory. This coupled with an inefficient MRP (Materials Requirements Planning) process effectively limited the company into producing products according to programmed demand rather than producing the items based on the customers’ actual needs (Avery 2003, p. 28). During the time of the delivery crisis, Cessna was utilizing obsolete metrics to measure productivity, thereby allowing considerable variations in core tasks. The process map below shows some of the fundamental core processes and some grey areas that occasioned the delay in delivery of products to customers.

Process Map of Cessna’s Assembly Line

Relevant Operations Theories & Techniques

Some relevant operations theories and techniques need to be incorporated into the efforts made to solve the delivery problem. The Theory of Constraints (TOC), developed by Dr. Eliyahu Goldratt, can be used to identify causes of the problems highlighted above and their effect on organizational performance. According to AGI (2009), the TOC process can be “…described via the use of three statements: what to change, what to change to, and how to cause the change” (p. 5).

In deciding what to change in the organization, this theory can be used to identify some unresolved problems or conflicts that keep the company trapped in an invariable tug-of-war or distracted from achieving its fundamental objectives. Every organization has its own core conflicts. In the same vein, organizations are known to develop policies and regulatory frameworks to deal with devastating effects that may arise due to the core conflicts.

According to the theory, business managers must then challenge the logical assumptions that are seen to fuel the core conflict. This is seen as the first step towards the development of a comprehensive solution (AGI 2009, p. 5). A strategy must be formulated to resolve all the initial challenges once and for all.

For the theory to be effective, the formulated strategy must include the changes to be occasioned alongside the identified solutions to the core conflict to ensure the organization is restored to its best performance. This therefore means that changes must be made in the organization’s policies, behaviours, measurements and strategic objectives. For the intervention strategy to be effective, all potential side-effects of the planned intervention strategy must be identified.

According to AGI, the means for alleviating the side-effects must be incorporated as key elements of the strategy. It is imperative to note that reducing or alleviating the side-effects actively permits a business entity to intentionally and systematically develop winning strategies.

Afterwards, a plan should be developed to facilitate the realization of the formulated strategy. This plan of action must comprehensively include what actions are to be taken, the personnel charged with the responsibility of overseeing the changes, and the time-frame.

Another theory that can be used to explain the customer dissatisfaction that was occasioned by the product distribution delays is the Queuing Theory. Although the theory is mostly used in service-type operations to evaluate the shortcomings brought about by queuing, it can be used in our situation to evaluate the loss of reputation and increased customer dissatisfaction level brought about by the organization’s failure to meet delivery pledges and prolonged lead times.

According to Lambrechit & Vendaele (1994), the Theory of Queuing is based on the assumption that individuals endeavour to receive services from a limited number of facilities, and must therefore wait in a queue for their turn to be served. (p. 415). The theory also presupposes that a significant number of queuing challenges occurs in production and inventory management. The second assumption touches the raw nerves of what was ailing Cessna product distribution systems – huge inventory and production problems in the assembly line.

As a result, customers were kept waiting for long durations of time for their ordered products to reach their destinations. The importance of Queuing Theory is amplified by Lambrechit & Vendaele assertion that “…with a little understanding of how queues behave, the solution to many operations management problems becomes clear if not obvious” (p. 415).

Another outstanding postulation of the Queuing Theory is that the greater the uncertainty, the higher the undesired impact of amplified clogging on inventories and lead times (Lambrechit & Vendaele 1994, p. 418). This means that customers’ uncertainties on requested orders from the organization served to worsen Cessna’s delivery problem by increasing inventories and product lead times.

According to the theory, customer uncertainty should be kept at a bare minimum if organizations are to achieve sustainable competitive advantage. The theory also presupposes that elevated levels of capacity exploitation cause increased congestion in the ordering process, enhanced lead times and large inventories due to customer uncertainty. Sadly, this presupposition underlines what was going on within the organization when the delivery problem was first unearthed.

Apart from TOC and the Queuing Theory, Cessna’s delivery problems could have been solved using other methodologies such as TQM, Lean Production approaches and Six Sigma. According to Ross & Perry (1999), TQM “…is the integration of all functions and processes within an organization in order to achieve continuous improvement of the quality of goods and services” (p. 1).

TQM is centred on achieving quality based on the active participation of all members, and lays its focus on customer satisfaction and employee empowerment. At Cessna, TQM could have effectively reduced the variations in critical tasks occasioned by the organization’s use of outdated metrics to evaluate success.

According to Kanji (1995), TQM can be used to minimize variation arising from every organizational process so that greater consistency of the inputs and efforts is obtained. This often translates to increased customer satisfaction, higher revenue and growth.

Lean production is also an effective methodology in such circumstances since it concerns itself with elimination of waste, reduction of inventory, customer satisfaction and employee empowerment (Malloy 2008, para. 3). A large number of inventories had been cited as one of the causes of Cessna’s delivery woes. Available literature points to the fact that lean production systems have the capacity to drastically reduce inventory and variations in crucial organizational tasks.

According to Black (2008), lean production “… demands that we know how to get our workforce to produce exactly what is needed, in the amount needed, where it is needed.” (p. 3). It should be remembered that Cessna’s production personnel took orders on what to produce from the marketing department, a situation that largely contributed to the organization’s distribution and delivery woes (Avery 2003, p. 18).

According to the description given above, there was a clear disconnect between customers’ needs and requirements on one hand and what was being produced in the assembly line on the other. Accordingly, lead times increased drastically and the level of customer dissatisfaction was threatening to spill over.

The level of customers’ loyalty to the organization plummeted since clients could not receive their orders on time. This scenario could have been greatly assisted by lean production since the techniques facilitate the organization to produce what is needed by the customers and at the right quantities. What’s more, lean production techniques facilitate innovativeness and quality of products. Within the management realm, it is widely believed that “the key to management innovation is the pursuit of total quality (Black 2008, p. 6).

Six Sigma can be defined as a data-driven statistical technique used to achieve a near perfect quality in organizational processes. The methodology is mostly used to evaluate production and customer oriented activities (Pande 2006, p. 6). Invented by the Motorola group, the technique started as a defect reduction strategy in manufacturing process.

However, the technique can now be applied to a multiplicity of business processes to achieve the same purpose. Due to its rapid growth and uptake, Six Sigma can be described as a business improvement model that directs an organization on how to understand and manage its customer obligations, align fundamental organizational processes to achieve those obligations, and facilitate fast and sustainable improvement to organizational processes. Six Sigma make use of precise data analysis to reduce variations in business processes.

In Cessna’s delivery problem, the Six Sigma model could have been used to streamline operations in the assembly line with the aim of avoiding delays in delivery of products to customers. This technique is usually combined with other quality assurance techniques such as TQM and JIT to facilitate product cycle time and timely delivery of the assembled products to end customers.

Defects in products are likely to reduce with the introduction of Six Sigma since the model basically evaluates organizational performance based on how many imperfections are likely to arise in a given product or process. The Six Sigma level allows 3.4 defects per million opportunities (DPMO).

Cessna Aircraft had a problem of reputation occasioned by failure to meet its pledges for delivery. The Six Sigma model could have been effectively used to rebuild the lost reputation and recoup the lost market share (Textron Six Sigma 2009, para. 1). Indeed, Six Sigma methodology can be fundamentally used in nearly all Cessna’s critical business processes such as designing new aircrafts, enhancing the production and distribution processes to meet customer demand, and reducing discrepancies in product quality.

Comparisons of Theories with Practice

The TOC theory can be compared to what was happening on the ground at Cessna Aircraft Company. For instance, Cessna’s core conflict during the period that the delivery problem was reported was occasioned by the MRP system offering too much leverage to the marketing department at the expense of the needs and requirements of customers (Avery 2003, p. 28).

Another core conflict arose from the fact that the assembly line was encountering difficulties in reducing or staying within the allowed product cycle time due to a number of varied reasons, key among them the large number of inventory and increased variations in critical tasks. These shortcomings had invariably increased lead-times and failure to honour pledges, ultimately increasing customer dissatisfaction levels.

This was hurting the business. Since the primary and the underlying constraints had been identified, TOC could be used in practice to utilize the bottlenecks and challenges with the aim of increasing products lead-times, reduce operating costs, and minimize inventories.

The Queuing Theory could have been combined with other management approaches such as JIT and lean production to effectively deal with the problem of large inventory that inarguably occasioned product delivery problems in the organization. According to the delivery problems highlighted in this paper, it is possible that the organization was using an approach of increasing inventory and holding immense stock for their customers to choose from.

Problems arose due to the fact that customers were increasingly demanding customizable products for their aeroplanes (Avery 2003, p. 25). When JIT approach is used, the organization could have been able to minimize inventory, reduce the production lead time, and be able to respond with speed to customer requirements (Lambrechit & Vendaele 1994, p. 416).

Due to the need of customizable products by customers, the approach used by Cessna of satisfying customers’ requirements from the already existing stock was no longer tenable. In the light of this, the management could have combined the JIT approach with the core propositions of the Queuing Theory to come up with strategies through which customers demands for customizable products could be met within a certain time delay, kept at a minimum.

Such an arrangement could have eliminated major wastes, enhanced continuous product improvement, improve customer satisfaction and occasion total quality creation. The resulting improved productivity and dependable delivery processes could be the basis for the organization’s sustainable competitive advantage.

The Impact of the Delivery Problem on Customers

In any organization, problems relating to operations management can be devastating if adequate remedial measures are not taken in time (Lewis & Slack 2003, p. 28). As already mentioned elsewhere in this essay, the delivery problem had negatively impacted the organization in terms of customer satisfaction and loyalty.

Due to management and organizational defects emanating from the assembly line, Cessna Aircraft Company failed to honour over 35% of pledges made to customers for timely deliveries (Avery 2003, p. 5). An inefficient MRP system effectively limited the organization into producing products according to programmed demand made by the marketing department rather than producing the items based on the customers’ actual needs.

This worsened the situation further as customers could not secure timely deliveries of the most needed products. In addition, an oversized inventory presented a lot of difficulties when it came to customer service, satisfaction, and timely delivery of products. Such a multiplicity of challenges has the capacity to reduce customer satisfaction levels, return rate, and loyalty, ultimately affecting the organization’s revenue base (Hayes 2009, p. 36).

Recommendations & Areas of Improvement

Various recommendations to the problem can be forwarded, especially when viewed in light of the TOC and other management techniques such as TQM and lean production. For instance, the delivery problem could have been improved through the use of just-in-time (JIT) production philosophy, largely encompassed under the auspices of lean production techniques.

According to Lewis & Slack (2003), JIT mainly deals with elimination of waste, reduction of inventory, involvement of all employees in the organization’s operation and adoption of continuous concepts and ideas aimed at improving organizational processes (p. 102). This approach also underscores the importance of quality, reliability and fast product cycle time. Lead-times would have been greatly reduced if the organization came up with strategies aimed at enhancing throughput time as well as product cycle time.

In addition, some TQM techniques such as ‘quality at the source’ method should have been employed to lessen variability within the assembly line. This paper has revealed that the roots of the delivery problem were firmly entrenched in the assembly line. The self-inspection process that arises from the method ensures that defects are not passed from one production unit to another or from task to task (Lewis & Slack 2003, p. 108).

This way, Cessna would have been able to meet the pledges made to customers as considerable amount of time would be saved by using the TQM technique. Lastly, problems of long lead-times and huge inventory could have been successfully dealt with if the management had undertaken a critical analysis of key business processes based on TOC. The theory could have enabled the management to realize the issues and challenges that ganged up together to cause the delivery problem.

Once identified, the management could have initiated some operational management tactics aimed at reversing the setbacks. For instance, standard work practices should have been introduced for each unit at the assembly line.

According to Clarke (2005), standardization of work processes in an assembly line is important because it helps not only to minimize organizational variation but also to distinguish employee skills that require improvement (p. 215). This process would have allowed the organization to make timely deliveries to the customers.

Conclusion

All in all, the importance of operations management in an organization can never be underestimated. It forms a core component of the organization by controlling and influencing the system of operations (Ross & Perry 1999, p. 3). In the same vein, operational problems can prove costly to organizations if the correct prescriptions are not adhered to in the process of solving the problems. Business empires have fallen under the heavy weight of making the wrong decisions in operations management.

Cessna Aircraft must have resolved the product distribution problem and returned to profitability. But it is imperative that the correct decisions are taken to avoid any chance of problem escalation. The above stated remedies would have effectively dealt with this problem, not mentioning the fact that they would have served to rebuild customer confidence due to quality assurance.

List of References

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