Team 1: Jinsoo Bae, Xinlei Li, Lida Xu
September 30, 2014
The Morrison Company - An Operational Analysis
The Morrison Company developed and manufactured radio frequency identification (RFID) tags which are used to track goods at real time for pharmaceutical industries and retail industries. In 2010, Morrison generated $54 million of revenue. Global sales of RFID for the pharmaceutical industry were expected to increase 34% from 2010 to 2015, along with growth expectation of 12.1% for the retail industry due to huge potential in small tags market. Sales had risen exceptionally over the past years and production levels need to be increased to meet monthly and quarterly shipping targets. As a result, the required RFID output for Morrison in 2015 would reach 220 million and 184 million units in each line, respectively (Please refer to Exhibit A). However, some operational problems had been found. The assembly line could not function as expected. The company had achieved a remarkable performance in the pharmaceutical lines, but some problems occurred in the in retail line. The problems had been exacerbated due to inefficient operational management: material shortages, bottlenecks during customization, lack of capacity and errors in the content of deliveries. The report will critically analyze and evaluate the current operational situation and the difference between each product line of the Morrison Company, and propose a long term solution for improving the company’s operational capabilities.
The Two Lines: Pharmaceutical and Retail
The company promoted its sales in two major lines: the pharmaceutical line and the retail line. In 2007, the company developed a patent on its pharmaceutical inlays. This action, which was ahead in the industry, created a strong competitive advantage for the Morrison Company to develop its market share in the pharmaceutical segment to 30% within three years, not to mention the fast growth rate for the entire pharmaceutical RFID industry from 2010 to 2015. In 2010, the pharmaceutical line generated $36.2 million of sales, which represented two thirds of the total sales of the Morrison Company. The nature of the pharmaceutical industry made potential buyers value performance and reliability over price. 85% of the Morrison pharmaceutical products contain HP chips, which have a great brand reputation of outstanding quality. A label printing—or so called the “personalization” service— was optional for pharmaceutical products; however, fewer than 15% of pharmaceutical products were customized due to the strict standards required by DEA (Drug Enforcement Agency) and some States. The retail line, unlike the pharmaceutical line, faced greater competition. The market was highly fragmented and there were small firms competing against the Morrison Company. The entire industry has been growing with a CAGR of 12.1% by 2015. The Morrison Company sold the retail products with an average price of $0.11 per unit, 85% of which were customized with buyers’ choices of colors, finishes, and cut-to-order sizes, and 70% with personalization. It is also possible to modify the products if customers with large deal flows had other requirements. The retail line accounted for one-third of the total revenue in 2010; the cost, however, was far beyond than the expected. It was predicted that there would be less competitive players in the industry in the near future, as a patent would be developed to attract more customers. For more information, please refer to Exhibit B.
Problem 1: Material Shortage
First of all, the number of stock-outs had tripled in the past six months. A dramatic increases in sales led to shortage of raw materials, especially, ICs. Stock-outs led to more limited space as some orders were partially completed. If the work-in-process inventory was built up, the entire system would be slowed down because of its limited space. The Morrison Company maintained...
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