Armour Plastics Company is a family-owned corporation that manufactures small-size plastic bottles in the Philippines. It began being professionally managed only about two years ago. "Cat" Avellana, an engineer with graduate training in business, had been successful in turning the company around but now wanted his subordinate managers to take on even greater roles themselves in managing the firm. He thought the key to the success of this initiative was their reorientation from functional management to process management. Cat himself was trained on strategic operations thinking - structuring his management approach around key operations issues categorized as having either strategic, operational, or tactical impact especially on productivity. Recent exposure to process management, however, has Cat convinced that Armour is ready for the next phase. This case is envisioned as serving as an end-of-term case in an undergraduate course or as an introductory case at the graduate level.

Case Keywords: operations management, process management, operations management decisions.

1. Introduction

Catalino "Cat" Avellana was watching the bustle of production activity through the glass window overlooking the production floor of Armour Plastics Company (APC). It had been almost two years since Cat was hired as Operations Manager in late 2008. Cat wore a slight smile on his face as he remembered how things were in APC before he turned the company around from a mediocre player in the plastic bottle manufacturing industry that APC had been for more than fifty years, to one that presently profitably commanded an estimated ten percent (10%) of the market. That was no minor accomplishment considering there were about twenty other firms in direct competition with APC.

Cat was interviewed and offered the job on the same afternoon by the company president Ronald Lapid in the very same office that used to house a small crew of accounting and administrative personnel. This office also used to double as a storage space for the static volumes of paperwork stacked up almost to the ceiling. At that time, the lack of value-adding activity in the office was mirrored by an equal lack of productivity in the production floor.

Now, all that had changed. Every manager who had a say in what went on in APC held office up there with Cat. When a manager was not busy either on his phone or on his desktop computer, he was either on the shop floor directing work or out with a customer offering APC products and services or resolving any customer service issues. The work space had now evolved into a bullpen without the territory-marking four-foot high dividers typical of traditionally-set up offices.

One needed only to move around the semi-circular office to see what job prospects were in the works (Sales); which jobs were being translated into production schedules (Production Planning & Control), and which ones were being wrapped up for billing and collection (Cost Accounting) among others. There were many other charts and graphs that indicated the status of critical aspects of the business such as those that pertained to the acquisition of resources necessary for what Cat often referred to as a "balanced, rapid flow" of production. It was a large-scale dashboard of sorts that was a concrete manifestation of Cat's adherence to the philosophy that "one cannot manage what one cannot measure". The dashboards made writing up actionable reports redundant and virtually unnecessary. In fact, the daily morning management briefings were conducted during a literal walkthrough of the day's concerns.

It was now time, Cat thought, to move the company along into bigger and better things. This time, however, SAGE 2011 NeilsonJournals Publishing SAGE Business Cases Page 3 of 11 Armour Plastics Company: A Case in Operations Management he wanted to get his subordinate managers to also initiate, and not merely implement, strategic initiatives.

2. Armour Plastics Company and the Plastic Bottle Manufacturing Industry

APC is a family-owned company established in 1957. It is a contract manufacturer of plastic bottles located in an industrial estate in Taguig, a municipality south of Metro Manila, capital of the Philippines. Among its various clients are companies that carry well-known household brands like Zonrox (the leading bleach brand), Rhea (a popular rubbing alcohol brand), and Eskinol (a long-time facial cleansing brand).

The plastic bottle manufacturing industry in the Philippines is characterized by cut-throat competition. Efficiency seems to be the name of the game - control of costs, competitive application of technology, and optmization of capacity utilization are all significant aspects of operations that determine any one player's margins.

APC focuses on the niche market for small plastic bottles, the 1-litre or smaller variety. In particular, APC concentrates on the Cosmetics and Health & Beauty Aids (H&BA) segments which are deemed more resilient to fluctuations in the local economy. Virtually all of APC's clients are local companies which produce brands like Green Cross Family Alcohol, Rhea line of wellness products, Block & White, as well as multinational companies which produce global brands like Sara Lee, Betadine and Colgate.

Like most other companies, APC's 53 years of existence has been characterized by various ups and downs, perhaps with greater fluctuations. Up until just a few years ago, this family-owned corporation was losing money more often than they were making it. This pathetic state of affairs seemed to be rooted in the lack of competency of management that resulted in large measure to runaway costs and a misallocation of resources being poured into a largely underutilized manufacturing facility. When Cat came on board in 2008, his explicit mission then was to bring APC back into the black and review and improve upon the processes that still didn't quite come together properly even after all these years.

3. Operations Management Areas of Concern

Cat always organized his thoughts into discrete areas of operations decision-making. This occasion was therefore no different.

Product Design

Many customers designed their own bottles and merely contracted the production out to companies like APC. Others had limited in-house design capabilities and resorted to collaborating with APC in the design of their bottles. Only a limited few contracted both design and production out to APC.

It was Cat's idea to equip APC with computer-aided design (CAD) capability. Among other things, CAD enabled the three-dimensional (3D) visualization of the bottle being designed. With digital prototyping, APC would be in a better position to secure production contracts in that they would be better able to favorably influence the design process. APC would also be able to ensure the manufacturability of the product given the limitations of their own production equipment.

The value of computer-aided manufacturing (CAM) soon became the obvious sequel to CAD. Cat wanted to simultaneously acquire both capabilities. The difficult financial position APC was in during Cat's first few months prevented him from obtaining the resources to upgrade APC's production capabilities using technology that only a handful of his competitors were already using. With dogged persistence however, Cat was able to convince the company's owners to invest in new equipment that lent to the efficient transition from design to manufacturing. With software like Pro/ENGINEER 2000i, VMware Tools and CimatronE, APC was able to drastically cut down the unbelievably long cycle times that used to bog collaborative design efforts down and the setup times it used to take to switch the production lines from one bottle design to another.

Process Design

The production process began with compounding. This step involved the grinding, melting and mixing of resin and colorant additives to achieve the right color and consistency. The heart of the process was the moulding process. There were three types of molding processes in use in APC - blow moulding, stretch blowing, and injection moulding.

Blow Moulding: HDPE

There are two major steps in blow moulding. The first one is extrusion where the plastic resin is placed in the hopper of a blow moulding machine. The resin is then subjected to controlled heat as it is pushed by a screw through a barrel. At the end of the barrel is a die head where the molten plastic passes through to form a continuous tube known as the parison. The blowing phase comes next. Here the parison is positioned inside the mould cavity, cut to the desired length, and is subsequently subjected to a high-pressure air blowing process so that the molten plastic conforms to the mould cavity. The cooling system of the mould accelerates the hardening of the resin until it is ready to be removed from the mould. After this process, the excess plastic material (known as the sprue and the tail) are trimmed, in APC's case, manually. The end result is the plastic bottle.

Exhibit 1: Extrusion Blow Molding

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Stretch-Blow Moulding: PET

In the stretch-blow moulding process, the plastic is first molded into a "preform" using the injection moulding process. These preforms are produced with the necks of the bottles, including threads (the "finish") on one end. These preforms are packaged,and fed later (after cooling)into a reheat stretch blow moulding machine. In the stretch blow moulding process, the preforms are heated above their glass transition temperature, then

blown using high-pressure air into bottles using metal blow moulds. Usually the preform is stretched with a core rod as part of the process.

Exhibit 2: Reheat Stretch Blow Molding

Figure

http://en.wikipedia.org/wiki/Blow_molding

Injection Molding

To complete the bottle, the other components such as the cap and the plug are produced using the injection moulding process. The resin is placed in the hopper of an injection moulding machine. A rotating screw pushes the raw materials into a barrelunder controlled heat and is transformed to its moltenstate. The molten plastic is then injectedinto the cavitiesof the mould. Inside the mould cavity,the molten plasticis cooled down until the formed plastic hardens. The end products are the cap and the plug.

The physical molds are prepared as a support process. Previously, prototype moulds were prepared from wooden blocksand were presented to clients for approval togetherwith clients' specifications in terms of size, texture, material, and color. As one can imagine, the process was tedious and time-consuming. With CAD, there was no longer a need for such physical prototypes and the replication of multiple identical moulds was made possible.

Exhibit 3: Injection Molding Process Cutaway View

Figure

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Quality Management

Cat slowly but surely put into place quality management concepts. To start with, he instituted organizational practices such as job employee empowerment and focus on the customer. He encouraged the company president to jointly formulate with him a quality policy that was subsequently communicated to everyone in the organization and read,

We at ArmourPlastic Company,Inc. aim to be the vendor of choice in the manufacturing of quality plasticand related products and are committedto

Developing, manufacturing and delivering products that will consistently meet customers' requirements and expectations; and Contribute to the improvement of the quality of life in our community through the application of new and environmentally friendly technologies.

With the support of our highly skilled, flexible and motivated employees, we believe that we will achieve our goal.

Ronald L. Lapid, President and CEO

Cat himself even came up with a motto, a battlecry of sorts - "The quality of my company starts with me."

More specifically, Cat instituted kaizen, a Japanese term that refers to continuous improvement, the cornerstone of the Japanese approach to production.

Process Control

In the past, APC paid little attention to quantitative measures of performance as long as they churned out a profit no matter how small. The application of fundamental concepts of statistical process control were the key instruments Cat employed in getting and being on top of things. It took several months however, before significant improvements in contribution margins were realized and were reflected in the company's financial books.

A persistent quality issue was the excess plastic protruding from the item after coming out from the mould. Catinstituted manual inspection to address this problem. Inspectors were stationed near the machineso that each time the plastic bottles and caps came out of the machine, they could manually inspect it and adjust it for variations. Inspectors used a blade to cut off the excess plastic from the faulty item. The clippings were then placed in a container of scrap plastic for recycling.

Capacity and Maintenance

APC's production equipment was on average about 18 years old, well beyond the accounting definition of economic life. Moreover, these old machines had a maximum capacity of eight cavities per mould; whereas new ones, which competition already utilized, had twice as many cavities per mould.

Because of the huge amount of capital expenditure required for upgrades to more modern equipment, APC consciously deferred doing so until such time as, perhaps, they had approached the upper bounds of their productive capacity. By most indicators the most notable of which were the visibly observable slack times. However slack periods were more the result of fewer jobs that could be worked on rather than the result of machine breakdown.

Employee empowerment was manifested in the way employees were trained to maintain the very equipment they operated. Moreover, APC started observingsemi-annual week-long preventive maintenance shutdowns. The previous two years had seen a record zero-machine-breakdown in the history of APC.

On Cat's initiative, APC acquired machines with multiple cavities which could be numerically controlled by a computer. Intensive training of the employees who operated the high-tech equipment was undertaken.

Supply Chain Management

The basic raw materials that go into plastic bottle manufacturing are HDPE, LDPE, PP and dyes.

HDPE, or high-density polyethylene, is harder, stronger and a little heavier than LDPE, but less ductile. HDPE is lighter than water and can be moulded, machined and joined together. The appearance is wax-like, lusterless, and opaque. Some types can be used in contact with food.

LLDPE, or linear low-density polyethylene has less hardness, stiffness and strength compared to HDPE, but has better ductility. It is opaque and only thin foils can be transparent. LLDPE is used for packaging such as foils, trays and plastic bags both for food and non-food purposes. It is also used as protective coatings on paper, textiles and other plastics e.g. milk cartons.

Polypropylene has demonstrated certain advantages in improved strength, stiffness and higher temperature capability over polyethylene.

Dyes or colorantsare also a major ingredient in plastic making as it is used to generatedifferent color shades for the product.

Cat recognized that effective supply chain management and its efficient implementation are an important element in a manufacturer's business model. Its lofty goals are the reduction of the level and value of

inventory maintained; shorter turnaround from customer order to delivery; and increased flexibility in dealing with changes in demand.

In reality, however, APC had a long way to go in transitioning from purchasing to supply chain management; from a process that was largely based on acquisition costs to strategic sourcing cognizant of the value of supplier partnerships. Supply chain management in the Philippines was still largelyin the development stage. (Talavera2009)

In particular, Cat was concernedabout their inordinate amount of bufferstocks of raw materials. Some favored customers demanded that APC held as much as two months worth of raw material inventory to ensure APC had enough to respond to upswings in production volume especially during pre-peak months.

Another matter was particularly irksome.It was a longstanding practiceto allow some customers' ordersto be warehoused at APC, supposedly only for a limited time. APC had accommodated this practice in the past as part of their service to customers. However, some customers abused APC's hospitality by extending this favor beyond a reasonable period. Cat estimated roughly 10% to 12% of warehouse space was used to house customers' finished goods inventory unnecessarily as a result of this practice.

APC relied on a few local producers of plastic resins. The only local supplier of polyethylene resin was JG Summit Petrochemical Corporation. Incorporated in 1994, it began manufacturing polyethylene under the brand name Evalene in 1998, and had an annual rated capacity of 175,000 MT. Alternatively, Petrocorp was the bigger of only two suppliers of polypropylene in the country. It started operations in late 1997 and had an annual rated capacity of 225,000 MT.

These local plastic resin suppliers remained competitive with imports that could be obtained surprisingly at just about the same cost as local supplies.

Human Resources

Prior to the efforts of the company to rebuild itself, the plant in Taguig found itself with too many employees. APC was operating at a loss but had been reluctant to downsize for a long time. Jobs were poorly designed with many overlapping. Family members dominatedmanagement and had difficulty drawingthe line between their roles as owners and as managers.

One of Cat's first duties on the job as both operations manager and plant manager was to "fix" this problem. He had to secure top management's support; he talked to all the leaders (formal and otherwise) of the employees; and made everyone realize the predicament they were in. Downsizing seemed harsh but was deemed to be the only way for APC to survive. In the end, APC let go of the majority of their employees including one of the owners' children, retaining only the most senior and most skilled of the plant workers.

Work was scheduled in 8-hours shifts: 10:00am-6:00pm, 6:00pm-2:00am or 2:00am-10:00am. There was a 25% premium for the night and overnight shifts. Cat formally adapted a chase strategy of aggregate planning insofar as the workforce was concerned. He maintained a base of regularly-employed workers and supplemented this with contractual workers during seasonal peaks and uptrends.

Motivating contractual workersat times proved to be a significant challenge. Job rotationand job enlargement approaches worked in the short-term but were not enough to sustain productivity. Issues of compensation were often brought up, albeit only to management's attention through the proverbial grapevine.

Layout

In general, the facility allowed for the smooth flow of materials. Materials and work in process flowed in a logical sequence to adjacent work stations. There was little accumulation of work in process inventory between stages of production. There was also minimal backtracking other than of rejected finishedgoods that were routed back to regrinding. The shop floor was also well ventilated.

Cat would have preferred to have had a hand in layingout the plant when it moved from its crampedfacility in Makati to Taguig several years before he joined APC. At this time, the size and weight of the machines made it impractical to implement any major layout changes.

Short-Term Scheduling

Typically, job orders were processedchronologically or on a first come/first serve basis subjectto modification according to machine availability and preferred customer deadlines. Contribution margins on orders processed in the new machines were slimmer than those processed in the older machines.

Finished Goods Delivery

The delivery of finished goods was outsourced by APC to a company also owned by the Lapid family.

Cat contemplated a reorientation of his management team from functional specialization to "big-picture" process management. While he believed he had done much to enlarge their perspective beyond their respective functional areas, none of them seemed to understand, let alone consciously imbibe, the value of end-to-end process thinking. This was the challenge Cat now faced in an effort to elevate Armour Plastics to greater heights of productivity and profitability.

References

Heizer, J. and Render, B. (2008), Operations Management, Singapore: Pearson Education.

Simchi-Levi, D. , Kaminsky, P. , and Simchi-Levi, E. (2009), Designing and Managing the Supply Chain:Concepts, Strategies and Case Studies. New York: McGraw-Hill.

Stevenson, W. J. (2009), Operations Management, New York: McGraw-Hill.

Talavera, G. V. (2007), "Supply Chain Operations in the Philippines: A Survey", Philippine Management Review, 14: pp. 127-144.

Wisner, J. D. , Tan, Keah-Choon , and Leong, G. K. (2008), Principles of Supply Chain Management: A Balanced Approach. Mason, OH: Cengage Learning.

https://dx.doi.org/10.4135/9781526462015

Questions

1. Provide Executive Summary for the case study

2.Provide Multiple Solution for the problem

3.Compare the solutions and provide the best one for the problem