Student Name:

Student ID:

Author Name:
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Executive Summary:

The study is based on the following challenges, which a company have to face. Moreover, the
company has some management’s strategies, which lead the company to the profit. In this
project there is a discussion of the supply chain management of the company as well as the
how the company handle the material to eliminate the unnecessary handlings and to reduce
the damage as it will reduce the profit of the company as it is related to the additional cost for
the company.

The project also discuss about the layout of the plant layout, how it is important for the
company. There are some recommendation that can be given to the company Fonterra to
recruit those employees how can have the proper training in handling the dairy related
products. as well as to clean the equipment in timely manner so that the infection does not
spread in the products.
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Introduction:

Purpose of the report: the purpose of the report is to understand the operational structure and
business structure of the Fonterra limited. In this report, there will be a discussion on the
Capacity management strategies and five general location factors of the company. The report
will include the plant layout of the organization as well as the three TQM of the company.

Company Name: Fonterra Cooperative Group Limited.

Brief History: Fonterra cooperative Group Limited is a well-known company in New

Zealand. As it is a cooperative group, 10500 farmers own this company across the New
Zealand. The Company is founded in the year 2001. The two company New Zealand dairy
products and Kiwi cooperatives dairies came together and this company has come to the
existences[ CITATION Abo18 \l 16393 ].

Location of the company: the company is operating there business all over the world.
However, company’s headquarter is in Auckland, New Zealand.

Products and Services: This Company deals only in dairy products like milk, cheese butter
and ice cream and yogurts. The company is having varieties of products that they have
spread, all over the market of New Zealand.

Number of employees: The Company is having 22,000 employees approximately. These

employees are working day and night for the company.

Type of Business operation: the company is the biggest retailer of dairy products. This
Company is so big that it exports 25% of the total New Zealand export. The company
generated the revenue of around 17.2 billion NZ$ which tags this company as one of the
largest company in New Zealand[ CITATION FON15 \l 16393 ].
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2.1 Capacity Management:

Capacity management means the number of goods or services, which an operation has
produced in a specific period under normal working conditions, where no extra resources are
arranged. The capacity management can influence all the areas of a particular operation. The
operations can transform inputs into outputs that the capacity can measure. Capacity can be
termed as the quantity of a product that can be made in the mentioned time[ CITATION
Cap18 \l 16393 ]. There are always two sides to consider while planning capacity:

1. There is a demand: means the quantity of the products that the customer wanted.
2. Condition of goods and services: the operation must evaluate the cost that is involved in
the business to satisfy the customer.

The two management strategies that the company has adopted are as follows:

Vary the price of goods or services; price is the most powerful way to influence demand:
by adopting this policy, company can increase the demands whenever they want. This policy
is known as the pricing strategy, which is the part of the capacity management. The price is
the tool for a company to improve their profit by selling the each unit in the overall market.
The companies’ decision on the price of the product and the desired pricing strategy can
influence the customer’s ability to decide whether to buy the product or not. Fonterra is using
this strategy to take the edge over the capacity management. As the company is producing the
dairy products, it is required to sell the product according to their expiry dates. To control the
demands of the products, company can maximize the price, which can affect the decision of
the customer to buy the product. However, the company can decrease product to get rid of the
products.

Partner with suppliers to reduce information distortion along the supply chain: to
reduce the Bullwhip effect on the supply chain it needs to collaborate the information sharing
and the demand forecasting. Despite sharing the forecast and operational information, some
companies take advantage of the partnership in their supply chain. Fonterra and the partner
company’s cooperation can help to improve the performance of the company as both of them
keeps the local stock performance. By this strategy, the company can make better decision on
ordering, capacity allocation and manufacture planning so that the performance can be
optimize in the supply chain. By reducing the bullwhip effect the company can get improve
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their profit margin by 10 to 20% and if the company can reduce the partiality of the forecast,
it can increase the profit by 15 to 30% [ CITATION Met97 \l 16393 ]

2.2 General location factors:

Factory location is a process of finding the correct geographical location of the company to
operate. It helps the company to export their products easily, to import the raw materials or
the cost of the labour; all will be depend on the geographical site of the company factory.

To understand better about the location factors that can affect the company it can be divided
two parts, which is based on nature of the organization:

General Factors: in which the factors can be divide in two groups that is controllable and
uncontrollable.

Specific factors: this is related to the manufacturing and service organization[ CITATION
FAC18 \l 16393 ].

Controllable Factors:

Supply of raw material: it is necessary for a company to get the raw materials on time as to
fulfil the demands of the customers or markets. It is required to get the right quantity to have
the nonstop production. This factor is become very important for the Fonterra if the materials
are not getting to the factories or the transportation cost is high. Then the company have to
increase the price of the product.

Two features are as follows:

1. Company need raw material from the farmers it is required for the Fonterra to get the
raw materials.
2. If raw material is government available, the company have to locate it in nearby area.
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Infrastructure availability: it is required for every business to have the basic infrastructure
facilities like power availability or water or the waste disposal is available or not. It is
required for the company like Fonterra to get electricity to purify the milk products or to
make process of the milk products. Beside that, they need storage tanks to store the milk and
its sub products.

Two features are as follows:

1. Company required infrastructure to make the products on time.

2. Fonterra needs the basic infrastructure to supply the products as per the demands of the
company.

Importance of transport facilities: it is required to have good transport facilities to take the
processed products to the market immediately to meet the customers’ demands. In addition,
it is also required to supply the raw materials to the company as soon as possible. There are 5
basic models of the transportation that is air, water, road, rail and pipeline. It will depend on
the transportation what will be the cost of the desire product[ CITATION 7Lo18 \l 16393 ].

Two features are as follows:

1. Fonterra need to speedy transport facilities to get the raw materials on time.
2. Company will decide the mode of transportation to supply the products.

Uncontrolled factors:

Government policy: the policies of the government can affect the company. If the law
changes in the mid of the financial year it can affect the company’s business. In order to get
the balanced growth of the industries the state and the central government help the companies
by providing some incentives in particular locations. These incentives can be in the form of
exemption of safe tax or in excise duty for a particular time.

Two features are as follows:

1. The government polices is one of the main factor which affect the company location is
remote.
2. Companies can provide incentives to support the company’s initial growth period.
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Climate conditions: the climate of the area is one of the factors that can impact on the
business of the company. These climate conditions indirectly related to the power
consumption of the factory. Apart from that climate can influence the human nature and the
behaviour.

Two features are as follows:

1. Variable rainfall can affect the transportation to reach the factory and deliver the
products.
2. Natural calamities like floods or droughts can affect the company and its production.

2.3 Plant layout:

Plant layout means a physical arrangement of things like machines, equipment to achieve the
coordination of 4M’s that is men, machines, material, and methods. In all type of
organization, there are some fundamental problems with the layout[ CITATION Obj18 \l
16393 ].

Principle of Flow: it is required for companies to make a good layout so that the materials
should move from one forward direction to another to complete the product. Fonterra has
made the layout in a manner that all the material will go to the forward direction. For an
example the raw material comes to the point A then it will be going forward to process and at
the end of the process the outcome or the processed product will come from the point B.

Since in the straight line if the product will move it will have to cover less area or distance.
That is why the Fonterra has made the principle of Straight-line Flow. In case of the plant
layout is not supported in the geographical area then U shape flow can also be adopted.
Backtracking can slower the speed of any product as it will take more time to reach to the
final stage or the point.
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Figure: example of direct principle flow of a dairy plant

Source: [ CITATION Fre18 \l 16393 ]

Principle of minimum Distance: a good layout of a plant is necessary for the company. It
will help the company to save a lot of time and money by this method. If the machinery of the
company is aliened in a proper manner then the productivity will rise automatically. The
company is following the straight-line method to cover the shortest distance to deliver the
products and the raw material to the company production. Fonterra has made their walls
columns and doorways in right manner so that the materials get to the plant easily. The roads
that have been made near the factory area are graded, sealed and have a slope to drain the
surface water.
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2.4 Continuous Improvement:

Three elements of Total Quality Management: Total quality management can be defined
as the management approach to the long-term success from the customer satisfaction. In total
quality management all the member of the organization or the company, contribute on
improving of the products, services or the process of the work. Total quality management
uses the strategy, all the data and effective communication to combine the quality discipline
in the activities of the company.

Three types of elements:

Training: If the company wants, the employees to become productive then the company
should provide the training. To apply TQM in the various departments the supervisor of the
department will be responsible. The supervisors will be responsible for the training of the
TQM. To learn the TQM a employee must have the knowledge of interpersonal skills,
teamwork, ability to solve the problem and he could do the performance analysis and
improvement[ CITATION Nay18 \l 16393 ].

Continual Improvement Process: By the help of training, one can improve the product and
services of the company. If Fonterra provides the sufficient training to the employee, it will
improve the quality and the services. Training is related to the process of continual
Improvement.

Teamwork: it is required for any company to understand that teamwork is the key to success,
and the teamwork is the key element of TQM. Teamwork can help the company to complete
any product on time. Moreover, the team help the company to overcome the problems
quicker and easier. In teams, the member feels more confident to solve a problem then an
individual. There are three types of teams that TQM adopts:

 Excellence team
 Team that can solve the problems
 Teams that works natural

Competitive benchmarking: teamwork allows the idea and the thoughts of getting better.
Benchmarking helps the team to see the improvement of the competitors by using the
collection of metrics. Benchmarking will help the Fonterra to improve products and services
as well as how to get an edge over to the competitor.
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Trust: trust is most important part of the total quality management, without the trust the
framework of the TQM will collapsed. This is because of the trust that all member in the
team can work with full participation. It helps to build the commitment and it allows the
individual to take risk to continuous improvement. Trust is also important for the customer
satisfaction.

Decision is based on facts not opinions: trust is very important in this process. However, all
the data should be given in the form of facts not the opinion. Fonterra should look all the
matters in facts not in the opinion of the employees it will help them to act sensibly.

2.5 Supply Chain

A supply chain is a kind of system of company, people, information and resources, which is
involved in moving a product or services from trader to the customer.

Fonterra

Figure: Supply chain management

Source: [ CITATION Ret18 \l 16393 ]

By this picture, it could be understood that the Fonterra Company is having the 6 components
in the supply chain.

 Raw materials manufactures

 supplier and Final product manufactures
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 Distributors and the wholesalers

 Retailers
 Consumers

Suppliers and the manufacturers of the final product: this is the second stage of the
supply chain. They are the collectors of the raw products. They collect raw materials form the
manufactures of the raw products. In this case, Fonterra’s supplier purchases the raw material
that is milk, which is provided by the dairy farmers. Company collects all the raw material
and take to the processing or manufacturing plants. After that company process the raw
material and make them ready for making of the final products.

Whole sellers and distributors: As manufactures completed the process of the raw material
and made the final product. The company send them to the distributors of the company. The
wholesaler categorise the product. These distributors take the final products and distributes
among the retailers on demand. These retailers take them to the different store for selling the
products.

Consumers: this is the final stage of the supply process as the customer is getting the final
products after the three processes of the raw materials. The company supplies these goods to
the distributors and the retailers. After completing all the stages, it is now available for the
customers.

2.6 Functions of Inventory:

Quantity discount: Fonterra uses the market strategy very well as the company knows the
importance of the product sale. Company is having some trusted vendors where the company
provides some discount over quantity. This is the strategy to sell more products at a time.
Sometimes the company make an agreement with the vendor that the company will provide
discount over the price if the vendor buys product at mass scale. This will help both the
parties to get more benefits over the products[ CITATION Min18 \l 16393 ].

Safety and to protect against the stock- outs: the company makes a policy on the safety
stocks as well as the stock outs. In the case of delayed delivery or sometimes the process of
manufacturing of the product get struck. Therefore, the company can supply the products by
these safety stocks. It helps to fulfil the demands of the consumers. The company does not
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allow falling of the stocks. The company’s policies are to supply the products from the stocks
and fill the new products in the stocks.

2.7 Material Handling:

Material handling can be understood as a movement, protection and storage of the products
or the goods of the company and controls the material from manufacturing to warehousing to
the distribution of the products. The two important guiding principles of the handling material
are:

1. Eliminate unnecessary handling: it is important to handle the dairy products very

carefully. As the raw materials should be free from the sediments and should be low
in bacterial numbers. Fonterra does not allow the workers to take the final products
and make a stock at the company. It will take extra handling as this will take
additional cost too. Company has made a plan where to keep all the stocks and how to
handle the product. By following the plan, company can eliminate the unnecessary
handling of the products as optimization of the space can help the company from
unnecessary handling. Company already have a flow chart by that the employees will
work.
2. Using right equipment and damage protection: the company makes the guidelines
how to handle the products, which all the employees have to follow. By this company
can ensure that the products are safe. Apart from that, the equipment should be clean
by which the products are handled. By the use of right equipment, the movement of
the products will become easy. As well as to reduce the damage of the product, it is
necessary to check the equipment of regular basis. Fonterra always monitor the health
of the equipments in order to use right equipment.
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Conclusion:

Based on the report of the project it could be understand that the company should do the
capacity management in order to know how much products can be placed in the company and
how well it can be utilised.

Apart from that it is also be understood that the company plant layout is also important to
reduce the handling of the product, which will help the company to generate efficiency and
speed in process of the product.

On the other hand it can be understood that the supply chain of the manufacturing company is
the backbone. It shows how much amount of work is needed in every part of the supply
chain. And after how many stages the company is getting the product.
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