Operations Management: Inner-City Case Study

This case study explores the challenges faced by Inner-City, a small company in the wall paint manufacturing industry. It discusses the company's operations, financial performance, and competitive forces, and provides recommendations for improvement.

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APPLIED OPERATIONS MANAGEMENT
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Executive summary
Inner-City manufactures wall paints for the small to medium market size decorating
companies. The company manufactures both flat white and colored paints. The type of paint
manufactured depends on customer specifications. Over the years Inner-City has experienced
financial difficulty due to an economic slowdown in the country. Prior to the slowdown, Inner-
City had the reputation of fast services in terms of delivery to the customers. However, with the
suppliers of raw materials demanding cash on delivery, the company has failed to uphold
reputation.
Inner-City has implemented the strategy of manufacturing in low volumes for the small
and medium-sized markets. The approach has enables the company to satisfy customers even
without the luxury of the vast resources usually available to large companies. Additionally,
Inner-City also ensures fast delivery an act that has cultivated trust and loyalty among the
customers. The use of the two strategies has enabled Inner-City to grow in sales from $60,000 to
$1,800,000 with 38 employees.
However, Inner-City experiences various problems that affect operations, customer
relations and financial performance. The problems faced at the company include poor
management where the owner does all managerial duties and fails the delegate. The sole
management results in delays and traditional methods of business such as manual handling of
mails. Additionally, the plant’s manager lacks experience in manufacturing, which causes
problems in decision making. The other problem includes employees having no union and lack
the skills to perform duties professionally. Therefore, the business faces failure due to poor

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execution of the strategy. Furthermore, the business faces financial challenges such as tax debts,
unaudited financial reports and little net profit due to high expenses. Consequently, the
customers have lacked confidence in the company’s going concern.
Introduction
Inner-city is a small company that manufactures wall paint to supply to the medium sized
market. The company has operated for several years since the beginning of operations in
rundown site in Chicago. The products include flat white and coloured paints made from various
components such as titanium oxide. Inner-city has managed to increase from a two people
company with 60,000 dollars in sales to a 1.8 million dollars company. Therefore, Inner-city has
managed to manufacture and sell paint efficiently and effectively.
Inner-city has a facility that measures 16,400 square feet where all operations take place.
The building is favourable due to low rent charges. However, the site is in a poor condition and
does not portray Inner-city’s image as a financially stable medium sized paint factory. On the
other, hand Walsh the owner has failed to improve management standards. Walsh still handles
mails manually and does all decision making and sales activities. Additionally, the company has
employed an inexperienced.
Walsh intends to undertake various efforts to affirm the company’s going concern. The
actions include such as engaging consultants to offer managerial advice on the problems facing
the company. The consultant should also give solutions to the problems to ensure that Inner-city
does not fail. The company aims at improving market image since customers currently perceive
that the business is not a going concern.

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Financial analysis of Inner-city
Various financial ratios aid in establishing Inner-city’s performance. One of the financial
ratios includes the profit margin. The formulae for calculating the profit margin is 1-
(Expenses/Net sales). Therefore, to calculate the profit margin for inner formulae we take the
expenses and net sales (Giordani, 2014).
1- (337,740/ 1,784,080) = 0.81
0.81 = 81%
Therefore, the company was able to make 81 cents from every dollar worth of sales. The
ratio indicates that Inner-City has the ability to make much profits from the sale of paints by
reducing the expenses (Giordani, 2014).
The current ratio:
Current assets/current liabilities
262,515/285,030 = 0.92
The 0.92 ratio indicates that Inner-City does not have enough current assets to pay liabilities
(Orton, 2015).
(Appendix 1 has a statement of financial position and an income statement with more
information about the amounts of revenue, assets and liabilities.)
Resource availability
Inner-City has equipment for mixing paints, which include three large mixers and two
small mixers. The large mixers produce 400 gallons while the small mixers produce 100 gallons
per batch. The mixers enable the company to meet demand by producing batches of paint.
However, the company lacks human resources with expertise in factory operations. The company

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is solely run by the owner who has not shifted from traditional managerial approaches. The
managerial deficiencies have caused a failure in company operations (Arditti, 2015).
The SIPOC tool analysis
The SIPOC tool will assist in determining Inner-city’s performance in various aspects of
operations. The tool includes aspects such as suppliers, inputs, processes, outputs and customers
(Bish, 2012). The tool emphasizes that each of the aspects require satisfaction for effective and
efficient operations of the company.
The suppliers refer to persons who deliver raw materials to the company for
manufacturing. The suppliers play an important role in ensuring that the production process does
not stall due to shortages (Bettis, 2014). Additionally, the suppliers assist in reducing the price of
products by delivering raw materials at low prices. However, Inner-city’s suppliers have caused
trouble to the company’s strategy of delivering fast by asking for payment on delivery. The move
by suppliers has resulted in customers failing to trust the company due to the inability to supply
fast.
Additionally, the tool also emphasizes on inputs, which the company converts to realize
finished goods (Irani, 2014). The inputs at Inner-City include equipment such as three large
mixers and two smaller mixers. The large mixers can produce 400 gallons while the small mixers
can produce 100 gallons. The chemicals used in making paint include titanium dioxide, colors
and other silicates.
The other aspect includes processes followed during the manufacture of the paint. Inner-
City upholds quality standards when making paint to ensure customer satisfaction. The processes
of making paint include mixing titanium dioxide and silicates with water for flat white paints

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while colored paints require the addition of pigments. The company has a testing department that
ensures that the paints meet the required quality standards.
Inner-City should consider the outputs from the manufacturing processes. The output
stage refers to the final product and distribution methods (Powell, 2014). Inner-City has
established fast delivery of outputs to the customers. However, the warehouse management
suffers deficiencies due to the use of mental count instead of proper records of inventory
movement. The mental count has a susceptibility to error and memory loss resulting in wrong
records.
The final aspect includes customers who procure the products (Pricop, 2012). The
company has a clientele made up of small and medium-sized designers. The company satisfies
customers by delivering products fast without delay. However, the customer perspective has
changed lately due to rumours that the company suffers from financial problems and tax debts.
Additionally, the customers find the company’s management disorganized without the ability to
keep the company as a going concern.
Competitive forces
The company faces competition from huge companies with adequate resources to
produce cheaply and engage in better marketing activities (Gunasekaran, 2014). Inner-City has
suffered from the existence of big companies by losing customers with big orders. The
competitors also have the financial power to hire consultants and proper management for
increased performance. Therefore, Inner-City cannot imitate or keep up with the competition in
the market.
Production strategy

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The production strategy is satisfactory due to the ability to deliver fast to customers
(Smilowitz, 2013). Additionally, the strategy results in high-revenues for the company and the
constant increase in sales. However, poor management, negative publicity and competitor actions
have rendered the strategies ineffective.
Recommendations
Inner-City should engage the services of an auditor to give an opinion on the financial
statements and whether the business is a going concern. The company should ensure that the
auditor’s opinion reaches the public to end the negative rumours that the business is not a going
concern. Additionally, the business should employ qualified managers to introduce modern
management techniques such as digitizing the operations. Digitization of the operations will
assist in eliminating manual operations and increase the amount of output.
Additionally, Inner-City should implement a marketing campaign that focusses on
creating product awareness and creating a positive reputation. The creation of awareness should
emphasize on informing the customers about product existence, use and price. The information
will help the customers have a better understanding of the type of paint produced, the places to
buy and the exact prices. Therefore, the customers will have increased confidence towards the
product, which results in more orders.
Conclusion
The application of strategic solutions such as positive marketing, hiring experienced staff
and digitizing operation could solve Inner-City’s problems. The company will have the
opportunity to regain customer confidence and operate into the long-term. Therefore, Walsh

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should engage consultants to assist in from traditional operations to modern and digital
operations.
References
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doi: 10.1080/02684527.2015.1034471
Bettis, R., Gambardella, A., Helfat, C., & Mitchell, W. (2014). Theory in Strategic
Management. Strategic Management Journal, 35(10), 1411-1413. doi: 10.1002/smj.2308
Bish, E., Zeng, X., Liu, J., & Bish, D. (2012). Comparative Statics Analysis of Multiproduct
Newsvendor Networks Under Responsive Pricing. Operations Research, 60(5), 1111-1124. doi:
10.1287/opre.1120.1097
Giordani, P., Jacobson, T., Schedvin, E., & Villani, M. (2014). Taking the Twists into Account:
Predicting Firm Bankruptcy Risk with Splines of Financial Ratios. Journal of Financial and
Quantitative Analysis, 49(04), 1071-1099. doi: 10.1017/s0022109014000623
Gunasekaran, A., & Irani, Z. (2014). Sustainable Operations Management: Design, Modelling and
Analysis. Journal of Operational Research Society, 65(6), 801-805. doi: 10.1057/jors.2014.26

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Irani, Z., & Papadopoulos, T. (2014). Modelling and Analysis of Sustainable Operations
Management: Certain Investigations for Research and Applications. Journal of Operational
Research Society, 65(6), 806-823. doi: 10.1057/jors.2013.171
Orton, P., Ansell, J., & Andreeva, G. (2015). Exploring the Performance of Small- and Medium-
Sized Enterprises Through the Credit Crunch. Journal of Operational Research Society, 66(4),
657-663. doi: 10.1057/jors.2014.34
Powell, T. (2014). Strategic Management and the Person. Strategic Organization, 12(3), 200-207.
doi: 10.1177/1476127014544093
Pricop, O. (2012). Critical Aspects in the Strategic Management Theory. Procedia - Social and
Behavioral Sciences, 58, 98-107. doi: 10.1016/j.sbspro.2012.09.983
Smilowitz, K., Nowak, M., & Jiang, T. (2013). Workforce Management in Periodic Delivery
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Appendix
Appendix 1

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