Implementation of Resource Integration Techniques to Increase Profits

This report discusses the problem facing Fonterra co-operative group limited and how they can increase their profits by implementing resource integration techniques. The report identifies economic alternatives and analyzes their applications. The report also discusses the scheduling technique, economic order quantity, and Vogel approximation method. Ergonomic considerations are also discussed. The report is for the AMRI700 Resource Integration Management course.

Running head: IMPLEMENTATION OF RESOURCE INTEGRATION TECHNIQUES TO
INCREASE PROFITS 1
Implementation of Resource Integration
Techniques to Increase Profits
Course: AMRI700 Resource Integration Management
Assessment Three: Group Project
Instructor’s Name: Imran Ishrat
Industry: food industry
Organization: Fonterra co-operative group limited
S. No. Student Name ID Technique Used
S1
S2
S3
S4
Table of Contents

IMPLEMENTATION OF RESOURCE INTEGRATION TECHNIQUES TO INCREASE PROFITS
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Research Question (RQ)............................................................................................................3
Problem Discussion....................................................................................................................3
Main Research Question:....................................................................................................3
(S1) Sub-research question 1:.............................................................................................4
(S2) Sub-research question 2..............................................................................................4
(S3) Sub-research question 3:.................................................................................................4
Executive Summary...................................................................................................................5
Introduction................................................................................................................................6
Industry Background:.............................................................................................................6
Organizational Background:...................................................................................................7
Economic Alternatives...............................................................................................................9
Application of Resource Integration Technique (S1)..............................................................11
Scheduling technique............................................................................................................11
Analysis of Results, Limitations, and Recommendations........................................................14
Application of Resource Integration Technique (S2)..............................................................16
Economic order quantity......................................................................................................16
Analysis of Results, Limitation, and Recommendations.........................................................19
Application of Resource Integration Technique (S3)..............................................................21
Vogel approximation method...............................................................................................21
Analysis of Results, Limitation, and Recommendations.........................................................27
Reflection on Other Techniques...............................................................................................29
Goal programming............................................................................................................29
Linear programming.........................................................................................................29
Engineering economics.....................................................................................................29
Ergonomic Considerations.......................................................................................................31
Conclusion................................................................................................................................34
References................................................................................................................................36
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Research Question (RQ)
Problem Discussion:
Fonterra company was formed after a merger of two companies that is, New Zealand dairy
group and kiwi co-operative diaries in 2001. According to previous research done, it is the
country’s largest dairy cooperative yet it has failed to deliver the expected meaningful returns
over and above the cost of capital since inception. For the past 15 years, milk growth has not
been fairing on well. This has been an issue of discussion for some time now.
The increased competition in New Zealand necessitates Fonterra company to do better in
earning the trust of the framers to increase their returns. The board, the management, and the
shareholders had discussed the company's progress. The discussion majorly focused on what
could be done to increase the company's returns to meet the cost of investing in Fonterra
(Welsh, and Marshall, 2017).
Another issue of discussion was Fonterra’s executive director miles, Hurrell. He is being paid
than his predecessor. The previous chief executive earned $8 million in 2017 and $3.5 in
2018. He left the company in September. For the very first time, the company posted a net
loss of $196 million. This was recorded as the company's first loss. Mr miles talked to the
shareholders and informed that his primary aim was not to produce as much milk but to turn
around the financial performance of the company (Stringer, Tamásy, Heron, and Gray, 2008).
Main Research Question:
According to the problem discussion, the main research question is; how can Fonterra
company increase their profits by implementing the resource integration techniques?
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(S1) Sub-research question 1:
How can Fonterra increase their productivity by making changes in their production line?
This question can be answered through the use of the production scheduling technique that is
the master production schedule.
(S2) Sub-research question 2:
How can Fonterra optimize their order quantity and minimize annual holding cost for plastic
bottles? The problem can be solved by the use of the Economic order quantity model.
(S3) Sub-research question 3:
How can Fonterra solve the transportation problem by the optimal timing of supply and demand? The
problem is to determine how many units of milk to transport from the manufacturing plant to
each distribution unit to minimize transportation cost? (transportation problem/Vogel
approximation method)
End of Section
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Executive Summary
The report is an in-depth discussion of the major problem facing the Fonterra cooperative
group limited. The organization is based in New Zealand and is currently among the biggest
dairy companies in the world. Its market is broad since it also supplies products to export
markets (Gray, and Le Heron, 2010). In the last financial year, Fonterra company recorded its
first loss which amounted to $196 million. The loss raised the alarm in the organization and
concerns about management were pointed out. It, therefore, led to the appointment of a new
chief executive Mr miles Hurrell. The loss in the organization led to the research question
which is how Fonterra can increase profits through implementation of the resource
integration techniques. The report also identifies the economic alternatives that would lead to
increased productivity in the organization and thereafter increased profits. The economic
alternatives include; establishment of cooperative goals, improving the productivity of the
current structure/ system and the last one is the establishment of common performance
measurement criteria. The alternatives are further discussed and their applications analyzed in
the report. Besides, the report gives an analysis of the different resource integration
techniques and their application. The techniques used in this case are; the scheduling
technique, the economic order quantity, and Vogel approximation method. Other techniques
include linear programming, goal programming, and engineering economics. Productivity can
only be increased when the workers are satisfied comfortable and happy. Application of the
ergonomic principles is an essential measure towards increasing the productivity of the
organization. Increased productivity will also enhance competitive advantage in the market.
When the workplace is suitable and appropriate for the workers, they can deliver quality and
an increased amount of work than when they are fatigued.
End of Section
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Introduction
Industry Background:
Milk business is quite a big business in New Zealand, and it makes up the most significant
export earner for the country with Fonterra company being responsible for about 30% of all
the dairy export in the world.
Dairy farming started from small beginnings after the colonization by the Europeans. It has
now grown to be among the significant part of New Zealand economy. In 2010, NZ$11
billion was recorded from the dairy farming industry (Bansal, and Chen, 2006).
New Zealand is the eight largest milk producers in the world. The total milk production from
New Zealand is about 2.2% of the worlds total milk production. Fonterra company is the
largest milk processor company in the country producing about 98% of all milk solids. Other
competing companies include tatua cooperative, Westland milk products and synlait (Jay,
2007).
Focusing on Fonterra co-operative, the company has been facing competition from dairy
companies. The competition has led to Fonterra making a considerable loss in last year
financial year. The loss has led to very many questions among the shareholders. They have
started to question the management of the company. This has further led to the stepping down
of the interim chief executive at Fonterra Mr. Theo Spiering’s, and he was replaced by Mr
miles Hurrell who was the chief operating officer at the company.
Fonterra’s loss is affecting the whole industry in that the milk processing and exports has
reduced drastically. The company’s loss has been an industrial loss; therefore, its immediate
restoration will have a significant impact on the total performance of the industry (Jay, and
Morad, 2007). The company, therefore, has decided to change the management by first
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IMPLEMENTATION OF RESOURCE INTEGRATION TECHNIQUES TO INCREASE PROFITS
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changing the chief executive. The chairman further argues that they would have asked the
CEO to step down too, but they could not have two managerial positions changing at the
same time. This would have a negative impact on the business
Organizational Background:
For some time now, milk production and milk processing have been reducing for Fonterra
cooperative limited. The company has made its most significant loss of $196 million last
year. This has also reduced the total returns of the company. The result makes the company
shares lose value. The company's shareholders tend to complain that they have lost money
rather than making money this year. Their significant interest is in the management of the
business.
Mr miles Hurrell was appointed chief executive after Theo exited the company. At this point,
the company had made its most significant loss and therefore needed a change in the
management. The changes made were to ensure that the company's management will lead it
towards generating profits rather than making losses. Mr miles was the chief operating officer
in the company for the past 18 years. Therefore, his experience in the dairy business fits his
current position.
Appointment of the new company chief executive aims at improving the current status of the
company. At a shareholders meeting Mr miles Hurrell told the shareholders that his primary
aim is to turn around the financial performance of the company and not to increase milk
production. He intends to make more money and reduce the losses.
The company did not just change the chief executive; they decide that he will earn much less
than his predecessor Mr. Theo Spiering’s. The company’s chairman decides that Mr miles
starting salary will be substantially less than that of their He argues that this is fair according
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IMPLEMENTATION OF RESOURCE INTEGRATION TECHNIQUES TO INCREASE PROFITS
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to what the company is experiencing at the moment. The chairman further said that this was
the right for Mr. Spiering’s to step down but he would work together with Mr. Hurrell to
walk him over the leadership.
The company is further looking into resource integration techniques that they would
implement to increase the profits of the company. This would make sure that the company
maintains its shareholders by increasing the value of their shares and increase trust in their
customers that they can make deliveries to them (Pawson, and Perkins, 2017).
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End of Section
Economic Alternatives
One way of making sure that a strategy works to the best interest of the company is the
development of strategies that turn components of the goal into methods. Building up a goal
of becoming a method ensures that the chances of a strategy failing are less than they were
there before (Albo, 2013). For example, in a nonviolence situation, the approach of making a
goal the strategy, the strategy is to solve conflicts n a society using nonviolent means. To
achieve the goal, a nonviolent method has to be implemented which will help overcome the
reliance of violent methods. In coming up with the nonviolence strategy which has to be
against capitalism, the process of turning goals to methods means that there has to be a
nonviolent economic alternative put in place. The method is highly effective.
A significant economic alternative is the promotion of cooperatives. In New Zealand, milk
cooperatives have been a significant contribution to the economic progress f the country.
Cooperatives usually have the workers and the users in control rather than their bosses. This
will ensure that the decisions made are to the best interest of the company. Cooperatives tend
to have shareholders contributing to the running of the company. Fonterra co-operative group
limited is itself a cooperative. Therefore, they only need to establish the strategic goals of a
cooperative.
Another important economic alternative is improving the productivity of the current structure
or entirely establishing a new system. Following the principles in action, a company might
want to entirely change how they do things and see if this would bring better results as
opposed to the previous results (Hubka, 2015). The company has to analyze how the cost
related to the changes made will affect performance.
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The next economic alternative is the development of standard performance measurement
criteria, establishing an evaluation criterion and consideration of all the monetary and non-
monetary criteria. This would ensure that all the workers are working towards the success of
the organization which is what we nee at the moment. The performance measurements will
determine which employees should be let go and which should be promoted (Katsamunska,
2012). All this in the name of improving the business’s financial performance.
End of Section
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Application of Resource Integration Technique (S1)
Scheduling technique
In this case study, we shall apply the resource integration technique in improving their
productivity by making changes in the production line in Fonterra co-operative group limited.
In this case, we shall reduce the idle time of the machines in the company. By using this
method, we shall increase the profits of the company by reduction of the production times of
the machines through the optimization of the available resources. In the production of goods
at Fonterra company, various machines are suitable for the production of specific goods.
Therefore, the scheduling/ the sequencing technique is used in the arrangement of different
machines to fit the particular jobs to use the available time in completion of all the tasks at
the company (Onwubolu, 2002). In this example we shall consider three machines;
 A dairy homogenizer (X)
 Dairy separators (Y)
 Dairy pasteurizers (Z)
The machines are used to make the three different types of dairy products;
 Cream (A)
 Cheese (B)
 Butter (C)
 Yogurt (D)
 Fresh milk (E)
The time used by each machine is assumed in hours. Based on the time taken to process milk
in the company
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IMPLEMENTATION OF RESOURCE INTEGRATION TECHNIQUES TO INCREASE PROFITS
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A B C D E
X 6 13 14 7 12
Y 3 4 4 5 8
Z 8 12 13 10 14
To find the optimum solution using the sequencing method, the method should satisfy each of
the following conditions. The method can either satisfy one or both methods. The first
condition is, the time used in processing for machine X should be at least as great as the time
used by machine Y, that is;
min t1j ≥ max t2j j = 1, 2,.,n
The second condition is that the minimum time used in processing for machine Z should be
as great as the time used in processing for machine Y, i.e.
min t3j ≥ max t2j j = 1, 2,….,n (Herrmann, 2006)
From the above table,
the minimum time on machine X, i.e., 7 hrs. is greater than the maximum time used for
machine Y which is 8 hours so first condition is satisfied
Also, from the table, the minimum time used on machine Y, i.e. 8 hrs. is the same as the
maximum time used for machine Z that is 8 hours and this also satisfies the second condition
Let’s now generate two fictional machines. The first machine we shall add the processing
time used for machine Y and X and the second machine N we shall add the processing times
for machine Y and Z
The following table is developed;
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A B C D E
M 9 17 18 12 20
N 11 16 17 15 22
The sequence obtained from the two fictional machines Mand N is A, D, E, C, B
We now calculate the minimum time elapsed for the first three machines, X, Y and Z
JOBS Machine X Machine Y Machine Z
Time in Timeout Time in Timeout Time in Timeout
A 0 6 6 9 9 17
D 6 13 13 18 18 28
E 13 25 25 33 33 47
C 25 39 39 43 43 56
B 39 52 52 56 56 68
From the table, the total time elapsed from the three machines is 68 hours
The idle time for the different machines can be calculated as follows
X = (56-52) + (68-56) =16 hours
Y=6+(13-9) +(25-18) +(39-33) +(52-43) +(68-56) =44 hours
Z=9+(18-17) +(33-28) +(43-47) +(56-56) =11 hours
End of Sub-Section
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Analysis of Results, Limitations, and Recommendations
A scheduling technique can be applied in Fonterra company to achieve the optimal job
sequence that will result in the highest productivity of the different products from the dairy
company. The sequence will reduce the total time elapsed for the whole production line.
Fonterra can apply this technique in their production line to reduce the total amount of time
used in the production of ice cream, butter, cheese, fresh milk, and yogurt. Use of the
scheduling technique will, therefore, ensure that they have achieved efficiency and
effectiveness in the production of the various goods (Tuncel, and Bayhan, 2007). This
technique aims to reduce the total amount of time elapsed basically.
After application of the scheduling technique in the Fonterra production line, the total time
elapsed and the idle time for all the machines at work is deduced under the optimal condition
as well as the original job done. The total time elapsed is 68 hours through the use of the
optimal sequence while the original sequence total time elapsed is 74 hours.
The idle times for the three machines
Machine X Machine Y Machine 2
Optimal sequence 16 44 11
Original sequence 22 50 17
After making a clear comparison, the total time elapsed using the optimal sequence is
considerably lower than the total time elapsed while using the original sequence. This applies
to the idle time as well.
Limitations
This technique has its limitations one of them is that conditions used are ideal whereas real
conditions such as machine breakdown and labor are not taken into account. Other factors
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such as failure of power are also not considered and reduced performance of the machines.
All these factors can change the total time used by the machines (Dauzère–Pérès, and
Lasserre, 2002).
Recommendations
The above calculation Cleary details that if Fonterra company applies the scheduling
technique in their production line, they will achieve the optimal production capacity. They
can use this method to increase their productivity and in turn, reduce the costs of operating
the machines since the idle time for each machine is reduced. This way the company will
achieve their overall goal which is increasing their profits.
End of Section
AMRI700 Group Project (Assessment Three)

Application of Resource Integration Technique (S2)
Economic order quantity
The primary purpose of this technique is to achieve the optimal quantity to be purchased at
each particular time. The method determines the number of orders to be made to minimize
the cost of holding inventory in a company. Fonterra company wants to determine the orders
that they need to make at each reorder time to minimize the holding cost of bottles. The
overall goal objective is to reduce the total cost of production which in turn will ensure they
have increased their profits.
However, the formula only applies whenever there is a constant demand for raw materials at
each reorder time whenever inventory has elapsed. To determine the total cost of purchase,
storage, and delivery, we first have to determine the required amount of bottles that should be
ordered at a given time. Fonterra's primary aim is to determine how they can optimize their
order quantity that determines the amount to be ordered and minimize the total cost of
inventory, in this case, the holding cost of bottles. The company needs to hold a certain
number of bottles are determined using the formula below.
The economic order quantity can be expressed using the formula,
EOQ= √2*RU*OC/UC*CC%
Whereby is the total number of required units
OC is the ordering cost for one order
UC is the inventory unit cost
CC is the carrying cost which is expressed as a percentage of the unit cost
The formula is based on the following assumptions
AMRI700 Group Project (Assessment Three)

 Price remains to be constant
 Consumption pattern, carrying cost, ordering costs remains constant
 Economic order quantity is determined every time the inventory level is reduced to
zero.
Let’s assume:
The annual consumption of bottles is 80,000 bottles
The cost to place an order is $1200
Cost per bottle is $50
And the carrying cost is 6%
Therefore, applying the formula above
EOQ= √ (2*80000*1200)/ (50*6%)
EOQ=8,000
As mentioned earlier, the formula assumes that there are no changes in the price of goods.
And that the consumption is regular.
Let’s compare different order quantities assuming that the annual consumption remains a
constant. We shall first determine the total cost of the bottles which comprises the carrying
cost and the ordering costs
Total ordering cost
The total cost of ordering is determined by multiplying the total cost per order by the number
of orders. To define the number of orders, we shall divide the annual order requirements by
the order quantity (Taleizadeh, Stojkovska, and Pentico, 2015).
Total carrying cost
AMRI700 Group Project (Assessment Three)

Total cost
Total ordering cost
Total carrying cost
This can be determined by multiplying the average ordering quantity with the total carrying
cost per order. We can calculate the average ordering quantity by dividing the ordering
quantity twice.
We can, therefore, develop the following table.
Order
quantity
Required
bottles
Total
number of
orders
Total
carrying and
ordering cost
cost Total cost
20000 80000 4 4800 30000 34800
10000 80000 8 9600 15000 24600
8000 80000 10 12000 12000 24000
5000 80000 16 19200 7500 26700
4000 80000 20 24000 6000 30000
From the table above, we can develop the EOQ graph. This is also another alternative method
of deriving EOQ. We can use the above information to plot the graph — the point whereby
the total ordering cost intersects with the total carrying cost id the EOQ.
24
12
0 8
End of Sub-Section
AMRI700 Group Project (Assessment Three)

Analysis of Results, Limitation, and Recommendations
From the formula, the economic order quantity can be derived and determined. In this
example, the economic order quantity is 8000. This is the number of bottles that should be
ordered at each reorder point to minimize the total cost of bottles.
From the table, 8000 is the economic order quantity since it is the point whereby the total cost
is minimum. At this point, the total cost of ordering bottles will be equal to the total cost of
carrying. Increasing the order quantity results to a reduced cost of order which increases the
cost of carrying. Reducing the order quantity reduces the carrying cost whereas the ordering
costs increase since more orders will be made.
From the graph, the point where the total carrying cost intersects with the total ordering cost
is the economic order quantity. This point gives the minimum cost of the production of
bottles which is 24000. Another important note from the graph is that a reduced or increased
order quantity increases the total cost which is higher than the economic order quantity
Limitations
The major limitation from the use of this method is that the assumptions may not be very
ideal. The prices of goods keep changing every year due to economic factors. The model
further assumes that the cost of ordering is constant. Another assumption is that the demand
is known throughout the year. It also assumes that the lead time is the same for all periods
and no discounts or cash settlements are available. Also, the model assumes that the optimal
plan is only for a single product, in this case, the bottles. Finally, there is no delay in the
reordering of the stocks (Nia, Far, and Niki, 2014).
AMRI700 Group Project (Assessment Three)

Recommendations
Using the EOQ to determine the number of goods to be ordered at each particular time is
efficient and could help the management at Fonterra company greatly. The technique will
help in reduction of the total cost of goods which is its primary aim. The company wants to
decrease the total amount of money used to maximize the profits.
End of Section
AMRI700 Group Project (Assessment Three)

Application of Resource Integration Technique (S3)
Vogel approximation method
The Vogel approximation method is also known as the transportation algorithm. It’s used to
calculate the route that will lead to the use of the minimum cost of transportation. It is used to
calculate the initial feasible solution for a given transportation problem. It works with the
same concept as the least cost method, but then again VAM is more accurate.
The method follows a series of steps to establish the initial feasible solution. The first step is
to determine the penalty cost for each row and column. The penalty cost is given by the
difference of the least and the next least value in the row or column. After calculation of the
penalty costs, we determine the row or column with the highest penalty cost. This means that
we shall determine the rows or column with the highest difference and break the arbitrary
ties. The next step is to determine the row or column with the least transport cost from the
identified row or column. When it is below the table, make the maximum allotment to the
row or column with the least cost of transportation. The next step is to break the arbitrary tie.
When penalties are the same for two or more rows or columns, choose the row or column
with the least transport cost. Repeat the above steps until all the restrictions are fully satisfied.
Let’s take an example of the following problem in Fonterra co-operative group limited.
Origin 1 2 3 4 5 supply
1 3 8 5 7 6 60
2 5 4 6 4 8 50
3 9 2 8 6 5 50
4 7 4 6 3 5 50
5 6 8 4 5 7 60
AMRI700 Group Project (Assessment Three)

Demand 50 40 60 60 60 270
First, we are going to determine if the problem is feasible by determining if the total supply is
equal to the total demand
Supply=270
Demand =270
Therefore, this problem is feasible
After calculation of the penalties, the following table is developed
Origin 1 2 3 4 5 supply penalties
1 3 8 5 7 6 60 2
2 5 4 6 4 8 50 1
3 9 2 8 6 5 50 3
4 7 4 6 3 5 50 2
5 6 8 4 5 7 60 1
Demand 50 40 60 60 60 270
2 2 1 1 0
After this, we can see that 3 is the most significant difference. Therefore, we identify the
least cost from the third row which is 2, after allocating the demand with the supply, we see
that demand of 40 is satisfied in column 2 and a supply of 10 is still available. we therefore
strict the second column and the following table is generated
Origin 1 3 4 5 supply penalties
AMRI700 Group Project (Assessment Three)

1 3 5 7 6 60 2
2 5 6 4 8 50 1
3 9 8 6 5 10 1
4 7 6 3 5 50 2
5 6 4 5 7 60 1
Demand 50 60 60 60 230
2 1 1 0
We can repeat the procedure from the first table, after getting the penalties, identify the
highest penalty, in this case, it is 2. Using the first row, we can identify the least cost to be 3.
Therefore, we cancel out the demand and supply from the first column and the first row. We
satisfy the demand, but we still have ten available units. Therefore, we cancel out the first
column. The following table is generated
Origin 3 4 5 supply penalties
1 5 7 6 10 1
2 6 4 8 50 2
3 8 6 5 10 1
4 6 3 5 50 2
5 4 5 7 60 1
Demand 60 60 60 180
1 1 0
AMRI700 Group Project (Assessment Three)

We can also determine the penalties from the table. From this table, we can see that row 2
and row 4 have a tie in the penalties. Therefore, we determine the row with the least cost. It is
row 4. From this, we can see that a supply of 50 is satisfied, but a demand of 10 is not.
Therefore, we eliminate row 4. The following table is generated
Origin 3 4 5 supply penalties
1 5 7 6 10 1
2 6 4 8 50 2
3 8 6 5 10 1
5 4 5 7 60 1
Demand 60 10 60 130
1 1 0
From the table, we can also determine the penalties. The highest penalty is seen in row 2.
The least cost from row 2 is 4. It satisfies a demand of 10, and a supply of 40 is not satisfied.
Therefore, we eliminate column 4. The following table is generated
Origin 3 5 supply penalties
1 5 6 10 1
2 6 8 40 2
3 8 5 10 3
5 4 7 60 3
Demand 60 60 120
1 0
We can identify that the most significant penalty is three from row three and five. We,
therefore, determine the least cost from the two which is 4. The cost satisfies a demand of 60
AMRI700 Group Project (Assessment Three)

and a supply of 60 as well. Therefore, we cancel row 5 and column 3. The following table is
generated
Origin 3 supply penalties
1 5 10 5
2 6 40 6
3 8 10 8
Demand 60 60
1
The table has only one column left and three rows. We can still determine the penalties. The
highest penalty is 8. It satisfies a supply of 10, and we are left with a demand of 50.
Therefore, we cancel out row 3. The following table is generated
Origin 3 supply penalties
1 5 10 5
2 6 40 6
Demand 50 50
1
From the table, the highest penalty is 6. The least cost from row 2 satisfies a supply of 40, but
we still have a demand of 10 left. Therefore, we only cancel row 2. The following table is
generated
Origin 3 supply penalties
1 5 10 5
AMRI700 Group Project (Assessment Three)

Demand 10 10
1
From this table, we can identify the highest penalty to be five and the least cost to be five as
well. The cost satisfies the demand and the supply of 10 units.
From the tables we can calculate the initial feasible solution which is given by
(2*40) +(3*50) +(3*50) +(4*10) +(4*60) +(8*10) +(6*40) +(5*10) =1030
End of Sub-Section
Analysis of Results, Limitation, and Recommendations
This method is also referring to as the penalty method because it is it calculates the difference
between the costs and ends up choosing the least costly routes. Calculation using the Vogel
approximation method gives a better solution than the other methods since it gives the route
AMRI700 Group Project (Assessment Three)

that will use the least amount accurately (Kaur, and Kumar, 2012). This, in turn, will reduce
the total cost of production for the company's products which will also ensure increased
profits. The general idea behind reducing the transportation cost is to reduce the total cost of
production (Vogel, 2002). This can be achieved through calculation of the problem using the
Vogel approximation method.
From the transportation problem given above, the least cost result is 1030. The method
eliminates the possible combinations that give the highest penalty. This further means that the
higher the penalty, the higher the transportation cost. We, therefore, need to choose the
combination with the least difference making this the least cost of transportation (Campi, and
Garatti, 2011). Reducing the cost of transportation reduces the cost of goods which acts to the
advantage of the frim in that they will be able to maximize their profits.
The problem above contains combinations that would result in different differences between
the columns and the rows. Fonterra primary aim at the moment is to maximize their returns to
recover the losses made, use of the Vogel approximation method will be an added advantage
towards this. The reduced amount of transportation cost will ensure that the company realizes
its profits in higher amounts.
Limitations
One of the significant limitations is that the method does not take into account the cost of
shipping. Furthermore, the initial solution generated by use of this method needs further
improvement (Luedtke, and Ahmed, 2008).
Recommendations
A recommendation towards increasing the profits is to ensure that the Vogel method is
applied in solving all transportation problems in Fonterra. They will realize higher returns by
AMRI700 Group Project (Assessment Three)

use of the Vogel approximation method when they have identified the least costly route to
satisfy all their demands using the available supplies.
End of Section
AMRI700 Group Project (Assessment Three)

Reflection on Other Techniques
Goal programming
The technique usually has more than one goal. Its primary goal though is to minimize the
deviational variables between the different set goals in an organization which is efficient in
solving decision problems in a firm which could have multiple goals. The technique has a
similarity to the linear programming the only difference is that linear programming has an
ingle objective whereas goal programming involves multiple objectives. To use this
technique, the basic idea is to minimize the total objectives and at the same time minimizing
the devastation for the respective goals (Jadidi, Cavalieri, and Zolfaghari, 2015).
Linear programming
The basic idea in using linear programming is to analyses the production schedules and
ensure that it aligns with the budgets set and the available amount of resources, as well as
time factor, is put into consideration. The technique is used to determine the total amount of
products that should be purchased, in this case, the raw materials that need to be purchased.
The amount of inventory to be held at each particular time to ensure that the company's
operations are running smoothly. The amounts of each product to be produced. The technique
is widely used by managers in an organization to plan and make possible decisions with
regards to the available resources. The process seeks to minimize the cost of operations and
increase the profits which are the primary aim of establishing a business, that is making
profits. The idea in linear programming is to maximize or minimize the quantity; this is the
objective function which is subject to the limited resources which are also known as the
constraints (Campi, Garatti, 2011).
Engineering economics
This technique is usually used to determine the time value for money, the amount of cash
estimated to be used and the selected measure of worth. The method is calculated whereby
AMRI700 Group Project (Assessment Three)

the present and the future values that are invested in a company for purchasing the different
machines and process in the firm. After calculation, the expected result gives an economic
comparison of the most favorable production line to invest in. Furthermore, the technique
uses cash flows from the different operations to make the decisions. In making the decisions,
analysis on the cash flows is done. This is important since conclusions can be made based on
the technical details of the operations (Brown, 2016).
End of Section
AMRI700 Group Project (Assessment Three)

Ergonomic Considerations
Ergonomics can merely be defined as the science of the workplace of course identifying the
limitations and capabilities of the workers. Having poorly designed workplaces will lead to
reduced work performance which in the same way reduces the number of end products.
Fatigued and hurting employees cannot be able to deliver the same amount of work as
satisfied and happy employees. To make a worker more productive, the ergonomics
principles have to apply. Seeing an organizations workplace from an ergonomic view ensures
that the possible risks of injuries and disorders are avoided.
To increase productivity in Fonterra company, the management needs to see the ergonomic
principles from an ergo eye. This will ensure that the workplace design accommodates and
serves the employees right to make the highest amounts of products per day. Eight
fundamental principles will ensure safety records are maintained.
Principle number one is to maintain the neutral posture. The posture is whereby the body is
aligned and balanced whether standing or sitting. The posture aims at placing minimal stress
on the body and keeping the joints aligned. The posture further reduces the stress on the
tendons, bones, muscles, and nerves, therefore, allowing for maximum control of the body.
This ensures that the employees will be relaxed at all times and they can handle their tasks
accordingly.
The second principle is working in one's comfort zone. In other words, working in power.
There is a similarity with the neutral posture but its more expounded. The power zone is the
point where the arm and the back can lift most weight using the least amount of energy. The
principle further states that minimizing the excessive reach you will maintain a neutral
posture and further working in your comfort zone.
AMRI700 Group Project (Assessment Three)

The third principle is allowing movements and stretching. The skeleton and muscle
combination are designed for body movements. This means that working for long periods of
time while in the same position will cause the body to be fatigued and therefore reducing its
productivity. The position is also known as the static load. Examples of such position are
standing for 8 hours, raising your arm above the head for 30 mins among others. After
finishing tasks that causes static load, one should stretch their back, hands, and legs to reduce
the fatigue. It will also increase the muscle balance and improve the coordination of muscles.
Periodic stretch breaks help reduce the fatigue after a long workday. It will allow blood to
circulate the body and therefore restore energy within the system.
The fourth principle is reducing excessive force. Excess force is a major ergonomic risk
factor. Most of the works done require high forces on the human body. The muscle efforts
further increase from the increase in the amount of force required. This will result in
increased fatigue among the workers, and the risk of MSD is increased. To reduce the
excessive force, on needs to identify ways that would reduce the force. This will, in turn,
reduce fatigue among the employees. Some ways that would reduce the force requirements
include; increasing the height of tables and other workstations, using mechanical assistance
when possible, use of powered equipment and counterbalance systems among others (Taylor,
and Hopkin, 1975).
Reducing excessive motion is the fifth principle. Fatigue can also be caused by repetitive
motion. Many tasks performed by different workers are repetitive which means that the same
force is exerted on the same body part repetitively. The will cause fatigue. Repetition of the
same motion should be reduced or avoided if possible. Some of the control methods in a
workplace are of rotation, stretch breaks, and job enlargement.
AMRI700 Group Project (Assessment Three)

Minimization of contact stress is another important principle. Contact stress can be developed
by continuous rubbing or contact between sharp or hard objects with a sensitive body part.
The continuous contact creates a localized pressure to the part of the body which may inhibit
blood movements, movement of tendons and muscles and normal nerve functioning
(Attaianese, and Duca, 2012). Reducing activities that will cause increase contact stress will
ensure productivity.
The seventh principle is a reduction of excessive vibration. Research shows that exposure to
vibration can cause adverse health effects vibration can cause pain, numbness and turn pale.
It also affects the circulatory and the nervous system, therefore, reducing productivity.
The last principle is the provision of adequate lighting. Light is an essential element is a
workplace. Workers should have enough light which is not too bright or too dim to do their
jobs. To reduce the lighting problems, adjustable lighting should be maintained on
workplaces. This will ensure the workers are comfortable enough when carrying out the
different tasks assigned to them.
End of Section
AMRI700 Group Project (Assessment Three)

Conclusion
In conclusion, Fonterra co-operative group limited is currently facing a problem. The
organization has faced a considerable amount of loss for the past one year which raises the
alarm. It is recorded to be among the largest dairy cooperative serving in New Zealand and
other export markets. Therefore, its contribution to the economy is highly noticeable. There
are other upcoming dairy cooperatives which are competing with Fonterra towards having a
more significant market share.
Therefore, Fonterra is seeking to establish ways in which they would increase their profits
through implementation of the various resource integration techniques. Some of the major
techniques include the scheduling technique. The technique aims at establishing the
production schedules for the company to maximize the returns, reduce wastes and save on
time. Another important technique that Fonterra should uphold is the economic order
quantity. The use of this technique ensures that there are reduced holding costs through
optimization of the order quantity. Maintain a given number of products and determination of
the reorder level at reduced costs ensures that the company reduces the total cost of
production and at the same time reducing annual holding costs. Another important technique
that Fonterra needs to take up is the Vogel approximation method. The method helps solve
transportation problems through determination of the optimal timing of supply and demand.
Furthermore, the report analyses the different ergonomic principles that will ensure increased
productivity in the workplace. The ergonomic principles are a dull day to day activities that
would help identify the risk factors in a workplace. The risk can further be measured and the
different ways to reduce the risks identified. Reduction of the ergonomic risk factors acts as a
significant way of increasing the productivity in an organization. The more fatigued the
workers are, the less productive they will be. Therefore, to increase the worker's productivity,
AMRI700 Group Project (Assessment Three)

the risk factors have to be identified and reduced accordingly.
End of Section
AMRI700 Group Project (Assessment Three)

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End of Section
END OF REPORT
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AMRI700 Group Project (Assessment Three)

AMRI700 Group Project (Assessment Three)

AMRI700 Group Project (Assessment Three)