AMRI700 - Profit Improvement via Resource Integration Techniques

This project examines how Fonterra, a major dairy cooperative, can improve its profitability through resource integration techniques. It addresses the company's recent financial losses and explores solutions using scheduling techniques, economic order quantity models, and the Vogel approximation method to optimize production, minimize costs, and improve supply chain efficiency. The report also considers economic alternatives such as establishing cooperative goals and improving productivity, along with the importance of ergonomic principles in enhancing worker satisfaction and productivity. The ultimate goal is to provide actionable strategies for Fonterra to increase profits, improve shareholder value, and maintain its competitive position in the dairy industry. Desklib provides students access to similar solved assignments and past papers.

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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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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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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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;
AMRI700 Group Project (Assessment Three)