Operation Management for NWF Agriculture

Topics: Supply and demand, Process management, Capacity utilization Pages: 17 (4293 words) Published: July 8, 2014
NWF Agriculture in Brief
NWF Agriculture (abbreviated NWFA hereinafter) started life in 1871 as a farmer owned trading company and now forms part of the AIM market quoted NWF Group plc. Covering the major dairy farming areas from Central Scotland all the way down the UK to Cornwall, NWFA’s main business is the manufacture and supply of ruminant compound feeds and blends, supported by a comprehensive Trading Desk supplying a range of straights and specialty feeds, forage seeds and additives. It is the No. 2 producer of ruminant animal feed in the UK, with 4,000 customers and an annual sale of 481,000 tonnes. It has four locations across UK, Ayr, Penrith, Wardle and Wixland. Among them, Ayr and Penrith have blending sheds, which means they are only able to mix ingredients. Whereas Wardle and Wixland are mills, which means they are not only able to blend, but also able to produce more complex compounds according to customers’ orders.

NWFA sees BOCM Pauls, “the total feed business”, as its biggest competitor within its production range. As observed from its revenue and operating profit in recent five years from 2008 to 2013, it is noticeable that NWFA is a small-medium sized enterprise with growth momentum and an average profit margin as low as 3%. NWFA is developing yet very much financially restricted due to its low profit margin. Therefore, rapid and massive expansion is impossible for NWFA in a short period of time.

Chart NWFA revenue & operating profit in million pounds, 2008-2013. The NWF Group plc. Annual Report 2009-2013.

The New Mill Deal
Very recently on 14 December 2013, NWFA has just completed an acquisition of a feed mill (referred as Mill A hereinafter) in Cheshire. The acquisition of Mill A serves multi-fold purposes. One is to reduce the ever-increasing competitors in Cheshire region. The other is to increase the capacity to serve the market in Scotland. Questions being asked could be why not simple buy a mill in Scotland. The answer is there is NO suitable feed mill in Scotland. Scotland is an underserved market with growing demand on animal feeds. Through the operation of the blend shed in Ayr, NWFA has noticed this, and probably so have the competitors. What NWFA has to do is to increase its capacity to serve that market as soon as possible. For a small-medium size company with limited cash flow, the most practical move it can take is to buy an existing factory and move it over to Scotland instead of building a Greenfield factory. Besides, it is quicker to move than to build one. NWFA has to beat it before the competitors, BOCM specifically, to seize the market. This also explains why NWFA for now just wants to move the original mill over instead of making use of this opportunity to optimise the acquired mill, which is small and not designed ideally from the process perspective. Moreover, the moving of Mill A can be totally outsourced at a reasonable cost without distracting the current operation of business.

Now that moving Mill A (just moving, no optimisation) is justifiable, the next question is how to maintain the stability of supply to the market during the time when Mill A is off and being moved. Mill Wardle in Cheshire is presented a manifold challenge at one time – to maintain the ability to supply the original customers in Cheshire, to serve (or to decide not to serve) the newly-gained customers due to the acquisition of Mill A, and to increase its market share in Scotland which could be seized as long as NWFA could supply due to the low level of competition in Scotland at the moment.

This challenge translated into the questions for operation to answer would be: 1) What are possible demands to produce?
2) How to produce against the demands?
3) Is the current capacity enough to meet all the demands?
4) If not, how to re-configure the process to maximize the capacity?

Examine the Alignment among Operation, Strategy and Trend
Is the acquisition and the plan of moving...

References: Brown S., Blackmon K., Cousins P.and Maylor H., 2001. Operations Management: Policy, Practice and Performance Improvement. P. 183, 184. Butterworth-Heinemann
Department for Environment Food and Rural Affairs. Animal Feed Statistics for Great Britain - September 2013. p.9, Table 7
Rosentrater, K.A. August 2004. Design Considerations for the Construction and Operation of Feed Milling Facilities. Part II: Process Engineering Considerations.p 14-16. Figure 1, 2, 5.
NWF Agriculture Website. COMPANY INFORMATION. 2013. accessed 15 Dec 2013.
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