Welcome to Pearson's On Location video series to accompany Operations Management and Principles of Operations Management. I'm Jay Heiser. And I'm Barry Render.
Authors of your textbook. In this video, we'll give you an overview of the 10 decisions of operations management presented in your text as they relate to a company you're probably well acquainted with, Frito-Lay. Frito-Lay is an international company and a subsidiary of PepsiCo. throughout the world. As a leading manufacturer, management at Frito-Lay faces all 10 of the major operations management decisions which include design of goods and services, quality, process strategy, location, layout, human resources, supply chain management, inventory, scheduling, and maintenance.
Let's take a quick look at these 10 decisions at Frito-Lay. Frito-Lay is a multi-billion dollar snack producer, the world's largest, with over 40 different product lines, including 7 with sales of over a billion dollars each. Cheetos, Lay's, Ruffles, Fritos, Tostitos, Doritos, and Walker's Potato Crisps.
New products regularly are introduced, such as the flat-earth brand of fruit and vegetable snacks, pretzels, and non-salty snacks such as cookies. Frito-Lay is constantly innovating by adding new product lines and changing existing ones to meet market needs. Companies that don't consistently innovate with new products cannot be leaders in their industry.
The company uses extensive inspections of all raw materials such as corn, cornmeal, potatoes, oil, and seasoning. Samples are taken even before raw materials are unloaded. Additional inspection points include washing and peeling, sizing of grain, frying, seasoning, bag weighting, carton counting, bag sealing, and random sampling in the warehouse and on the store shelf.
The quality focus team of the plant meets weekly. They have consistently scored well above the passing mark on the American Institute of Baking's unannounced semi-annual inspection visits. Every employee in the plant is well aware of the score, which is prominently displayed. The company uses statistical process control to help with their efforts. The production process Frito-Lay follows is a product-focused strategy.
A product-focused strategy builds processes for specific types of products, such as steel, glass, beer, and commercial baked goods. These are high-volume, low-variety products. These organizations tend to invest heavily in technology and sequence the equipment to rapidly process the product.
Frito-Lay also places great emphasis on green manufacturing and sustainability. For instance, they are converting to solar power to reduce use of electricity. Increasing the recycling of cardboard boxes and selling byproducts such as potato peels for animal feed. Feed-on-Lay has numerous plants in the United States and overseas.
As with most food products, ships do not have a long shelf life, so plant locations are chosen for proximity to raw materials and customers to make sure products are on the shelf life in as short a time as possible, sometimes within 24 hours. of picking potatoes in the field. The layout strategy is a product-oriented layout. For example, with Lay's potato chips, the raw potatoes get washed and peeled, sliced, cooked, seasoned, and bagged in a single assembly line over a period of just a few hours. The total inventory and storage is only about two and a half days'worth.
Frito-Lay has one of the lowest personnel turnovers in the industry. The reason? Competitive wages and benefits, concern for ergonomics, safety, treating all employees with respect, from the packers to the plant executives.
The company pays for uniform and shoes, and everyone dresses in the same attire. Frito-Lay's supply chain is integral to their success. Plants take their products from farm-fresh raw materials, to in-store finished goods in a very short time.
In some cases, this requires owning their own farms, controlling transportation trucks for moving raw materials, warehousing, distribution, and delivery. Holding inventory can be a significant cost. Major ingredients at the plant are corn, potatoes, oil, and seasoning.
And because Frito-Lay's inventory is perishable, holding costs can be huge. The company turns their inventory over 200 times a year, significantly higher than other manufacturing firms. Clearly this is a just-in-time inventory system as raw materials like potatoes are delivered 10 times a day and delivery truck locations are even monitored by GPS to determine exactly where they are in transit.
At Frito-Lay's headquarters near Dallas, Texas, company planners prepare a total demand by product. They use historical product sales, new product introductions, production innovations and promotions, and dynamic local demand forecasts. Final schedules may be adjusted for known local events that are unique to the region the plant serves. In Florida, for example, the Daytona 500 and Bike Week are two such events. You can do all these other activities well, but if machine breaks down, every 1% of downtime means a loss of $200,000 at the start of the plant.
Despite this plant not being the newest in the Frito-Lay family, the plant still has utilization at world-class levels. Jay, every company faces similar OM decisions. Even though implementation of the OM decisions is different, managers across industries must address these decisions and develop their solutions to keep their operations running smoothly with high productivity. From restaurants and hospitals to airlines and manufacturers, all organizations must answer the same 10 operations decisions as Frito-Lay. Thank you