Operations Management - Principle Healthcare

Principle Healthcare (PHC) is based in Skipton, North Yorkshire and was founded 6 years ago by a team of healthcare industry professionals. They specialise in the manufacture of multi-vitamins and supplements for all ages. Their vision is to create, “A healthcare business which could make a real difference.” By closely following this PHC are able to cater to all different age groups and ailments. The vision is reflected in the company’s name, Principle; it was chosen as the perfect name to describe the nature of the business (Principle Healthcare website, 2008). Main competitors to PHC are Brunel Healthcare, who offers a range of products almost identical to PHC. They supply to supermarkets such as Tesco, Sainsbury’s, Somerfield, Co-operative and Superdrug.

Evaluate Principle Healthcare’s Operational Strategy

PHC use their expertise to manufacture a large selection of health and well-being products. They undertake the whole process of formulation of ingredients, product manufacture, packaging, design of labels and presentation at affordable prices.

The Input – Transformation – Output (ITO) Diagram (fig. 1)

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The objective of PHC, as with any other business, is to create value between the raw materials brought in and the final goods shipped out. This transformation is described as, ‘changing inputs into outputs’ (Operations Management, 2007). The process is similar in all businesses, however the resources used to achieve the end result differ company to company.

Customers

PHC develop products for leading supermarkets in the UK including Asda, Morrisons and Tesco, they also supply the high street chemist Lloyds Pharmacy. They do not sell direct to individual customers and therefore are B2B not B2C. Through this they have reduced the cost of setting up distribution networks. PHC aims to expand inside the EU. Once PHC’s products are distributed their customers are people who believe in the benefits of supplements. PHC’s website states they cater for; “companies interested in launching their own label products or using our present range to market in their own stores”. From this we can see PHC are focused on delivering a quality product, not developing their brand image.

Process Inputs

Materials

PHC use raw materials from leading manufacturers and suppliers, it is important that PHC can guarantee the quality of the raw materials because this is the basis for their reputation, this is the reason all are obtained from ‘MHRA Licensed Producers’. Equally, the packaging such as containers, caps, labelling and seals, must maintain these high standards and so, ‘it is obtained from Europe's best producers’ (Principle Healthcare website, 2008).

Information

All orders received are from large, established companies and therefore are made in bulk. The information needed is details of the quantity of each product required to fulfil the order and a completion date when the shipment is due to be picked up. Without this the request would not be completed correctly and employees would not have direction. The information is gathered when the customer makes contact with PHC and places the order. It is necessary for PHC to adhere to strict guidelines If this was not the case then customers could question the practices being used at PHC, by ensuring the standards are met PHC’s reputation can grow.

Staff

Originally set up by a team of healthcare industry professionals PHC have passed on their skills to their employees. From the case study it is stated that 2 people are needed to operate each line so staff numbers depend on how many of the four product lines are running at any time. It is the knowledge of the line staff to maintain and unblock the operation should it encounter any problems. There is also staff in the warehouse and management, bringing all together is key to the smooth running of PHC.

Facilities

PHC’s production and storage facilities are all located within one building in Skipton, North Yorkshire. They are used to house the raw materials, orders, equipment and finished goods.

Transformation

During the transformation process raw materials are combined with inputs and resources. In the case of PHC the tablets are combined with the containers through automated machinery, then packaged and sent for dispatch. PHC have utilised their knowledge to achieve the best results and highest quality products, adding the most value possible by differentiating from the competition.

Resources Used

The employees are required to use their training and knowledge, together with the production lines to ensure that the batch is completed right first time and to the standards set by the company and governing bodies through careful monitoring of the production process.

Process Outputs

The outputs from the preceding processes’ are tangible products which are ready to be dispatched to the consumer or for pickup by the respective company. The outputs are 63 different brands of dietary supplements (Principle Healthcare website, 2008). This highlights a problem for PHC; there are examples of the same product being sold in multiple containers. This impacts efficiency, when this is altered time will be lost while production is idle.

The 5 Performance Dimensions

Cost

Initial costs purchasing the necessary machinery will have been high but from this point onwards the cost to make a single unit is greatly reduced. PHC is operating on a high volume – low cost basis leading to small profit margins. This is one of the key areas that they are in competition with other manufacturers. The nature of the product means there is little to stop customers switching to alternatives, in turn this means PHC must strive to maintain low costs to keep current customers.

Dependability

PHC operate in a competitive market, with multiple companies offering almost identical products to each other. It is essential that PHC are consistent suppliers to their customers otherwise it will impact their reputation. Having set order deadlines means management and employees have targets to work towards; allowing the Warehouse Manager to forecast and arrange production accordingly. They are also reliant on suppliers of components and ingredients to finish the product, if there are long delays it could stunt production.

Flexibility

This falls into two categories; firstly how able PHC are to adapt to change and secondly how well they can meet the customer’s needs. If the order itself is changed then PHC are forced to keep what had been produced as stock and create a new order at the opportunity cost of completing for other customers which has a knock on effect on other orders. Fortunately PHC work to a Just-In-Time principle, if orders change it should be before manufacture begins.

The production methods mean PHC aren’t able to quickly change, it takes between 20-90 minutes idle time to change components, depending on what product is finishing and what is starting. It is mentioned in the case that supermarkets, namely Asda, regularly try to collect orders early and PHC are unable to deliver because they work to such a tight schedule.

Quality

Quality is a major factor for the industry, the product is for human consumption and there are codes of conduct associated which must be adhered to. The premises must be kept clean and free from anything that might be hazardous. The knowledge and skills of the staff and suppliers will be shown in the final product; most of the initial sales will be based on the appearance of the container. It will be located with other dietary supplements as such it will need to stand out from them through aesthetics.

Speed

Due to the tight profit margins there needs to be a large volume produced to compensate. Speed will play a role in being able to produce sufficient units to offset the cost of production. The quicker that each unit is manufactured the more efficient PHC will be. In this respect quality becomes a less important issue. The orders need to be completed on time; otherwise, as identified earlier, there is a chance of customers going elsewhere.

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