IB Business Management HL 5.3.6 Impact of lean production and TQM Question Bank

Kayla and Aran decided that Kayla should manage marketing and finance, and Aran manage the operations and supply chain. They chose not to create a human resource department because Accord had a small workforce. Aran already had the overseas supplier contacts but would need additional suppliers of fruit and vegetables. He would also need to find space to prepare and store the energy drinks. Aran thought that if Enrich was successful, they might need to find a small factory. This factory would use job/customized production. Aran knew the price of the Enrich range was significantly more expensive than those charged by the large MNCs, which supplied an ever-increasing range of energy drinks, fruit drinks and other beverages. Enrich’s drinks averaged $3.00 per bottle, compared with a typical price of $2.20 for similar drinks from MNCs. These MNCs, such as ABC, were large and experienced in the beverage market and had significant branding advantages, economies of scale and wider promotional reach. Enrich was restricted to below-the-line promotional methods, which Kayla thought the most cost effective. Kayla’s secondary market research indicated that many of the competing energy drinks produced by MNCs were being sold to teenagers, contrary to government policies and agreements with retailers such as supermarkets. Kayla became convinced that Enrich could create a USP as the only locally produced, caffeine-free, all-natural energy drink. Enrich would be sold only through affiliated sports and leisure clubs. The additional health benefits and cost savings experienced by their customers would strengthen their USP and brand value. Aran saw things differently. He thought that treating Enrich as a niche product would narrow the possible market segments. He favoured a mass-market approach. Aran considered Enrich a significant product innovation. If Accord waited to launch the brand as a mass-market product, they would be missing out on potentially high profits. Becoming impatient, he argued that they should borrow immediately for revenue and capital expenditures to finance increased production. They would soon need more skilled employees to manage the equipment. After three months of operation without a decision, sales of Enrich were satisfactory but below forecasts. Aran and Kayla were both working very long hours. Feedback from their friends and fellow athletes was positive, yet new customers contacting Accord through social media said they were confused about whether Enrich was a fruit juice or an energy drink. They also claimed that the health benefits of Enrich were exaggerated and the drink was too expensive. After some further investigations into suitable premises and production equipment to support the future growth of Enrich, Kayla and Aran found an affordable abandoned confectionery production plant that would increase the production capacity. Some of the older confectionery-making equipment would need to be replaced. Kayla carried out some further market research to see if the additional capacity could be used for another drink that would complement Enrich. These drinks could form part of the lifestyle brand that Aran had envisaged. Her investigations led her to discuss with Aran the idea of a drink based on green tea, called Detox, which could allow athletes to relax after a hard training day. However, Kayla argued that unless they introduced this new product, Enrich would struggle to be economically sustainable.

Problems are continuing with Enrich drinks. Aran is becoming increasingly frustrated with the lack of growth of sales. He always wants to succeed and is driven by the need to get tasks completed. The Enrich part of his life is not a success. He blames the workforce. The workforce does not share his vision. Employees are mainly part-time workers and parents who value jobs that enable them to fit work around school hours. As Aran has become more autocratic in his leadership style, labour turnover has increased. Last month, from a workforce of twelve, one retired and two left for what they called "better jobs".
There are also increasing problems with the quality of Enrich drinks, as batches of Enrich are rejected by the quality control department. Elsie, the manager of the production department, blamed suppliers, saying that Aran had damaged business relations with them due to his impatience. Elsie also blamed Aran for poor stock management. She has proposed total quality management (TQM) as a solution to these problems.
Detox
Accord decided to start the production and marketing of Detox, the green tea drink that helps athletes to relax. Detox proved to be very successful. Encouraged by the success and boosted cash inflow, Kayla is considering producing a range of snack bars based on Enrich and Detox flavours and recipes. Accord would use the Enrich brand name for the snack bars. The market for healthy snack bars is very competitive and dominated by a few large companies who spend large amounts of money on advertising. The market is growing rapidly - some market researchers estimate by 34 % per annum. There are many examples of small businesses entering the market successfully on a small scale. Kayla estimates that the proposal would involve an investment of $ 100000, with forecast net returns of $ 80000 for four years. Aran thinks that the money could be better spent on marketing Enrich drinks.

With reference to Accord, explain one advantage and one disadvantage of using total quality management (TQM).