Question

Frito-Lay, the massive Dallas-based subsidiary of PepsiCo, has 38 plants and 48,000 employees in North America. Seven of Frito-Lay’s 41 brands exceed $1 billion in sales: Fritos, Lay’s, Cheetos, Ruffles, Tostitos, Doritos, and Walker’s Potato Chips. Operations is the focus of the firm—from designing products for new markets, to meeting changing consumer preferences, to adjusting to rising commodity costs, to subtle issues involving flavors and preservatives—OM is under constant cost, time, quality, and market pressure. Here is a look at how the 10 decisions of OM are applied at this food processor. In the food industry, product development kitchens experiment with new products, submit them to focus groups, and perform test marketing. Once the product specifications have been set, processes capable of meeting those specifications and the necessary quality standards are created. At Frito-Lay, quality begins at the farm, with onsite inspection of the potatoes used in Ruffles and the corn used in Fritos. Quality continues throughout the manufacturing process, with visual inspections and with statistical process control of product variables such as oil, moisture, seasoning, salt, thickness, and weight. Additional quality evaluations are conducted throughout shipment, receipt, production, packaging, and delivery. The production process at Frito-Lay is designed for large volumes and small variety, using expensive special-purpose equipment, and with swift movement of material through the facility. Product-focused facilities, such as Frito-Lay’s, typically have high capital costs, tight schedules, and rapid processing. Frito-Lay’s facilities are located regionally to aid in the rapid delivery of products because freshness is a critical issue. Sanitary issues and necessarily fast processing of products put a premium on an efficient layout. Production lines are designed for balanced throughput and high utilization. Cross-trained workers, who handle a variety of production lines, have promotion paths identified for their particular skill set. The company rewards employees with medical, retirement, and education plans. Its turnover is very low. The supply chain is integral to success in the food industry; vendors must be chosen with great care. Moreover, the finished food product is highly dependent on perishable raw materials. Consequently, the supply chain brings raw material (potatoes, corn, etc.) to the plant securely and rapidly to meet tight production schedules. For instance, from the time that potatoes are picked in St. Augustine, Florida, until they are unloaded at the Orlando plant, processed, packaged, and shipped from the plant is under 12 hours. The requirement for fresh product requires on-time, just-in-time deliveries combined with both low raw material and finished goods inventories. The continuous-flow nature of the specialized equipment in the production process permits little work-in-process inventory. The plants usually run 24/7. This means that there are four shifts of employees each week. Tight scheduling to ensure the proper mix of fresh finished goods on automated equipment requires reliable systems and effective maintenance. Frito-Lay’s workforce is trained to recognize problems early, and professional maintenance personnel are available on every shift. Downtime is very costly and can lead to late deliveries, making maintenance a high priority.

Discussion Questions

1- From your knowledge of production processes and from the case and the video, identify how each of the 10 decisions of OM is applied at Frito-Lay.

2- How would you determine the productivity of the production process at Frito-Lay?

Answer with at least 50 words each question.

Answer 1

1. 1 Design of good and services: Frito currently owns 7 successful products that contribute a huge amount of profits to them. However, Frito Lay always tries to make some innovation in their product designs. Their product development department would experiment with new products and send them to evaluation groups who are responsible for its marketing testing. After these processes, they can decide whether they should launch these products or not.

2. Managing quality: Frito Lay has a strict quality control process that involves a variety of process such as visual inspection, oil control, weight control, etc. Moreover, they also conduct quality checks throughout shipment, receipt, production, packaging, and delivery.

3. Process and capacity design: Frito-Lay’s process should be suitably design for their high volumes and small variety, so they have to invest heavily in some high-technology machine that can sustain the rapid process. Moreover, they also focus on green manufacturing and sustainability. They use solar energy to reduce their electricity expense and recycle carton boxes to protect the environment.

4. Location strategy: Because chips require a high freshness of input materials so Frito Lay has to set up their plant near raw material sources. Moreover, their plan should be near the retailers to make on-time delivery.

5. Layout strategy: Sanitary problems and rapid processing of product require Frito Lay to focus on the efficiency of their plant layout. The assembly lines should be easy for workers to do all production steps in the shortest time.

6. Human resources: There are cross-training for workers who have to operate a variety of production lines. The firm also gives them a specific path with a good promotion policy. Frito Lay also rewards employees with high condition of medical, retirement, and education policy.

7. Supply-chain management: Supply chain is a very important factor that brings success to food-related company. The quality of finished product is highly dependent on the freshness of raw material. Frito Lay should strictly choose good vendors that can supply high-quality raw materials on time, so they can enhance their production’s efficiency.

8. Inventory, material requirements planning, and JIT: The inventory turnover rate for Frito-Lay is 200 times per year. This allows for better flow of fresh goods.

9. Intermediate and short-term scheduling: Frito-Lay upholds tight scheduling to ensure the proper mix of fresh finished good on automated equipment, which requires reliable systems and effective maintenance.

10. Maintenance: Frito Lay has to focus on maintenance because downtime is very costly and leads to a delay in production. They trained their employees to recognize the flaws early and do a professional fix, so they can avoid some problems that force them to stop their production lines.

2. The productivity of the production process can be determined by the output over input. For example, output could be something in pound and input could be labor hours. However, for multifactor productivity, we must take into consideration capital, labor, material, and energy.