Rock of Ages Case Study
This assignment is focused on operations strategy and management decision-making.
"What do you recommend ROA do to address the management issues?"
Include comments about the case you want to make from a management, strategic and/or capacity planning perspective.
Identify the problems and offer solutions to prepare for writing a paper.
Strategic Operations Management
The Rock of Ages (RoA) Value Chain
Rock of Ages is a fully integrated ....what? This is the question that John Scott (VP of Operations at RoA - Barre plant) wrestled with as he tried to make sense of operation's place in a company that now emphasized a 'retailing mentality' over a 'manufacturing mentality'. Are they a quarry that manufacturers and has forward integrated to sell at retail? Are they now a retailer that has manufacturing facilities? Are they a manufacturer that has fully integrated both backward and forward? He became further confused as he considered that the company had just bought a cemetery.
John thought to himself: we quarry the granite, we manufacturer the monuments, we sell the monuments at retail, and we now sell the land where the person to be memorialized and the monument will be located. Sounds like a pretty powerful business model doesn't it? As John thought back to his days in the Regis MBA program he realized that RoA had out vertically integrated Henry Ford. But was this a good thing? He kept remembering concepts like core competency, strategic alliance, supply-chain management, and strategic synergy. How did all the pieces fit together?
Well he knew he had better figure out how they fit. Donald Laponte the new Chief Operating Officer was expecting a full-blown presentation next week on how manufacturing was going to improve its 'poor financial performance' and 'lower than expected productivity'. Well at least quarry operations had remained strong and profitable.
From Then to Now:
RoA was established in the early 1900's with its major product being granite memorials. That position has evolved significantly. Today they are manufacturers of finished granite products for both memorial and industrial purposes as well as suppliers of the raw granite material. In 1999 RoA began an expansion into the retail side of the memorial business, believing that this was where future growth and higher margins were most readily available.
In conjunction with this move they also began to acquire additional quarries and manufacturing facilities. However, they have made an adjustment in this strategy and have recently begun to divest themselves of both these assets. They felt they had excess capacity over what was needed to be an 'integrated retailer'. In addition they have recently purchased cemeteries in Kentucky, believing that there will be significant opportunities to up sell consumers to upright granite memorials from flat markers if they control the cemetery lots. (Are they going to put in zoning ordinances?)
RoA owns numerous quarries in North America with the dominant quarry being located at Barre, Vermont. RoA manufacturing is the single largest customer for RoA granite, however they only account for about 10% of the sales volume of the quarries. Overall RoA is the largest single supplier of monumental granite in North America, with 25% of all North American monuments being produced from their granite.
As you can imagine quarrying is a very physical, construction type of activity. At the Barre quarry some of the granite is being mined at depths of 4-500 feet. The nature of the operations makes set-up costs extremely critical. Costs are closely associated with the amount of granite that can be extracted from one set-up. This would not be a significant factor if granite were granite. But it is not. In fact a significant part of RoA branding strategy is associated with the quality of the granite. Each of their branded memorials is made of a specific type of granite. The signature series for example is made from the densest, finest granite, which is found at the deepest depths, and is the most expensive to extract.
RoA monument manufacturing is supplied with three grades of granite. Demand has been fairly constant with the best grade constituting 30% of production, the better grade 45% and the good grade 25%. Demand from external customers varies from year to year. Sales, gross margins, and profits were all up in 2003 for the quarry division.
The manufacturing segment while primarily viewed as a manufacturer of monuments really had three distinct components: industrial products, monuments and mausoleums. Monuments were the dominant product based on units produced. However revenues were spread evenly across the three areas.
The industrial products facility occupies its own separate section of the Barre manufacturing plant. The industrial products can be considered large projects in that each one is unique. There are only 2-3 competitors in this field. The products require a unique combination of manufacturing and engineering expertise.
Industrial products are subject to significant variation in demand. The products are generally associated with major industrial construction projects and plant renovations, in heavy industries such as paper. There is very little selling to be done: a new 60-ton roller is either needed or it is not.
The scope of the projects varies dramatically and they are usually bid. However, given the limited competition the margins in this segment often exceed 25%.
Monument manufacturing occupies the largest portion of the Barre production facility. Monuments range greatly in cost and complexity. They can range from a simple flat marker to an ornately carved collection of statues. On the RoA web site you will see a pictorial layout of the steps involved in the production of a monument
The sales of monuments occur on a fairly stable basis, there is very little variation in initial demand. However there is significant variation in the pattern of delivery dates. Once an order is placed the customer is promised a delivery date but is usually flexible until one of three dates occurs: Mothers Day, Memorial Day or Fathers Day. During a normal production period between 75 and 125 monuments a day are completed. During the 3-week period before Memorial Day the plant was producing 125-135 monuments a day. During this time period the systems and the personnel are operating at maximum capacity and stress.
The variation in monument characteristics and the necessity of making a few specific delivery dates would seem to make scheduling within the plant a priority. RoA currently employs a fairly simple 2 part scheduling logic. The first consists of Hot List jobs that are automatically pushed to the head of the queue. Hot list jobs are those that have been identified as having eminent delivery dates or that are already late. Eminent delivery may be determined by a near ship date or the plant manager may realize that the complexity of a job requires that it be pushed ahead. A job is hot listed by physically marking the ticket that accompanies each memorial with a rush designation. In a typical week the Hot List may constitute approximately 75-100 monuments that are in various stages of production throughout the plant. A plant foreman will spend a full day locating Hot List monuments and marking them rush. After all Hot List jobs are completed the monuments will be scheduled based on Oldest Order Date.
The plant manager believes that the present system with its emphasis on expediting (Hot List) needs to be modified. They are looking to develop a system that reflects actual shipment requirements and manufacturing capabilities. Their goal is to be able to quote a delivery date that reflects 75th percentile of actual throughput time. (That is 75% of that type of monument would normally be completed in that amount of the time.)
Complicating the scheduling process is that monuments are introduced into the manufacturing process based on quality batches, not schedule requirements. As you remember RoA believes branding to be a key competitive advantage and a key component of brand is granite quality. When monuments begin individual production at the dimensioning step they must all be of the same brand quality. A single slab is 'dimensioned"(cut) so that yield is maximized. Yield is determined by surface area used not by the number of monuments that result. In addition approximately 30% of the monuments are manufactured from granite that is sourced from other quarries.
Competition in the monument business is extremely fierce and there are numerous price points in the market. RoA has tried to position itself a high-end producer and feels that its retailing strategy is integral to this position. Even with this high-end position the margin on monuments is less than 10%. The primary monument costs are variable with labor at 35%, material at 20%, and supplies at 10%.
The mausoleums combine characteristics of both the industrial and monumental production. They have the size and some of the engineering characteristics of industrial projects yet they require the personalization and details of the monuments. Mausoleums can range greatly in their characteristics with prices from $10,000 to $500,000.
There are only 3-4 significant competitors in this segment but new entrants are a constant threat. Monument firms are constantly trying to move into the mausoleum segments. However the competencies needed are much different than those of the typical monument manufacturer and these new entrants generally fail. These new entrants while not being a long-term threat tend to push prices down and margins in this segment are less than 20%. RoA will produce approximately 100 mausoleums in a given year.
In addition to these standard products there are often special projects. This year RoA won the granite contract for the new WWII memorial in Washington. This contract alone will increase manufacturing volume by 25% this year. This is an extremely high profile project and is perceived as critical to RoA differentiating itself from its competitors. Scheduling production of the WWII memorial within the confines of ongoing requirements is perceived as a significant challenge.
In all their products RoA positions itself as the premium producer. As much as possible they try to add value that will allow them to compete on dimensions other than price. Branding and the associated quality is one of their key strategies in maintaining this premium position.
The Industry and RoA:
As discussed above the greatest degree of competition is in the monument area. However there is competition in other areas. Although RoA is the largest integrated manufacturer there are specialty manufacturers who do higher volume in specific areas. An example of this is in the production of columns for mausoleums. Columns capacity is dependent upon machine capacity. They are turned on a lathe much as you would turn the leg of a table. However turning a granite column takes a much longer period of time. RoA has one lathe and produces about 20 mausoleum columns per year. Their demand for columns is approximately 60 per year. In order to make up this short fall they outsource the other 40 to local column shops. The capacity of these shops varies but one shop produces approximately 200 columns per year. In addition this shop will produce a limited number of complete mausoleums.
Within the monument segment there are a host of small mom and pop manufacturers who also sell at retail. In addition there are larger domestic operations that compete with RoA. The Barre area has an extremely high concentration of monument manufacturers. Just as with column production RoA will outsource some monument production when forced to by delivery demands. However it is considered a 'last resort' and they only outsource the 'standard stuff'.
RoA is the 500-pound gorilla in the market and they receive excellent service when they need to outsource. Although they will try to give these external sources sufficient lead-time, these shops will expedite RoA orders if necessary. Interestingly RoA does not pay a premium for outsourced manufacturing. The cost is comparable whether they produce it in-house or out-house. For example a large turned column that would cost $10,000 to manufacturer can be outsourced for the same cost.
RoA feels that the feature work is a key part of their product and will never send that to an external manufacturer. They maintain a staff of highly skilled craftsmen to accomplish this work. Interestingly, much of this staff consists of long-term in-house subcontractors. RoA will do the 'standard' feature work with their pay-rolled staff, but the statues and the highly detailed 'painted' sandblasting is completed on a job-by-job basis by these independent contractors. These contractors bid a job and work for a fixed price per monument. The skills of these subcontractors are very difficult to replace.
One of the major threats facing RoA and indeed most US monument manufacturers is the influx of inexpensive monuments from India and China. These foreign manufacturers have the greatest advantage in that area in which RoA has attempted to distinguish itself. That is in the labor-intensive feature work. The Chinese can supply for $5,000, a statue that one of RoA's in-house subcontract artisan's would require $20,000 for. The work is almost all labor. The foreign labor rates are cheap and there is a steady supply of artisan's. In the US these artisan's are in short supply and charge a premium rate.
The foreign manufacturers also are able to significantly undercut the pricing for less detailed monuments, and they are placing significant pricing pressure on US manufacturers. The Chinese have recently been venturing into the market for mausoleums and their products are ½ to 2/3 the price of a comparable RoA mausoleum. However, along with the lower price there have been a number of significant quality issues. The quality of the stone is often substandard and there has been some question as to whether their granite is actually granite. Some of the more significant quality issues may take years to appear and the consumer may be willing to accept them in return for the lower cost.
At the present these imports have been targeted to the lower end of the market, but their low price requires that RoA add significant value in order to justify its price. One of the factors that distinguish RoA is that all its monuments are custom made to order allowing an infinite variety in the final product. The imported monuments are mass-produced to stock and must be purchased in container loads. The only customization that is available is in terms of the final epitaph, which the retailer must arrange for locally. In addition the retailer needs to finance a stock of almost finished goods. However if the customer is looking for a stock item these may not be significant issues.
As John pondered his presentation he realized that it was not just a question of talking about efficiency in the manufacturing. He needed to rationalize and justify the entire value chain. . How did all the pieces fit together given the firm's new strategy? How did the quarry support manufacturing? How did manufacturing support sales? How did they all add value? How did they all work together to achieve a competitive advantage?
John realized that in order to develop an vision of where they should be he needed to identify their existing strengths and weaknesses. He was uncomfortable tackling the customer side of the equation till he remembered that his friend Kimball Richard had just completed an extensive review of their marketing strategy. He also figured he could draw on contacts in Finance and HR to address issues related to these areas.
He decided there would be two distinct phases to his presentation. The first would involve a critical examination of where operations were today and how it interfaced with other functional areas of the company. The second would flow from that and involve the development of a new overall operations strategy.
As he got up from his desk he looked at the 2003 Annual Report and one last thought occurred to him. Should he take on this new corporate retail strategy as a variable or as a given? He knew that if he suggested changes to this strategy he had better have all his bases covered or he would be the odd man out in left field.
Answer the question:
What do you recommend RoA do to address the management issues
outlined in the Summary Section of your submitted work?
Identify the problems and offer solutions to prepare for writing a paper.
Attached is a case study. I am not asking anyone to write the paper. However, I am asking for help identifying the RoA's problems and offering solutions to these problems. Thanks.
There main problems that are faced by ROA are poor financial performance and lower than expected productivity. These problems have occurred because the strategy of vertical integration is supposed to bring in considerable cost saving to ROA. However, such cost savings have not been achieved. The cost structure of ROA are duplicated if not bettered by competitors in each of the three segments, namely industrial products, monuments and mausoleums.
When the top management talks about productivity, it means cost savings at all levels of productions, the quarrying, and the manufacturing. Even the fact that ROA is making three types of products means that ROA is less specialized than some of its competitors. For instance, some shops produce 200 mausoleum columns every ...
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