Aggregate Planning at Frito Lay

Instructions:-

Aggregate Planning at Frito Lay
In Module 8, you will be asked to complete a case study assignment.

Directions: Read the introduction paragraph on Frito Lay on Page 518 of the textbook, and also watch the following youtube videos:

 

 

(you can copy and past the links in your browser). After watching the above videos, answer the following questions:

Does it appear that Frito Lay was using mathematical planning? Please explain.

How did aggregate planning help accurately schedule labor hours to decrease overall operational costs?

Was Frito Lay using capacity or demands option of aggregate planning? Please explain.

What do you think the operations of Frito-Lay would be like if they never used aggregate planning strategies?

What steps would you create to setup a facility like Frito Lay did with aggregate planning?

Is there anything that you would have done differently if you were the CEO of Frito Lay?

Who should be responsible for aggregate planning?

What are some strategies that you learned from this case?

Submission: The plan should be 4 pages in length, not including the title or reference pages, and include an introduction with a thesis statement and a conclusion that summarizes the main ideas. Each paragraph should have a topic sentence supported by 3-5 sentences that offer additional details, explanation, and examples. The plan should be free of errors in grammar, sentence structure, and other mechanics. In addition, the plan should be in APA format, which includes Times New Roman, 12 point font with double line spacing and one inch margins. Submit the assignment as a Word document with the file name LastName_FirstName_CaseStudy2.

P. 518 of the textbook 1st paragraph reads:

Like other organizations throughout the world, Frito-Lay relies on effective aggregate planning to match fluctuating multi-billion-dollar demand to capacity in its 36 North American plants.
Planning for the intermediate term (3 to 18 months) is the heart of aggregate planning. Effective aggregate planning combined with tight scheduling, effective maintenance, and efficient employee and facility scheduling are the keys to high plant utilization. High utilization is a critical factor in facilities such as Frito-Lay, where capital investment is substantial.

Heizer, Jay; Render, Barry (2013-03-29). Operations Management (11th Edition) (Page 518). Prentice Hall. Kindle Edition.

Solution

---

Aggregate Planning at Frito Lay

The origins of Frito-Lay, Inc. can be traced back to the entrepreneurial spirit of Charles Elmer Doolin, who, in the early 1930s, acquired a corn chip recipe, a handheld potato ricer, and a small number of retail accounts from a previous manufacturer for the modest sum of one hundred dollars. With the support of his mother and brother, Doolin established his own business venture, operating out of his mother’s kitchen. In these humble beginnings, Frito-Lay, Inc. began selling bags of corn chips for five cents, generating weekly profits of two dollars from sales of eight to ten dollars.

However, this humble start would be just the beginning for Frito-Lay, Inc. as it has since evolved into a multi-billion-dollar corporation, owning and operating a diverse portfolio of brands, including Cheetos, Doritos, Tostitos, and an additional twenty-seven products. The company’s success is a testament to its ability to adapt and innovate in response to changing market conditions and consumer preferences. Additionally, the company has built a vast and intricate supply chain network, which, while crucial to its success, requires a high degree of management and maintenance to keep it running smoothly.

Throughout the case study, it becomes apparent that Frito-Lay, Inc. is heavily reliant on a mathematical system in order to manage its operations. This is likely a result of the perishable nature of the raw materials used in the production of their products, such as corn, cornmeal, potatoes, oil, and seasoning. These materials have a relatively short shelf-life and require constant replenishment in order to maintain the optimal level of freshness and quality.

One example of this is the frequent delivery of potatoes, which are brought in by truck ten times a day and can amount to as much as 150,000 pounds per shift. Oil inventory, on the other hand, arrives by train and has a supply duration of only four and a half days. Similarly, corn meal is only able to last four days of operations. Additionally, seasoning averages a week in shelf-life while packaging materials can last between seven to ten days.

Frito-Lay, Inc. utilizes this mathematical system to manage its inventory costs and maintain a consistent level of freshness and quality in their products. This is evident throughout the case study and highlights the importance of precise mathematical calculations in the food production industry.

The case study also delves into the examination of the utilization of aggregated planning within the operations of Frito-Lay, Inc. Aggregated planning, as defined by Advameg (2017), is the process of developing, analyzing, and maintaining a comprehensive schedule of production for an entire organization. The utilization of this strategy is crucial in the optimization of labor resources and in the reduction of operational costs.

In the case of Frito-Lay, Inc, the utilization of aggregated planning is evident in the scheduling of goods received at the Florida plant as described in the case study. The scheduled timing of deliveries to different shifts allows for a more efficient distribution of workload among the workforce. This highlights the utility of aggregated planning in ensuring the efficient and effective utilization of labor resources within an organization.

Furthermore, the management of capital resources such as tools and machinery is another crucial aspect of aggregated planning. In the snack food industry, it is important to spread out these resources in order to assist workers in their tasks. This includes the prompt delivery of various ingredients to keep products as fresh as possible with minimal safety stock on hand to decrease holding costs, which in turn decreases overall operational costs.

The utilization of aggregated planning also includes the management of demand. Frito-Lay Inc. uses a chase strategy, which allows them to meet demand through production. This strategy has been implemented for decades and has proven to be successful in the company’s growth. With this strategy, raw materials are constantly being thrown into the production cycle, allowing the company to meet demand while minimizing losses, improving production methods, and delivering high-quality products.

Overall, it is evident that the implementation of aggregated planning strategies has played a significant role in the success of Frito-Lay, Inc. Without this strategy, the company would not be able to efficiently manage its resources and meet demand, ultimately leading to product quality issues and financial losses. The timely movement of raw materials through the production process and the utilization of a chase strategy allows Frito-Lay to preserve the freshness of its products and provide customer satisfaction.

High holding costs are perhaps the main inventory problem facing Frito-Lay. Consequently, the company maintains low holding costs in its inventory management system by maintaining limited inventory levels. However, if the company were to adopt a level production strategy, involving a constant production rate and workforce, it would be at risk of incurring high inventory costs due to the perishable nature of more than half of its goods. The raw materials used by Frito-Lay have a short shelf life, thus, they must be promptly utilized in production to avoid losses resulting from aging which can lead to a decline in product quality and unsellability.

To mitigate this challenge, Frito-Lay has implemented an aggregated planning method that has proven to be a competitive advantage for the company, particularly in the intermediate term- a period of three to eighteen months in the center of their planning methods. This approach enables effective inventory management and reduces the impact of holding costs.

If I were to establish a snack food franchise, I would aim to replicate Frito-Lay’s aggregated planning method or adopt it entirely. The steps I would take would include prioritizing freshness, maintaining a limited inventory of perishable items, having on-site maintenance, repair and operations (MRO) staff and supplies, and producing based on demand for the organization’s goods. These are the steps that have enabled Frito-Lay to attain a competitive advantage.

Firstly, I would quickly process and immediately incorporate any incoming raw materials into the production cycle, while ensuring that the necessary capital is available to support employees throughout the production process. This would enable us to package and ship products to customers in the most timely manner, thus ensuring that our products are fresh and of high quality, which would promote customer satisfaction and establish credibility for our brand.

Secondly, I would maintain a limited supply of goods with a short shelf life to lower holding costs. This would allow for almost constant incoming of goods ready for processing, and free up assets for research and development or to acquire additional assets. Managers at Frito-Lay have set the company up for success, and this is what I aim to do for my organization.

Next, I would ensure that I have MRO staff and supplies on site to address equipment failures and maintenance schedules. This would save time and money, as it would eliminate the need to call a third party to fix equipment, and have a dedicated staff to maintain on-site equipment. While operational costs would increase, it would not be as significant as not having MRO staff readily available to tackle issues that may arise.

Lastly, I would produce only enough to meet the company’s demand. This method allows for profit at a level standpoint and reduces waste in the production cycle, as employees will not have to deal with slow or excessive workloads. This approach ensures that resources are used at the optimal level for the company and would not hurt the company as opposed to other methods.

As the CEO of Frito-Lay, I would not change anything about the company if it continues to experience success. The current system has been implemented to give the company a competitive advantage over other snack food brands, and changing it could hurt Frito-Lay. The production process is as efficient as possible, with low inventory and a constant flow of raw materials, so there would be no need to risk trying another strategy that could cost more money. The company currently has 15 brands that generate over $100 million in business, and changing anything that has been implemented could harm the company. Therefore, I would maintain the current system as it is, to meet demand.

Throughout the case study, I have been carefully considering the question of who should be responsible for aggregated planning. In my opinion, operation managers should oversee the aggregated planning process as they are the ones who oversee the production processes in the plants. These managers have the authority to edit or implement new production methods, which can improve various areas of the production cycle, and potentially give the company a competitive edge over other snack food entities.

The case study has provided me with a deeper understanding of aggregated planning and how it can be implemented effectively for an organization. Frito-Lay utilizes a chase strategy, which enables them to create the leanest operation possible for their diverse array of snack food brands. This is the reason why Frito-Lay has been successful throughout the years and continues to be a beloved snack food brand. The case study also highlighted the level strategy method, which I believe would be the least efficient method for Frito-Lay and would result in more losses than profits.

Frito-Lay began as a small kitchen operation, only making a profit of two dollars on their corn chips. Now it is a multi-billion-dollar organization that has merged with numerous snack food brands and beverage giant Pepsi. Their success is a result of the ideas of past operation managers and will continue to be shaped by the ideas of current and future managers. Operation and inventory managers are the driving force behind Frito-Lay’s competitive edge and will continue to be a major factor in the company’s success, as long as customers continue to consume their delicious snacks. In my opinion, Frito-Lay has a nearly perfect operation and inventory management system, and it is a model for other companies to follow.

Reference

Management Study Guide (2017).  What is aggregated planning? – Importance and its strategies Management Study Guide http://www.managementstudyguide.com/aggregate-planning.htm Companies History (2017). Frito-Lay.  Companies history http://www.companieshistory.com/frito-lay/