Candyland

INTRODUCTION AND BACKGROUND

Ismail Industries limited is a public limited company incorporated on June 21, 1988. The
company manufactures and sells high quality sugar confectioneries products under the
brand name of Candyland. The companys manufacturing facilities are located at Hub
Industrial Trading Estate. It is the largest manufacturer and exporter of confectioneries in
Pakistan. Candyland produces different products to satisfy different markets and
consumer preferences. It works its buyers from around the world to custom-made
products that would not only be the most appropriate for their respective markets, but
also give maximum profits to importers, distributors, wholesalers, brokers and retailers.

EXTERNAL ENVIRONMENT
Candyland faces labour problems due to its location in Hub, where labour is available on
contract basis, and the region has its own peculiar labour laws. Its cost structure also
comprises of custom duties to a large extent as it imports a lot of raw material from
abroad. The use of imported materials also causes another problem. Extremist groups,
local and in the Middle East, consider the imported gelatine to be haram and penalties
are imposed on the slightest doubt. Candyland uses high quality raw materials and state
of the art technology which increases cost, but it forgoes high profit margins in order to
keep prices reasonable and in line with the competition. The main competitors of
Candyland are Hilal Sweets and BP Sweet manufacturers. It does not face competition
from the imported candies as its products fall in a lower price range.

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PRODUCT LINE
The product line of Candyland consists of:
Jellies
Toffees
Candies
Bubblegums
Chew toffees
( Refer to Appendix A)

PRODUCTION PROCESS
Candies and Toffees
The production process of candies and toffees is given in the appendix. The process starts
with cooking all the raw materials in the cooker. Here, except for the flavour, all the other
ingredients are added, as cooking the flavour at high degrees can be detrimental to the
flavour of the toffees. Once the ingredients come out of the cooker, they are placed in the
mixer. Here is where the flavours are added. The mixing machine comprises of cooling
table from where the mixture goes on to the cutting machine. The mixture is first turned
into the shape of ropes, which is then cut to obtain the desired shape. Candies and toffees
in their original shape come out primarily from these cutting machines.

The toffees are still not very firm. So they are passed from the cooling tunnel. When the
end product comes out of the tunnel, it is here where Quality Control is given most

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importance. Before the final product is filled in the polythene bag, it is ensured that
quality is up to standards. Wrapping procedure comes next followed by bagging. Lastly,
when the final product in bags has been placed in cartons, bailing and stamping of cartons
is done. This completes the production process.

Bubblegums and Chew Toffees

The production process of bubblegums and chew toffees is similar to that of candies and
toffees except that the machinery is different

Jellies
The production process for jellies is slightly different from that of candies and toffees.
Here, the paste is passed into the extruder is added and the liquid paste passes through the
cooling tunnel to get the liquid in shape.
The liquid is placed in the heat and/or cold curving for a period of 24 hours. Last
procedure is that of oiling and/or sugar sanding after which bagging is done so that the
goods can be shipped in the cartons.
( refer to Appendix B)

DEMAND FORECASTING
Over the years, Candyland has come to realise that the use of statistical measures and
forecasting models does not give an accurate picture of the situation, since the Pakistani
environment is characterised with volatility and it is not possible to incorporate these

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variances in a mathematical model. Thus, Candyland relies on the views of its sales force
and the data they glean from the current market situation to make its forecasts.

The basic assumption that Candyland has on which it bases its demand forecast is that
one kid spends one rupee per month on Candyland product. The total number of children
is assumed to be forty million.

Candyland has the advantage of shifting products from one locality to another when it
faces fluctuations in demand. For instance, if the company cannot sell a comparatively
higher priced product in a low income area, it shifts them to a high income location so
that they Candyland be sold in that area.

POSITIONING ON THE OPERATIONS PYRAMID

With reference to the Dillworths pyramid, Candyland occupies the two legs of quality
and cost. It maintains a high level of quality, yet mangers to keep the prices within
the range of its target customers. Quality is emphasised at each and every step of
the production process, which gives Candyland a competitive edge over others.
The company has not yet achieved an edge over dependability as a result of which
they have had lost sales. As for flexibility, Candyland tries to respond to the shifting
customer tastes by introducing new products on a regular basis and phasing out
those that are not in demand.

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CAPACITY REQUIREMENTS PLANNING

At Candyland capacity planning is done at the highest level of management where
corporate goals are defined and laid out. Once the company arrives at an overall target be
way of demand forecasting. This amount is then desegregated into targets for the
individual product line .In this way Candyland follows an top-down approach to
planning.

FIXED CAPACITY
Candyland has a total fixed capacity of 6,000 tons of confectionery per annum. However,
the annual demand exceeds the fixed capacity by a large amount. They supplement
this by adjustable capacity planning. Since they feel that the cost of missed sales is
too high and they can tap greater demand, they have decided expand current
capacity by 80%. A new plant is being constructed on the land adjacent to the
current plant. In addition Candyland has also undertaken the construction of storage
warehouses.

ADJUSTABLE CAPACITY PLANNING

Candyland operates in an industry characterised by fluctuating demand. For instance in
summer their demand for confectionery falls significantly due to intense heat and the
schools holiday season. In the rest of the year the demand is higher than normal
capacity.

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Normally Candyland uses two shifts of workers. The first shift starts at nine in the
morning and ends at six in the evening. The second shift takes over at six and works till
four in the morning. In periods of low demand, such as in the summers, the factory does
not cut down its normal production of 25 tones of confectionery per day. Since most of
the products have long shelf lives, any excess amount produced is stored.

In periods of high demand, Candyland uses a mixed strategy of varying it work forces
size and inventory. The excess inventory store form periods of low activity first utilised to
meet the increased demand . Here Candyland has an advantage as it does not have a high
cost of storage due to ample space available. Once the inventory is consumed, any
additional demand is met through overtime use of the workforce. The overtime use of the
workforce is done on Sundays and during the five hours gap between the two shifts. If the
existing workforce is unwilling, Candyland hires people from outside. However, these
workers can only be assigned to low skill jobs such as manual sealing and packaging. In
extreme circumstances, the company has no choice but to suffer the cost of missed sales.
Recently, this has become quite frequently. Therefore they have decided to increase there
fixed capacity.

MANAGING DEPENDANT DEMAND INVENTORY

Dependant demand inventory management is an important area at Candyland as most of
its raw materials are imported. It is important to ensure that these materials are available
at the right time, so as not to stall the production process and delay delivery.

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Materials Management and Inventory Determination

This process starts with the business plan, which is prepared based on the forecasted
demand of the period, at the top level of management which, includes the heads of
finance, marketing and production. The production head then translates the business plan
into quantitative number of units of each product family that are to be produced every
month. In this way, Candyland follows the top down approach to production planning.

This production schedule is then converted into a master schedule, which is a detailed
plan of production, and this plan is for a time fence of a week. This plan is made for each
individual product.

Inventory is ordered according to the family of products. This is because products of each
family contain many similar materials, and it is not important to order materials
separately for each product. However, each product has a different flavour and
packaging, which have to be specifically ordered and managed. Thus, with the exception
of flavours and packaging, the bill-of-materials is prepared for each family of products.

The inventory reordering occurs when the concerned department issues a requisition form
to the stores. The stores have computerised inventory status files, and the requisition
forms received are fed into a complicated program of inventory management. (This
program is very complex and tailored especially for the company. However, the company
was unwilling to let us access the program due to purposes of confidentiality). This

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updates the inventory status file every time materials are requisitioned, and the reorder
level are adjusted and generated.

The inventory status file has the predetermined minimum level of safety stock
programmed into it, which it takes into account every time the reorder level is generated.
The lead times are also fed into the program. (Lead times are discussed in the next
section). As the lead times are fed into the program, the program gives a date on which
each raw material is to be ordered so that there is no unnecessary delay and the lack of
raw materials does not delay the production process.

Now the stores department uses these planned order releases to place purchase orders to
the vendors.
( refer to Appendix C)

Lead Time And Safety Stock

Candyland believes in carrying a large safety stock of most of its materials in order to
protect itself from the unstable conditions and volatility in the environment, so that it can
prevent interruptions to its production process. Candyland does not incur large storage
costs as most its raw materials are not very bulky. Also the company has its own
warehouses on the factory premises, and this further reduces the storage cost.

The size of the safety stock depends on two factors:

Locally procured or imported
Space occupied by the materials

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The safety stocks for imported products are larger, while those for the locally procured
materials are smaller. Most of the imported raw materials are flavours and packaging,
which are specially made for Candyland. Since the reordering cost for these items are
high due to freight costs, Candyland believes in ordering these items in bulk to reduce
reordering costs and ensure continual supply. Safety stock of one month is generally kept
on hand of raw materials such as gumbase and flavours.

Bulkiness of the items also determines the size of the safety stock. Items that occupy
large spaces, such as cartons, or shippers as they are called, and tanks of glucose, are not
stored in huge quantities since this increases the storage cost steeply.

The lead times for materials are not statistically determined, but are based on past
experiences. These lead times are important as the inventory level is dependant on them.
The lead times for imported materials are 10-12 works. The lead times for locally
procured materials varies from one day to one week, depending on the location of the
supplier. For instance, sugar is bought from the suppliers in the Jodia Bazaar at the spot
rate, which has a lead time of one day. Four days inventory of sugar is usually kept on
hand. Glucose is another important locally procured raw material, which is delivered
every day to the factory from Rafhan, Faisalabad.

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VENDOR RELATIONS
Candyland prefers to keep sole suppliers for its imported raw materials as these are
tailored to Candyland's needs. For each product of Candyland has its own individual
packing materials and its own distinct flavour. However, for some locally procured
materials, the company prefers to have four to five suppliers rather than a single source.
Having sole suppliers gives them an advantage in negotiating and bargaining prices,
which leads to lower costs. Furthermore, this arrangement also helps the company to
ensure good quality of raw materials. Having sole suppliers also gives the added benefits
of incorporating the delivery cost of the materials in the contract price of the goods,
thereby minimising reordering costs. Moreover, Candyland prefers to be the largest
customer of the local suppliers so that it can exercise some control over the supply side of
its production process.

SCHEDULING
Schedules are based on the demand schedule generated by the sales department. These
schedules are made weekly on Saturday afternoons by the production head and
communicated to the machine supervisors of each product line. This is done to ensure
that each department and work centre has a schedule to follow for the coming week and
has a definite workload target.

Dispatching is done on the basis of the delivery schedule for the week given by the sales
department form which they plant manger generates a weekly dispatch list. Usually at a
time there are a number of products of one family waiting in queue to be processed. The

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priority is given to those items in the particular family that is to be delivered first. They
refer to this method of dispatching as first-demanded first-made. Batches that are due
first, have a very short queue time, while those that are demanded later will be processed
as and when capacity becomes available.

As mentioned earlier, Candyland has different machines for each of its five product lines
and they can manufacture a wide range of items on a particular line of the same line. No
extra set up costs are incurred when any item of the same family is substituted for the
other. In this way it has a great scope of flexibility in meeting its demand targets.
However, there is a limit to the flexibility. In circumstances of shortage of labour or
excess demand of one product type , the work of one work centre cannot be shifted to
another. For instance, bubblegums cannot be manufactured on the jelly line due to
differences in production process and technology.

QUALITY CONTROL
Quality control takes place at three levels.
Receipt of raw materials
During production
Finished Goods

Candyland begins its quality control with materials procurement, where having sole
suppliers ensures high quality raw materials. The raw materials are then inspected upon
delivery by the quality control department. The most rigorous inspection is done for

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glucose, where the glucose is tested for the water level due to fear of adulteration by the
glucose delivery truck drivers. The rest of the materials are inspected by following the
mill's standard of 10% + 1 sampling.

Quality is ensured during production by random checks conducted by the quality control
supervisors. Workers are also trained to inspect the product as it passes through the
production process. If a defect is detected, then the supervisor is called to take corrective
action.

Finished goods are inspected before the bagging stage. This is done by quality control
attendants present at each individual machine who discard any defected product found.
( refer to Appendix D)

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PRODUCTION & OPERATIONS MANAGEMENT

REPORT ON

A STUDY OF THE PRODUCTION PROCESS

AT CANDYLAND

SUBMITTED TO:
MR. MIRZA SARDAR HUSSAIN
SUBMITTED BY:
MANOJ SITANI
BBA 5/1

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INSTITUTE OF BUSINESS ADMINISTRATION

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TABLE OF CONTENTS

INTRODUCTION AND BACKGROUND......................................................................1

EXTERNAL ENVIRONMENT.......................................................................................1
PRODUCT LINE...............................................................................................................2
PRODUCTION PROCESS...............................................................................................2
CANDIES AND TOFFEES2
BUBBLEGUMS AND CHEW TOFFEES .3
JELLIES
3
DEMAND FORECASTING.............................................................................................3
POSITIONING ON THE OPERATIONS PYRAMID..................................................4
CAPACITY REQUIREMENTS PLANNING................................................................4
FIXED CAPACITY..........................................................................................................5
ADJUSTABLE CAPACITY....5
MANAGING DEPENDANT DEMAND INVENTORY................................................6
MATERIALS MANAGEMENT AND INVENTORY DETERMINATION..................6
LEAD TIME AND SAFETY STOCK.8

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VENDOR ELATIONS....10
SCHEDULING.....11
QUALITY CONTROL....11
APPENDIX...12