Production and Operations Management

B402, 8:00-9:00P, MWF

CASE STUDY OF APO NI LOLA DURIAN DELICACIES

Submitted to: Mr. Jose Jorge C. Yap Jr.

Instructor, MGT 428

Submitted by: The Goal Diggers

Ayob, Samsida

Barcelo, Dariz Gayle

Cabanes, Trishia Dele

Jumuad, Edwina Louise

Micabani, Kendall Clancy

Nacito, Jan Caridel

Tolentino, Pauline

July 19, 2017

A. Brief History

Arnel “Jojo” Raakin is a third generation descendant of Abondia del Puerto

Raakin or Lola Abon, who made durian sweets a must-have pasalubong for

every visitor to the city, as well as a well-loved everyday item for the locals.

(http://www.aponiloladurian.com/about-us.html)

The business started with his own capital budget of P500.00 in the year

1993. This was a challenge since having durian delicacies as a business is

not something new anymore and Mr. Raakin will be starting to build a name

on his own. However, Mr. Raakin was able to overcome his doubts. In the

process he was able to build Apo ni Lola with hard work, passion for the

industry and strong determination to carry on with the business.

The journey of Mr. Raakin was slow, in the years when he started his

business, his P500.00 capital budget was not enough so he had to rely on the

so-called “loan-sharks”. However, he stopped this when he was able to link

up with various institutions such as non-government organizations,

government agencies and financial cooperatives.

It was in the year 2000 when Mr. Raakin was finally able to register his

business and in 2008 when his business had its big break with the assistance

from MASICAP Foundation. It was made possible through the Department of

Trade and Industry’s One Town One Product.

A feasibility study, conducted by the Davao City-based team of the

MASICAP Foundation was submitted to the Development Bank of the

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Philippines for possible financing assistance under the DBP-OTOP Financing

Facility and by the year 2009 the said application for the loan was approved

and granted them P100,000.00. Half of the loan grant was used by Mr.

Raakin to renovate his store in Matina, Davao City and the other half was

used as an additional working capital.

At present, Apo ni Lola delicacies can also be found in Abreeza Mall, in

airports and they sell online as part of their marketing strategy. Also as said

by Ms. Imee, the Operations Supervisor, part of their success is that they

always keep this in mind, “What we want to give the customers is more than

the candies, but the entire experience of having them in here in Davao, hence

our tagline “Completes your Davao experience.”

B. Products and Services Offered

The company offers a wide range of products, almost all of which are

made of durian, which are classified into different categories: Small Packs,

Big Packs, Boxes, Bars, Tarts, Pastries, Bottled, Traditional, and Other

Products.

C. Supply Chain: Sourcing, Operations, Delivery to Customer

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II. Findings and Observations on Current Company Practices

A. Strategy

The start of their business was not that easy for them because for a fact

that durian delicacy is not new to the market but with good strategy they were

able to achieve what they are right now. They are experiencing 100 percent

increase in their sales. We have learned about strategy such that we are able

to know what sustainable strategy is, how operation is and supply chain

strategies are implemented, how strategy is related to business risk and how

to evaluate productivity. There are concepts here that are being applied by

the company and there are also that deviates. One of the most significant

topics in this chapter is the competitive dimensions and some of them actually

has affected the competitive position of the company. They make sure that

they provide the best product for a durian delicacy, the quality of the product

is their top priority. They said that there are a lot of different brands of durian

delicacies in Davao but they said that the customers will complete their

experience in Davao with their products. In relation to the delivery of the

products to the customers, it is not a problem at all because they contract with

exclusive distributors, famous malls and well-visited tourists spots. They also

coordinated with bus operators to visit their stores as part of their package.

There also other dimensions criterion that made way for their success to

come in like they actually allow walk in customers to see how they make it

through a small glass window to give assurance for food safety and sanitation

and they also different varieties of the product. These dimensions are factors

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for their product to become order winners and order qualifier. They buy in bulk

when it is durian season so that they will be able to incur lesser cost. They

are actually applying the concept of operation effectiveness through this

because they are aiming to produce a good quality products which is their

goal with the minimum cost possible. With regards to productivity, the

increase percentage of sales that the company is experiencing can lead us to

a conclusion to say that they are doing really good and might as well say that

they are really productive to achieve that point.

B. Products and Services Design

The company's core competency is that they provide good quality

products with minimum cost that they can incur. They don't have a large

number of employees but just enough to be able to produce the number of

products they desire to sell. It's an advantage to them because it will be

easier for them to manage and see to it that the quality they produce are of

high standards. The company gives out free sample for testing and approval

of customers. That is actually one of the phases in the product development

process. Also, they employed unique packaging with different colors that

corresponds to the varieties of the product they produce, which is part of the

detail design in the product development process. They only use one prime

ingredient and that is the durian fruit. This made the whole process a lot

easier. They belong to the group which produces process-intensive products.

According to the book, the characteristics of the product are highly

constrained by the production process. With this, we can actually say that

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their product depends on how it will be processed that's why they make sure

that they will be able to always check on how it made. Products should be

designed for their customers because they are the ones who are going to buy

them so the company always see to it that they consider what the customer

would want from their products. They do not have specifics on tools, like the

house of matrix, or criteria in designing, like the eco-design, they use in

designing their products but they make sure that what they are producing is

within the customers wants.

C. Strategic Capacity Design

Apo ni Lola requires a well-thought planning in their production capacity

execution. Since they do not comply strict production policies, for as long as it

is the “best practice” fit for the company, they’re more susceptible to adapt

with the demands of their consumers.

Having known this, it is a pre-requisite for the company to have a

legitimate time frame of capacity projection in order to forecast the production

budget needs, to plan for possible expansion of product-line business, to add

more physical locations, or to have enough data which would help the

company in coping up with the competition in business. The company’s

planning time frame is usually an Intermediate Range planning. This claim is

well supported since the company is greatly affected with seasonal

fluctuations. There were months such as and as being the peak of their

production. With that, Apo ni Lola will have to make some precautionary

measures beforehand with their production capacity. In other words, their

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capacity planning should be encapsulated in a one year length basis for the

time being to have a similar or near to an actual capacity of the company for

the period.

Also, Apo ni Lola is consistent with the economies of scale. Indeed, this

concept is applicable since the company is into massive production of durian

candies. The more volume of their production increases, the lesser the cost

would become. In the company’s case, their standard production capacity is

1,250 pieces of durian balls per batch order. Having cost of operation

(workers and machines) for about 200,000 pesos would lead to a 160 pesos

cost per piece. If we increase our production volume to 2000 pieces, then our

cost per unit would become 100 pesos cost per piece. Thus, if the cost per

unit drops as it increases its production volume.

On the other context, Apo ni Lola has a specific capacity focus in terms of

its production. Since Apo ni Lola does not only produce one type of product

(durian candies), it uses a focused factory, where a plant within a plant is

evidently used in the company’s production. In this case, the factory has

focused or specific group per product. In this company’s case, it has focused

factories that is specially designated in making tarts, pies, jam, shake, hopia

and the like. With that, the company would know as to what would be the best

operating level for each departments or subgroup in the production of the

company since it focuses its scope in a certain product only.

In strategically planning their capacity in their production, they also follow

the necessary requirements for them to determine their production capacity

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 most especially during peak or slack seasons. Firstly, they use target costing

as their forecasting technique. This technique is somewhat the most

applicable method to utilize for the company. With this, the company will

make target sales as to their desired profit for the year (inclusive of other

affecting factors). Next, the company calculates their necessary labor or

equipment needed in order to meet up the targeted sales for the company.

Lastly, the company compares their targeted sales labor and equipment

requirements as to the available labor and equipment available for production.

By then, the company will now be able to discern as to whether they will

increase, maintain or decrease their labor or equipment resources in their

production.

Further, having said that the company uses a “best practice” approach, in

the company’s perspective, they only use relative data that might be useful in

making their decisions. Although academically, it would have been better if

they will plot a decision tree. But, it would be more complex to do such since

there is no requirement for them to do so. Thus, it is not necessary to present

a decision tree format in order to come up with the most optimal decision for

their capacity alternatives of the company. Instead, a mere gist of a decision

tree in order to evaluate their capacity alternatives in their production will

suffice for the company.

D. Process Design and Analysis

For the company to know the overall process that occurs during the production, the

company process design is brought up in order to know whether their company’s

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production is efficient with respect to the time in the making, sitting, or in transit. This

would also help the company in determining as to whether there are constraints in the

production process of the company. Shown below is a flowchart excerpt of the

company’s process design:

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 In the company’s case, the useful way, as practiced, in order to

characterize the process in the company is to do make – to – stock process.

This is evident since the company keeps on producing and stores or delivers

the product when demanded. In other words, the company aims to provide

the product to the customers as soon as possible.

However, in this scenario, the company cannot avoid the problems that

may arise in production like the buffers in process. There is too much time the

product or work-in-process product in a storage area between stages. As

shown in the diagram, it sometimes takes time to make the products for sale.

Sometimes, this would lead to over-catering of materials from the suppliers to

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 the customers which would become the reason for some delays in production

or so.

III. Application of OSCM Concepts

A. Job Design Decisions

Job specialization is evident in the company. Being a small business, the

company employs a very simple job design. Different people are assigned to

different tasks. A specific worker is in-charge of a specific stage in making a

product, while another is the deliverer to the store. Another one specializes in

the purchase of raw materials, while a different individual is in charge of the

cold storage facility. The catch of this very simple job design is that the

employees may get bored from their habitual and routinely work, and so the

company may enlarge the jobs horizontally. For example, the company may

need not to have an individual for every stage of the production process. The

cook may also be in-charge of the next procedure after cooking, as he/she

can commence it immediately after the raw materials were initially processed

through cooking.

B. Quality Function Deployment

The company must implement in its new policies the process or method of

quality function deployment in order to meet the needs and quality demands

of customers and be able to evaluate the strengths and weaknesses of their

own products in relation to other competitors’ products. Using the process of

quality function deployment is important because it can help the company to

gain more profits by having a greater demands from its own customers due to

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products that meet the customers’ specifications and needs. QPD also is

important for the company to be open for changes and improvements caused

by the evaluation of its own products that needed to be developed more to be

able to compete with other products.

C. Risk

Managing risk is a critical part of developing an effective operations and

supply chain strategy. In every kind of business, there are impending risks,

such as supply chain risk and supply chain disruptions, that are faced by an

organization which could be avoided if proper preventions are employed. In

the context of Apo ni Lola, its primary ingredient, which is Durian, is

susceptible to spoilage. In addition, the product sold in the market such as

Durian candy can be a culprit for food poisoning which could cause health

hazards to the customers jeopardizing the operations of the organizations.

Thus, it is crucial to manage the risks.

D. Coping with Changes in Demand

With the demands for pasalubong spiking during summertime, Christmas

and during big conventions in the city, the company can invest in new

technology. For example, they can consider using processing equipment to

mass produce their product. They could invite mechanical engineers to come

up with an equipment that could process the candies without sacrificing the

quality of their products.

E. Capacity

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 It is recommended that the company view their planning capacity in long

range considering the availability of their main ingredient which is the durian.

This is also due to the fact that zero inventory stock is not allowed in their

type of business.

In the company’s practice, the durians (raw materials) are purchased,

prepared, and stored in advance usually during peak season. This is in the

preparation for next year’s production, ensuring the availability of their main

ingredient. It is preserved in a cooler at certain temperature to keep it fresh.

Thus, estimating the sales and also for contingencies for next year is an

important aspect of deciding in purchasing raw materials in order to produce

products to meet those projections. This must be done for each product line.

Thus, the company should forecast sales, calculate and project equipment

and labor in anticipating operating levels.

IV. Conclusions

Apo ni Lola has been very successful despite of their simple ways on

having done with their operations. However, this paper is concerned on how the

business would eventually create more progress not only in terms of increasing

the sales but even for the betterment of the whole company in terms of facilities,

operations, people and as they connect to the society. In line with the facts and

other opinions related to the topics discussed for the whole Prelim period, the

group commends the business on how well they have run their business for the

past years giving great service not only to Dabawenyos but to tourists as well. As

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 Apo ni Lola soar for greater heights, it is of much greater help to consider

valuable insights and recommendations found in this paper.

V. Recommendations

The following recommendations are offered for the furtherance and

development of Apo ni Lola:

1. Employees may opt to specialize on their individual tasks in order

to promote high speed, low-cost production, and low run time. Job

specialization is important in steady state entities since their

products easily get spoilt. A high speed production and low run time

increases inventory output thus it can easily accommodate to

customer demands.

2. The company may view their planning capacity in long range

considering the availability of their main ingredient which is the

durian. There is a high probability on occurrence of potential

disruptions on the availability of the fruit. The company’s dealer of

durian may not be able to supply the fruit because of bad harvest.

Here, the company may seek for two to three suppliers to

compensate for unavailability of one supplier.

3. The company may also develop its core competency for its

advantage. Apo ni Lola has a competitor only few blocks away,

thus, by making a single product that is hard to imitate or has

unfamiliar yet exquisite quality of taste, it can cater to wider variety

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 of customers and give the company a competitive advantage over

its competitors.

4. The company may also enable economies of scope. Since they are

producing goods that has common ingredient, they may choose to

combine the preparation or mixing of two or more products in one

batch process. To achieve this, employees must develop flexibility

in the process. Lastly;

5. The company may increase its production pacing. Apo ni Lola

easily gets ran out of goods during peak time. Employees must be

quick to produce the products to immediately supply to the

demands of the customers to avoid loss of sale.

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