Answer the following questions correctly.,,,

Use the "Finding Excellence in Operational Excellence at Zeni" Case to answer this question. How should the planning management function be organized to facilitate the operational improvements?

Case below

In early January 2012, Patricio Zeni, the General Manager of UFI (Forestry Industry Unit), a division of ZENI, was wrapping up at his office after a sweltering day at the company's plant in Esquina, a town in Corrientes, a province in the northeast of Argentina. Among other things, he had met for nearly three hours with Pablo Costa, the Plant Manager. The UFI's margins were not as good as they used to be. Argentina's economy, with an average annual inflation between 15% and 20% and a lagging exchange rate (Exhibit 1) had raised costs, and product prices were set in foreign markets which did not offset the effects of the country's monetary policy. With all of this in mind, Patricio was very worried because another year with negative results would leave the company almost out of a business that had been historically profitable. After reviewing a report on ZENI's service quality level (Exhibit 2), Patricio found a new source for concern: product delivery was not as timely as it should have been. But none of this could be addressed without taking into account increasing profitability. Patricio pondered Though I think we are doing what we have to do, we should be getting more profits out of this business. Can we find opportunities to enhance our production practices? Will we be able to introduce some changes to improve our competitiveness? ZENI BACKGROUND Founded by Enrique R. Zeni, ZENI started operating in 1940 as a small grain trading company.1 It grew steadily over the years, turning into one of Argentina's largest grain and oil seed brokers with increasing professionalism to provide value-added services. To drive the company's growth, Carlos Zeni, the founder's son, joined its management team, and, years later, his three children -Patricio, Marina and Ignacio- also started working there. Ignacio managed ZENI's brokerage business, while Marina was in charge of the citrus and cattle production business, and Patricio headed ZENI's UFI. Carlos participated in these units' management decisions, especially in cattle farming and UFI. In fact, he often travelled to Corrientes, as he put it, "to stay abreast of what is going on in our business..." Also, Patricio made frequent trips to ZENI's headquarters in Buenos Aires to manage the company with his father and siblings. In 2012, ZENI employed more than 700 people and the attrition rate was very low, which made ZENI proud of its culture and its contribution to the development of the community where it operated. Grain brokerage was one of ZENI's largest businesses, and the firm operated extensively in all of Argentina's farming areas, with offices across the country and an active involvement in the Chicago and Kansas City markets. Ignacio recognized that one of its key assets lay in its long-term customer relationships, based on the company's solvency, reliability, swift service and, primarily, trustworthiness. ZENI offered a comprehensive service that included expert advice, such as when to buy an option or when to sell or buy grain, and updated information on market quotations and terms. Its overriding goal was to add value to its business chain in an honest and responsible fashion. ZENI's cattle farming operations were conducted in Corrientes and Buenos Aires. Cattle were raised at a ranch called La Victoria, located in Malvina, a town in Corrientes, with a scheme designed to systematically improve animal genetics. The company also operated a feed-lot cattle fattening business in Marcos Paz in the province of Buenos Aires. ZENI earned a long-standing reputation in this business, as it owned facilities for 12,000 head of cattle. The feed used for cattle fattening was carefully selected to guarantee superior product quality, using the company's own feed manufacturing plant and outsourced feed. ZENI started its citric business in 1985, growing a variety of citruses that included lemons, oranges and tangerines in Corrientes, a province with the perfect weather for these plants. The company had planted over 350 hectares (865 acres), with the produce intended for export. This business was discontinued in 2011, as ZENI's management found it unattractive and distracting from the company's more profitable operations. With a sizable investment in equipment and technology, the forestry industry unit accounted for a significant share of the company's business, headed by Patricio Zeni. The company started its forestry operations in 1976 in Corrientes. Later, the family decided to add value to this business by producing wood and timber. In 2000, ZENI set up a factory in Esquina, 600 kilometers (373 miles) away from Buenos Aires and 60 kilometers (37 miles) from the company's forest plantations. This location did not produce enough timber to ensure a sufficient harvest supply, so sourcing logistics -relying on proprietary and third-party plantations- became a key management area for UFI. FORESTRY INDUSTRY BUSINESS The company management ran the forestry and the industrial businesses as independent units, although they recognized some interdependence between the nurseries, the forestry and the industrial activities. The reason for this was related to the fact that the industrial activity (2000) came into existence after the forestry activity (1976) as a result of the decision to seek more profits from the forestry business. By 2011, UFI turned over US$ 20 million in overseas sales (95% to the United States), accounting for 30% of ZENI's overall revenues and employing over 35% of its workforce. UFI's profits had deteriorated in recent years (Exhibit 1), partly due to labor costs (30% of UFI's revenues) and partly due to the raw material costs (22% of UFI's revenues). Both labor and raw material costs had increased due to an increase in the consumption and in price. UFI's value chain spanned from seed sowing to the manufacture of end products, primarily moldings and lumber (wood boards and planks) for export (Exhibit 3). For this reason, one of the keys to maintaining competitiveness was to manage operations with agility and flexibility through the entire production process. UFI's forestry output was used as raw material (harvested wood) for its modern industrial plant that manufactured more than 30,000 cubic meters (1.059 million cubic feet) of finished products a year in a 41,500m2 (446,702 square foot) area. The plant had been designed and built in 2000, following state-of-the-art technological and layout standards as well as the advice of a leading lumber industry businessman who was close to ZENI's top management team. In this industry, there were two firms -one from Brazil and the other from Chile- that accounted for nearly 50% of all molding exports to the United States, which meant that they set the price, as the other 50% was scattered among minor competitors without enough weight to set different prices. These two competitors were more integrated than ZENI, and their byproducts were used as inputs in other value chain operations. The company's nurseries procured seeds from the United States, India and Australia. With an 8,000-hectare (19,768-acre) conifer plantation and 1,100-hectare (2,718-acre) eucalyptus plantation, UFI's entire forestry operation was certified by the United States Forest Stewardship Council (US FSC). The plant featured a continuous processing flow, starting with incoming wood logs and ending with finished products stacked on containers ready for export. Wood cut into standard-length logs came in from the forest felling operation. Logs were debarked (rolls) and sawed to produce "green" boards that were later treated at the dry house to reduce wood moisture. Then, pieces were cut further to produce smaller, knot-free blocks of several lengths, trimmed at the ends (finger) and glued to each other to build knot-free planks called blanks. Thus, blanks were knot-free planks built from blocks. These blanks could be molded with different reliefs for moldings or joined on the sides to build boards. Catering to international markets required superior quality products, which forced ZENI to secure its ISO certification (ISO 9001) early on, establishing stringent procedures to monitor wood processing, from the moment logs entered the plant until finished products were ready for shipment. UFI PRODUCTS UFI's two primary product lines were lumber moldings and boards (Exhibit 3). Both were used in interior design, largely in the American and Canadian markets. These products were manufactured from timber both from the company's own forest plantations and from third-party plantations. ZENI offered a broad assortment of moldings (over 200 SKUs) in a variety of lengths, widths, thicknesses and styles, but only 30 SKUs accounted for 80% of UFI's revenues. The plant also processed some industrial waste materials to obtain greater valueadded byproducts, like pellets. This byproduct was basically dried, compressed sawdust that was used as fuel in industrial heaters (Exhibit 4). Processing industrial waste materials into a greater value-added byproduct required careful analysis of incremental revenues and costs as this strategy did not always drive greater profitability. According to ZENI's estimates, byproduct sales accounted for 20% additional revenues (i.e., for each Argentine peso of molding sales, there were 20 cents in additional byproduct sales). ZENI was the Argentina's second largest lumber exporter and every year exported about 43,000 cubic meters (1.519 million cubic feet) of finished products to customers in 17 countries. Specifically, in 2011 the plant sold 36,000 cubic meters. It's most important clients were large distributors (70%) and intermediaries (30%) who sold to wholesale retailers. Four clients accounted for 80% of UFI's sales; the largest of these accounted for 40% of sales and the second largest an additional 20% of sales. While sales remained strong, customer satisfaction levels ranked as moderate to poor (2 to 4 in a scale from 1 to 10). In this regard, Patricio wondered, How should we differentiate ourselves? If we need to sell 50 containers a month with the most convenient models, an option would be for us to promote the models that optimize raw material usage and improve plant productivity, in other words, those involving higher sales volume and lower machinery preparation costs. Yet, we should also improve customer service. ORGANIZATIONAL STRUCTURE Major operating decisions were made by Pablo Costa, the Plant Manager, in consultation with Patricio Zeni. As Patricio was not always in the plant, sometimes they faced differences in their opinions that impacted the daily plant operations such as programmed shifts or inventory levels. Costa was a trained engineer and had been actively involved in the plant's construction and setup from the start. His technical background and strong, determined personality underscored his leading role in the plant's production processes. He was deeply invested in the company and fully committed to its daily operations -so much so that he gave direct instructions to plant personnel. "White hats", supervisors who managed specific production areas, reported to Costa. "Brown hats", in charge of machinery and specific work crews ("orange hats"), reported to "white hats". Of the 380 plant employees, 300 wore orange hats, 60 wore white or brown hats, and 20 were monthly employees in support areas. Production employees worked in several shifts, depending on the area. The morning shift ran from 6 a.m. through 3 p.m., the afternoon shift was 3 p.m. through midnight, and the night shift was midnight to 6 a.m. White hats and most brown hats worked on the morning shift only. Under Costa, who was the Plant Manager acting as the General Manager, there were 13 reporters and an entire organization, divided into two areas, a support area and a production area (Exhibit 5). Five support areas also reported to the plant's management team, while Personnel, Systems and Administration reported directly to headquarters. The Storeroom, in charge of the warehouse containing non-forestry supplies; the Sharpening Department, in charge of saw and cutting tool maintenance; the Projects Department, responsible for plant refurbishment and improvement, and the Planning Department were overseen by Costa. While the atmosphere at the plant was easy-going and non-unionized, consistent with local social and cultural environments, many supervisors (white helmets) considered Pablo Costa's management style to be highly autocratic and uninviting because sometimes he did not take into account their suggestions. This sometimes led to internal operating conflicts. PRODUCTION PROCESS A critical phase in UFI's industrial process encompassed base raw material (wood logs with bark and no branches) sourcing, as the company needed to ensure a supply that matched finished product requirements, both in terms of amount and dimension. Indeed, log sizes determined the lengthwise cut layout to cut "green" planks at the sawmill (Exhibit 6 and 7), which, in turn, determined blank dimensions (width and thickness) and, as a result, the mix of moldings to be manufactured. Base raw material (logs) supplies came from both ZENI's own forest plantations (approximately 50% of plant requirements) and other sources. Purchases from thirdparty plantations were intended to cover the gap between plant requirements and the deficit or shortage of proprietary supply-both in terms of log amount and/or size requirements. As a result, raw material supply management had to match the dimension mix required by the plant. Forestry processing tasks included felling trees, cutting off branches, and piling logs for shipment. These operations were carried out with modern automated equipment to ensure adequate output volume and product quality. Once shipments were ready, outsourced transportation service providers picked up logs at plantations and brought them to ZENI's processing plant in Esquina. Outsourcing transportation services with local providers afforded the company greater flexibility and logistic availability, as the plant was 50 km away from the source of raw material and sometimes ZENI required additional trucks in anticipation of intense rain that could impede trucks from getting the supply out of the plantations. UFI's industrialization process was both sequential and linear (Exhibit 8). Once logs arrived at the plant (approximately 170,000 tons per year), they were inspected for quality control purposes and then stored. As needed, logs were moved to the debarking area, where they turned into "clean", even rolls. Rolls were then scanned and classified into eight categories according to their diameter/size. In the next process, inside the saw mill, rolls were turned into "green" planks on two production lines: one for large diameter rolls (older, less efficient technology in place) and one for narrow diameter rolls (updated, more efficient technology). Rolls were cut using equipment that maximized wood usage. With a waste potential of up to 51% of processed lumber, optimizing wood usage proved key for a profitable operation. In a dry house, a steam heater with two kilns reduced green plank moisture to 10- 12%. Four identical dry houses operated simultaneously and continuously for 24 hours, with a maximum capacity of 7,000 cubic meters (247,202 cubic feet) of dry plank a month. This capacity could be enhanced approximately 20% by adding an energy saver (EcoVent) for AR$ 6,500,000. This was a batch process, with several pallets of "green" planks loaded simultaneously for a thermal treatment lasting approximately 54 hours. After the dry planks were classified, all four sides were brushed to remedy the natural distortions caused by the thermal treatment, and to ensure accurate sizes, with smooth, symmetric surfaces. Waste from this process -dry sawdust- was processed at a UFI factory that produced pellets which were sold as home heating fuel. Classified and brushed planks were then cut into smaller blocks to eliminate knots or imperfections in the wood in the Chop Saw area. Blocks that did not meet quality requirements (around 33%) were used as boiler fuel. The best pieces were assembled into blanks. This part of the process (known as "the line") was labor-intensive, calling for twice as much oversight to ensure acceptable labor productivity levels (80 employees worked at this station, in two shifts). Because this part of the process depended on labor productivity, raw material usage was irregular and far from optimal. But on the other hand, capacity could be increased by adding a third shift or hiring more employees. The top management team was considering setting up a fully automated line in this section to improve efficiency and quality thus avoid labor productivity irregularities. The machine that assembled blocks into blanks was called a Finger Joint. Clean blanks were manufactured by joining blocks with glued joints. This was done in four fully automated phases: carving the blocks to make dented joints, gluing, longitudinal pressing, and cutting the blanks to their final length. ZENI manufactured more than 30 categories of blanks, which were subsequently turned into moldings. Based on size and quality, blanks were chosen for the type of molding to be manufactured. The molding area evenly shaped a blank's outer side lengthwise. The relief shape was set by the cutting molds in the molding machine. Next, plaster was applied to mitigate flaws and get the molding surfaces ready for painting and drying. Moldings of different shapes and quality levels (60 types) were sold in natural color (wooden) or pre-painted (nearly 80% of sales were pre-painted). In 2011, UFI's plant manufactured more than 36 million linear meters of molding. Blanks could also be turned into boards, with an output nearing 700 cubic meters (24,720 cubic feet) per month. On the gluing line, blanks were prepared for board assembly. Sides were glued and pressed together; next, they were sanded to produce a smooth, even surface. ZENI manufactured boards of different sizes. After a strict quality control inspection, finished products were packed per customer specifications and shipped in consolidated containers. Mandatory customs procedures were performed at the plant. Exhibit 9 shows the different process stages. PRODUCTION PLANNING Patricio described the production planning context as follows: This business hinges on operating efficiency, which depends on four key variables: an efficient use of installed capacity, good management of downtimes caused by sudden interruptions or model changes, a continuous operation throughout the process, and finally, wood and energy availability. That is why the company tries to discourage orders requiring a larger number of items, and, as a result, longer machinery preparation times. The planning process started with customer purchase orders which, in turn, triggered monthly job orders that the department later prioritized, dividing them into weekly requests that served as a basis for the monthly production plan. This plan established monthly manufacturing targets for every area, serving as a guide for area supervisors to monitor the balance between actual output and the target established for a specific month. Pablo Costa, the plant manager, set the monthly targets in the plan, taking into account the monthly roll availability (quantities and sizes), products being processed, and every area's operating capacity. Plans were adjusted on a daily basis to address product needs and/or product shortages in each stage of the production process, particularly in blank production. Daily coordination meetings were held by the plant manager and area supervisors to review individual targets and to determine the quantity and mix of product to be produced by each area on each day to address the demand. One of the outcomes of this meeting was the "Daily Planning Sheet" (Exhibit 7) which stated the scanner class or diameter roll needed, the diameter range to use and the cutting diagram recommended for each type to fulfill the multiple measurements and quantity of boards needed. To make these daily adjustment plans effective and transparent to all the people involved, all relevant information and changes on forms were posted on the wall at the supervisors' office. Pablo Costa elaborated on the process: The daily meetings are used to encourage all areas to meet the company's monthly targets and not just their individual goals. Our raw material comes from nature and we don't know the size of rolls we'll get, so we must plan day by day. This helps us to stay flexible to handle supply uncertainties. Fortunately, our people are committed to their work and are willing to put in overtime to address any unforeseen changes. At the end of each month, Costa met with the planning head to review the month and establish production targets, in cubic meters, for the new month. Costa's objective was to fully use the plant's installed capacity to maximize overall output. Thus, every area's production target was based on its maximum capacity (Exhibit 10). Exhibit 11 shows how production areas met their targets, and Exhibit 12 plots UFI's output over time. Julio Garca, the plant's administrative and financial head, disagreed with this methodology, arguing: Our goal is not to manufacture a number of linear meters of moldings; our goal is to sell a specific number of orders which are shipping containers. We should focus on business engineering, rather than product engineering. Planning head Diego Calgero noted: While production priorities are established according to deliveries to customers, area priorities change during the month. For example, the person who cuts moldings prefers to cut many identical moldings to meet his cubic meter target. We end up with open, unfinished orders, trucks waiting for shipments, and areas standing idle due to lack of intermediate materials. A significant amount of production downtime was caused by unscheduled interruptions (Exhibit 13), leading to missed deadlines and poor area performance, especially in the finger joint area. While there was no formal priority analysis of the relevant causes and their impact, the information coming from maintenance and production areas was periodically crosschecked, revealing some relevant findings. The difference in manufacture goals between what Garca and Costa stated were a source of concern. Julio pointed out: "I am not judging production or anyone in particular. If I look at the budget and if I incorporate the percentages of yield, I seems that we need less lumber, less dry houses use and less cubic meters of molding to fulfill a container. Clearly, some moldings are not being billed. Looking at a different perspective, converting the meters manufactured by the molding area into containers shipped, I find that there are months in which we filled nearly ten more containers. I'm not including reprocessing in this analysis. We need to figure out how to bill an additional 20% without adding 20% to our costs. If we don't, this business doesn't add up -especially if we take into account that we have a potential monthly blank base demand of some 4,500 cubic meters (159,000 cubic feet) which we couldn't supply with our current monthly shipment capacity of approximately 3,500 cubic meters (123,600 cubic feet)". FINDING THE PATH TO EXCELLENCE Patricio had read about how Toyota's manufacturing methodology called TPS (Toyota Production System)2 had been successfully applied in other industries. He wondered whether shifting to a pull-based planning system could solve the operating inefficiencies reported by Julio Garca, who had noted that the amount of lumber used did not match the number of containers filled (Exhibit 14). Patricio also considered whether a centralized, push-based,3 monthly planning system could maximize operating efficiency and capacity usage. This would certainly curtail the production areas' current decisions but reduce the negative impact of daily production changes and adjustments. Patricio felt that implementing either a pullbased or push-based planning system would imply taking risks, as it would jeopardize the plant's ability to adjust to operating realities and to market changes in product ordered. In this respect, Patricio wondered if the planning system in place was the only relevant factor influencing productivity loss and compliance levels or whether the management of the internal production capacity and processes created operating problems that called for review. He also wondered the extent to which a control and monitoring system with the correct indicators would be effective in preventing problems. Another concern that Patricio had was the fact that Pablo Costa was in charge of both production and planning, and Patricio wondered if the lack of independence of planning might be the real problem instead of the planning system itself. The organizational structure needed to be flexible to face the company's challenges. UFI's profitability was falling, which called for a prompt decision. Patricio needed to turn around this trend of declining profitability immediately but he faced a great dilemma. He had to make an accurate assessment of the company's current situation, and then he had to define the steps to be followed. With these concerns in mind, Patricio prepared a presentation for his siblings, analyzing the major concerns, describing all the options available and developing a set of recommendations to be followed as soon as possible to reverse this negative profitability trend.

6. (Bond Valuation with Annual Payments) A corporate bond pays interest annually, has d face value of $1,000, and has a market interest rate of 6.1%. What is the intrinsic value of Jayson's bond with. 10 years to maturity? b. 20 years to maturity? c. 30 years to maturity? 7 . (Bond Valuation with Annual Payments) A corporate bond pays interest annually, has 10 years to maturity, a face value of $1,000, and has a market interest rate of 6.1%. What is the intrinsic value of Jayson's bond with: a. 5% coupon rate? b. 6% coupon rate? C. 7% coupon rate? d. 8% coupon rate? 8. (YTM w/ annual payments) A corporate bond is priced at $959.25. It has a coupon rate of 3.5%, matures in 30 years, and has a face value of $1,000. What is the bond's yield to maturity? 9 . (YTM w/ annual payments) A corporate bond is priced at $1.059.25. It has a coupon rate of 4.5%, matures in 30 years, and has a face value of $1,000. What is the bond's yield to maturity? 10. (YTM w/ semi-annual payments) A corporate bond is priced at $969.25. It has a coupon rate of 4.5%, matures in 30 years, and has a face value of $1,000.What is the bond's yield to maturity? 11. (YTM w/ semi-annual payments) A corporate bond is priced at $1.159.25. It has a coupon rate of 5.5%, matures in 30 years, and has a face value of $1,000.What is the bond's yield to maturity? 12. (Current yield and YTM) A corporate semi-annual interest paying bond is priced at $1.159.25. It has a coupon to maturity? rate of 5.5%, matures in 30 years, and has a face value of $1,000. What is the bond's current yield and yield 13. (current yield and YTM) A corporate semi-annual interest paying bond is priced at $1000.00 It has a coup maturity? rate of 5.5%, matures in 30 years, and has a face value of $1,000. What is the bond's current vield and yer6% coupon rate? c. 7% coupon rate? d. 8% coupon rate? 00 (YTM w/ annual payments) A corporate bond is priced at $959.25. It has a coupon rate of 3.5%, matures ; 30 years, and has a face value of $1,000. What is the bond's yield to maturity? (YTM w/ annual payments) A corporate bond is priced at $1.059.25. It has a coupon rate of 4.5%, mature in 30 years, and has a face value of $1,000. What is the bond's yield to maturity? (YTM w/ semi-annual payments) A corporate bond is priced at $969.25. It has a coupon rate of 45% matures in 30 years, and has a face value of $1,000.What is the bond's yield to maturity? 11. (YTM w/ semi-annual payments) A corporate bond is priced at $1.159.25. It has a coupon rate of 5.5% matures in 30 years, and has a face value of $1,000.What is the bond's yield to maturity? (Current yield and YTM) A corporate semi-annual interest paying bond is priced at $1.159.25. It has a coupon rate of 5.5%, matures in 30 years, and has a face value of $1,000. What is the bond's current yield and yield to maturity? 13. (current yield and YTM) A corporate semi-annual interest paying bond is priced at $1000.00 It has a coupon rate of 5.5%, matures in 30 years, and has a face value of $1,000. What is the bond's current yield and yield to maturity? (Callable bond) Frankfort corporation has an outstanding 15% bond that pays interest semi-annually. The 30-year bond has 20 years until maturity and has a face value of $1,000. Frankfort, realizing that the bonds were issued at a relatively high interest rate era, has a call feature in the indenture of the bond. This feature requires Frankfort to pay one year of interest in the event that Frankfort calls the bond. The bonds are callable after 10 years upon issuance. a. If the bond is not expected to be called, what is the price of the bond? b. If the bond is expected to be called, what is the price of the bond