Case Scenario: Riordan Manufacturing
I need help discussing strategic capacity planning and lean production for the new process design and supply chain process for manufacturing electric fans at Riordan. In 950 - 1,050-word paper that should be posted as a Word attachment and should adhere to APA formatting.
Riordan Manufacturing, Inc. is an industry leader in the field of plastic injection molding. With state-of-the art design capabilities, we create innovative plastic designs that have earned international acclaim. Attention to detail, extreme precision and enthusiastic quality control are the hallmarks of Riordan Manufacturing. With facilities in San Jose, California, Albany, Georgia, Pontiac, Michigan and Hangzhou, China, we have the capacity to fulfill your unique needs. Riordan Manufacturing is wholly owned by Riordan Industries, a Fortune 1000 enterprise.
Some of our products ...
Plastic Bottles
Fans - All sizes
Heart Valves
Medical Stents
Custom Plastic Parts
Hangzhou, China Plant
Riordan Manufacturing’s China plant operates as a decentralized unit of Riordan Manufacturing. It prepares its own forecast of electric fan sales throughout the world, which includes the United States. It schedules production of these fans to meet the forecasted sales.
The electric motors used in the fans are completely assembled units. They are purchased by buyers in the China Plant’s purchasing department from a local Chinese company. While this company attempts to maintain adequate quantities of electric motors in stock to meet all its order requirements, its on-time deliveries over the past year have averaged only 93%.
The buyers also purchase the Plant’s requirements for plastic polymers locally. The polymers, after being received, are melted at precisely controlled temperatures and injected into individual molds to create individual plastic parts required by the fans. This is accomplished by means of injection molding machines located in the production area. These capital expensive machines control the molding processes to the specifications of the plastic parts being produced, such as the fan blades and fan housings. The plastic fan blades, plastic fan housings, electric motors and other miscellaneous parts are then assembled to create finished models of electric fans. The assembled fans are individually packaged together with instructions on how to use the product and stored in a finished goods stockroom awaiting sale.
This part of the plant’s business is a make-to-stock operation in which the future demand for fans is forecasted based on taking the average of sales for the last three years and extrapolating it into the next year. The assumption in using this forecasting method is that history will repeat itself within manageable limits.
Orders for electric fans can be picked up at the China plant by the customers themselves or else they can be shipped to the customers anywhere in China. The China Plant uses a Chinese shipping company that offers services comparable to FedEx, but is less expensive. Orders are also shipped internationally by either FedEx or a Chinese shipping company that competes with FedEx. Two shipping companies are used by the China Plant for international shipments to assure that timely delivery services will always be available. The services both shippers offer are very similar and their shipping charges are competitive.
The China plant also designs and develops customized electric fan products for customers world-wide under individual customer contracts. After the design and development of a new electric fan is completed for a particular customer, a small production lot of the fans is usually scheduled, but under a separate contract. A separate contract from the development contract is used since the final cost of the fan can only be determined after its development is completed. This final cost is used in estimating the cost of the production quantity. A small production quantity is produced to statistically validate both the design of the fan and the production process used to build and assemble the fan, if the fan’s design represents a significant departure from the way typical fans had been designed and assembled. This initial production can be described as a production pilot run.
Estimates of follow-on orders for these new custom fans are not forecasted but are based on the customers indicating what their estimated yearly requirements will be. Since the fans are being produced to a particular customer’s unique requirements, they are not available for sale to other customers; consequently no additional forecasts are required. The customer’s indication of what its yearly requirements will be helps the China Plant to estimate what their yearly resources requirements will be in terms of production capacity, material requirements, and labor to satisfy the customer’s requirements. Customers normally negotiate their yearly requirements for fans in order to obtain the lowest price. They then provide periodic release orders for smaller quantities against the yearly total throughout the year.
Periodic orders for quantities of fans against the contract’s yearly total however are received from customers randomly throughout the year. This makes it difficult for the China Plant to estimate exact material requirements in the very short term since the orders are received randomly and are for varying quantities. To assure that it will be able to meet any delivery schedule its customers request, the China plant maintains a safety stock of polymer material even though the material is obtained locally and does not present an availability or a delivery problem, at least for the foreseeable future. It does not stock electric motors other than a small quantity of the more popular types for warranty repairs, but depends on the electric motor supplier to maintain motors in their stockroom. The China Plant, following good supply chain management practices, periodically provides the electric motor company with a list of the motors it forecasts it will need throughout the year to help the company plan which motors and how many it should carry in its stock.
Logistics requirements for the China plant to ship products internationally are similar to the requirements for shipping items from the United States to China. A logistics scenario for a shipment of items from the Riordan R & D facility, for example, to the China Plant would be as follows:
1. Riordan’s R & D Department contacts FedEx, the shipping company they plan to use, on a shipment going to the China Plant.
2. FedEx picks up the shipment at the R & D facility.
3. The R & D Facility provides FedEx with information on the items being shipped including export license if required, item descriptions, item model or part numbers, quantities, total cargo weight, Product Duty Classification Codes, and destination name and address. The United States Bureau of Export Administration (BXA) under the U. S. Commerce Department oversees export control and licensing in the United States. It is mandatory that companies follow their requirements when shipping items internationally. Originals of all documentation are maintained by Riordan’s R & D’s shipping department. Copies of all the shipping documents are also faxed to the China Plant.
a. To determine the Product Duty Classification Code, the R & D Facility compares the technical description of the items being shipped against a set of technical descriptions known as both Schedule B and as the Harmonized Tariff Schedule (HTS) codes. The HTS is maintained by the U.S. Government. Coding items with duty classifications can be tricky business, but it is essential to international supply chains to make sure that only the correct amount of duty is imposed.
b. The code for a fractional horsepower AC motor for example is 8501.20.2000. The code for polycarbonate plastic material is 3920.61.0000. The first six digits in each code is the code classification. The last four digits is a country specific code.
4. FedEx delivers the cargo and documentation to a customs broker at a United States sea port and then faxes the details of the shipment, including shipment arrival time in China, to FedEx in China so they will be prepared to receive the cargo upon arrival.
5. The Broker takes possession of the cargo and the documentation from FedEx and presents the documentation to U.S. Customs for clearance. Dock fees or any other fees such as channel dredging fees, if imposed, are identified and paid by the broker. The broker collects for all such payments from the R & D Facility when his responsibilities have been fulfilled and he submits his bill.
6. The Broker also arranges transportation with a ship company and has the cargo moved to the dock area along side the ship. Note that this same procedure would be used to ship by air. The shipping documentation travels with the cargo although copies are usually faxed to the customs office at the destination port ahead of time by the broker to help expedite receipt and clearance of the cargo when it arrives. Shipping charges by the ship company are billed directly to the R & D Facility.
7. The ship reaches its destination.
8. Chinese Customs examines, or re-examines the paperwork if previous copies were received, accepts it if there are no problems and releases the cargo, which has been or is in the process of being unloaded, to a designated local Broker. This Broker might be a member of the same Broker Company hired originally in the United States or it might be a different company. The stateside broker determines which one to use. The Broker accepts the paperwork and cargo and submits everything to the local FedEx carrier after making copies of all the documents for its files. If any additional fees such as dock fees are imposed, the Broker pays these and submits a complete bill for his services, including any fees he pays, to the China Plant.
9. Fed Ex accepts the cargo and paperwork from the Broker, signs off on receiving the cargo, and delivers the cargo to the China Plant. FedEx makes copies of all documentation for its records.
10. Upon receiving the delivery, the China Plant verifies the contents of the shipment while checking for damage, then accepts the shipment and provides FedEx with a signed receipt.
Albany, GA facility
Plastic bottles are produced at the Albany, GA facility. Contracts are negotiated with customers for yearly quantities of standard and customer-unique bottles.
Regardless of the contracts it receives for yearly quantities of bottles that each customer orders, the customers actually provide release orders for smaller quantities throughout the year against the yearly totals. These release orders are received at random since each customer’s requirement for bottles varies as a function of the variability of the sales of the customer’s final products that use the bottles.
As a consequence of receiving releases at varying times the Albany plant keeps a safety stock of the more popular standard containers for those of their customers that use them. Of necessity, the amount carried is small because of the amount of storage space available.
It also keeps a safety stock of the raw materials used to produce the bottles. Safety stock provides a degree of assurance that it won’t have shortages that would preclude it from shipping orders on time. There is a trade-off between the cost of carrying the safety stock and the cost of running out of bottles however. Its management’s decision on how much safety stock to carry because of the associated inventory carrying costs.
A related reason for carrying safety stock is contract penalty clauses. In this regard, while the company does not like to accept contracts that impose a penalty if the company misses a delivery date, it has accepted some in the past when the orders were very large and consequently had a potential for a larger-than-normal profit.
The company policy has always been to provide total customer satisfaction in terms of meeting committed ship dates. The company’s average shipping metrics for the last three years indicated that the Plant shipped at an average 96% on-time level. Management felt that this level satisfied the objective of providing total customer satisfaction since some shipping delays, due to adverse weather conditions for example, were beyond its control.
As another example of providing excellent service, at one time in the past the plant decided to ship a small order by air freight to meet one of their major customer’s emergency need dates rather than ship the order by normal means and having the shipment arrive late. The Plant decided that it was important to maintain its reputation of providing excellent customer service.
Riordan Manufacturing uses the Huffman Trucking Company to ship all of its products in the United States. Rates for shipping a full truckload of cargo to a single destination are lower than shipping partial loads. Higher rates for less-than-full truckload shipments are justified by Huffman for the following reasons:
Huffman must try to find additional cargo to fill their truck to help pay for the fuel and truck driver labor required.
Time on the road can be longer because of the different stops the truck must make to deliver cargo to different customers.
Cargo is generally physically handled more frequently with partial shipments resulting in a greater chance for damage.
The Albany plant has a good record of supplying customer shipments on time that are relatively close to their plant but has had some problems meeting customer required due dates in the North and North-Eastern parts of the United States when winter conditions set in. To keep track of its performance the Plant maintains metrics on how many shipments are delivered late, the amount of time the shipments were late, and the reasons. The plant also ships large orders by train if delivery time is not a critical factor and if the customer has the means to pick up the cargo at the train depot at its destination.
Management is investigating whether to switch to a VMI supply chain system.