case study

Dream Desk Company Case Study

As a plant industrial engineer, you are charged with putting together a team to design and implement a new production and inventory control for Dream Desk Company plant. The primary objective is to reduce cost and WIP inventory. You should determine how the facility will be arranged and the procedure for controlling the flow of orders through the shop. For example, will you use process layout, cellular layout, or product layout? What material handling load size will you use for moving for moving the parts between workstation (i.e., move one part at a time to the adjacent machine or move an entire batch at a time)? You should specify which items should be kept in the inventory and which items should only be produced when ordered. You must determine production batch sizes for items made to stock.

General overview

Work in progress (WIP) refers to all the materials and partially finished products that are at different stages of the production process. This excludes the inventory of raw materials at the beginning of the production cycle and the finished goods inventory at the very end of the production cycle (Verma, 2009). Work in progress is also referred to as 'work in process'. Works in progress is usually valued higher than raw materials, but considerably lower than finished products. Therefore, most companies strive to hold the actual work in progress as low as possible purposely to reduce the capital tied in production or manufacturing process or to reduce the risk of obsolescence especially for the fast moving sectors including technology and various consumer electronics (Reid & Sanders, 2002, p. 457).

For this case study, cellular/group/combination layout, which is a combination of product and process layout, should be utilized since it combines the advantages of both types of layouts. This is due to item variability and in such cases, machinery is arranged in a process layout. On the other hand, the process grouping for manufacturing of various types and sizes of products is arranged in sequence. Finally, integration with just in time (JIT) approach will make the production process easier thereby reducing the WIP inventory and overhead costs (Behnam, 2013). Just in time is an approach to material management and control designed to produce or deliver parts and materials just when required in production.

List of products and the parts via bill of materials and documenting this in a flow chart

Since the market has demanded more of six-drawer desks, the bill of materials will be based on this particular type of model or design.

Table 1: A table showing the bill of materials (BOM)

Fig. 1: The figure above is an illustration of a flow chart process for bill of materials

Desk

Drawers (6)

Solid Oak Construction

Solid Pine Construction

Oak Veneer

Piece Front (12)

Handle (6)

Sides (12)

Back (6)

Bottom (6)

Front (6)

Handle (6)

Sides (12)

Back (6)

Bottom (6)

N

Sides

Y

Left Side Dream Trade Mark Seal (1)

Material

Handling

Assemblage

Painting

Final inspection for blemishes and boxing

Dream Top (12)

Parts to be made to order and which to be made to stock

Based on the sales realized, the contemporary and frontier accounted for 65% of the sales, oak veneer frontier model 25% while solid pine frontier and oak contemporary 10% of the sales. Therefore, the parts of the product with the low sales contribution should be made-to-order while the major contributors should be made-to-stock to ease delays and delivery lead time reduction.

Table 2: Parts to be made to order and parts to made-to-stock

Using an economic criterion, select appropriate batch sizes for make-to-stock items

Batch size is the Economic Order Quantity (EOQ) that optimizes the sum of acquisition and inventory carrying costs and it is dependent on factors such as inventory carrying the cost, the cost of purchasing and receiving, average consumption, storage accommodation, interest on capital e.t.c (Verma, 2009). In case the items are to be made to stock, the following assumptions are followed

• There is a continuous demand for the product at a rate A unit per year.

• Production rate for the product is M unit per year (M>A).

• Set-up cost per batch of size Q is fixed at P (independent of Q).

• Unit variable cost of production is $. C per price.

• Inventory carrying cost per unit per year ($/unit/year) = IC (Where I = Inventory carrying charges).

• No shortages allowed.

Calculations to determine the batch sizes for various parts

Optimum Batch Size = Q = √ (2AP/C)

Optimum Batch Size for a Single Item = QB = √ (2 AP/IC (1-A/M))

Total desks sold last year = 81,450 desks

Income earned from total sales = $ 1.5 million

Cost of each desk = $ 15700000/81450 = $ 192.76

MTS parts accounts for 65% of the sale hence,

Desk supplied per year = M = (65/100) × 81450 = Approx. 52,943 desks

Working days in a year = 365 days - weekends (52×2) - two weeks maintenance (2×70) = 247 days

Therefore, desks supplied per day =M = 52,943/247 = Approx. 215 desks

Assuming the first full shift starts from 8am to 4pm while the partial shift starts from 4pm to 8pm; Total working hours = 12 hours

Total labor hours = 125 production department workers ×12 hours = 1500 hours

Therefore, if 1 desk requires 4 hours of labor then,

Total desks produced in 1 day = 1500 hours/4 hours = 375 desks

Also, considering the paint department workers are being paid an extra $0.20 per hour total, cost of production per day per desk = ((125 workers × $14 × 12 hours) + (24 workers×0.20×12))/375 = $56.15

Assuming the inventory charges are $2 per desk per year, the Inventory Charges per desk per day = Ic = $2/365 days = $0.00548

Finally, the Economic Order Quantity (EOQ) per desk = QB = √ (2×215×56.15)/ ((0.00548) × (1-(215/375))) = Approx. 3214 desks

Considering a six drawer desk, the following are batch sizes per day for various parts:

Table 3: Batch sizes for various made-to-stock parts

Procedure for selecting the parts to produce at each stage and for authorizing production

In determining the selection of parts to produce in both the drawer production and frame production stages, use of formalized approach in production planning and scheduling procedures can be considerably improved. The most appropriate method that can be used to facilitate this process is the conceptual hierarchical production planning framework for make-to-order (MTO)-make-to-stock (MTS) production situations (Verma, 2009). The MTO-MTS isolation is determined first; secondly, the capacity coordination plan is established which provides the lot sizes and safety stocks for made-to-stock products and finally, the formulation of a detailed scheduling decision. The hierarchy is essential in customer order decoupling point (CODP) concept usage advocacy as a qualitative method of making MTO/MTS decision. The CODP isolates order-driven activities from forecast-driven activities in such a way it becomes the main stock point which offers precise deliveries to customers. On the other hand, this concept uses product process and product market features and therefore, it helps in the location of the decoupling point when given desired service level and inventory related costs and thus, the MTO/MTS decision (Reid & Sanders, 2002, p. 479).

High volume, low variability products are subject to MTS production. Product components that belong to low volume, high variability category should be produced on MTO basis although more inventory level will be required for such components. Therefore, it is recommendable that close tier is sorted out with customers to reduce the variability (Behnam, 2013). The demand variability analysis indicates that there arises a problem related to subjectivity in determining the drawing line that separates high demand items from the low demand items and also the low demand variability from high demand variability. Therefore, MTS/MTO decision is strategically oriented and complicated as a result of complex trade-offs implicated between diverse demand and product process features. No MTS/MTO partition procedure can be claimed to be 100% optimal (Behnam, 2013).

Materials handling system, including part transfer quantities and move equipment that will be used.

Material Handling System

The best material handling system to be incorporated in Dream Desk plant is Equipment-Oriented System. In this system, depending upon the type of equipment used, several systems are used in succession to realize the full benefits of cost and lead time reduction. These systems include overhead systems, conveyor system, tractor-trailer systems and forklift truck and pallets systems (Verma, 2009).

The part transfer quantities and move equipment that will be used

Finished boxed products should be transported using fork-lift truck and pallet systems. The fork-lift truck can carry up to 8 stacked boxes of finished products while the pallet truck can only carry one box at a time. A four-wheeled Heavy Duty Cargo tractor-trailer system with 5 to 10 tons capacity and three sides drop-down arrangements can hold up to 160 drawers parts (sides, backs, bottoms, or fronts), 160 desk leg, or 40 desk parts (sides, tops, back). Frames can be moved using a Heavy Duty Truck Goose-Neck Type truck of 5 to 20 tons capacity. This truck can move over 100 frames, and up to 350 drawers when stacked on this truck. Alternatively, overhead conveyors can be utilized.

References

1.  Drouillard G. (2001). Bill of Materials. Inventory Interface. Retrieved May 10, 2016.

2. Verma A. P. (2009). Industrial Management and Engineering. Aisa Enterprises; New Delhi.

3. Reid, R. D. and Sanders, N. R. (2002). Operations Management. John Wiley & Sons. pp. 457–479. 

4. Behnam M. (2013). Operations and Production Systems with Multiple Objectives. John Wiley & Sons.

5.  "Super BOM". SAP ERP 6.0. SAP. (2012). Archived from the original on 2012-07-17. Retrieved 2016-05-10.