Riordan Manufacturing’s China plant produces electric fans for distribution worldwide. The plan operates as a decentralized unit of Riordan Manufacturing. The materials required for production are produced locally. The primary materials used in the production of the fans consist of electric motors and plastic polymers. The plastic components for the fan are injection molded on site at Riordan Manufacturing in China. Fans are made to stock in anticipation of forecasted sales. Customers provide an anticipated purchase quantity of fans for the year. The sales for fans are forecast based on previous years’ sales. These forecasts drive production planning. This creates inefficiency in the production planning process.
The China plant also designs and develops custom fan products for worldwide customers. Although Riordan Manufacturing has an estimate from customers for yearly requirements of custom fans, the orders are received randomly throughout the year. Custom fan orders are not included in the forecasts.
Data required for planning is located in two different places and are not integrated. The material needs in the forecast are incomplete, requiring a manual effort to track requirements for custom fan orders. Riordan could benefit from streamlining material and production processes to reduce costs and cycle time in delivering product to customers.
The Random spacing of orders for custom fans with varying quantities make it difficult for Riordan to estimate material requirements in the short term. The custom fans are designed and developed under an individual contract with the customer. A separate contract vehicle is used for a small pilot production run to validate the design of the fan and the production process. A separate contract is required since the cost of the production fan is unknown until the fan is developed. The development process and transition to production can be improved. The pilot production program can incorporated into the development process by building prototypes during development. Since Riordan has developed custom fans in the past, the information from the past projects can used to estimate the costs adequately. Alternatively, the contract vehicle could be converted to a cost type contract.
The production process for custom fans requires multiple set-ups during the year and creates material ordering challenges. Riordan should conduct trade study and consider implementing an alternate process. The alternate process would be to produce the estimated number of custom fans for a customer in one or two production runs. These production runs will be entered into the production forecast to eliminate the difficulty with estimating material requirements. The first production run should immediately follow the pilot production run when the design and build process have been validated. Since the customer estimates are annual, producing a six month inventory of fans would be low risk. Riordan can negotiate with customers for storage cost sharing. The increased efficiency and elimination of material planning issues will more than cover the cost of storage.
Riordan Manufacturing’s supplier for electric motors has an on time delivery of 93%. Delays in material receiving create bottle necks in production. Riordan should work with the supplier to improve the delivery schedule by providing accurate forecasts. Alternatively, a second source of supply should be identified to assure electric motors are received on time for production. The polymer supplier has not had any issues in meeting delivery requirements. Riordan should consider discontinuing the safety supply of polymers. Since supply is not an issue, the stockpiling adds costs that are easily avoidable.
Riordan material receiving process now is that trucking company delivers the material to the dock. The supervisor compares the shipping document against scheduled incoming orders. Team unloads the materials and delivers to the factory. At the end of the day, the receiving supervisor gives the log to the receiving clerk. The Clerk data into the inventory control system. The ordering system is not tied to inventory control.
The receiving supervisor performs a manual verification process. The truck driver and loading crew are waiting for the verification. Any discrepancies found must be resolved before the material is unloaded and stocked. Material can not be stocked until the manual verification is complete, creating a potential bottleneck in the process. The second potential bottleneck is the receiving clerk. Although material is physically in the stockroom, the inventory control system does not reflect the new material until the data is manually entered into the system. Since this occurs at the end of the day, the material inventory will not show in the system until the following day. The receiving clerk is a single point failure that could bring the process to a stop. The bottle neck could occur from the manufacture of the Riordan raw material, such as not getting their product to supply the part that is needed to deliver to Riordan.
New Receiving Process
Riordan should look into changing the process of receiving their material from manual to computer based process. Riordan could incorporate a barcode receiving data collection process. There are devices that will support bar code reading, this applications will use the latest Microsoft handheld computer operating systems. By incorporating the barcode system this will provide the company with real-time processing, this will improve the inventory accuracy. The barcode system will improve on the ability to process the incoming data immediate for both receiving and shipping. This process will also provide seamless tracking and instant visibility of inventory and reduced paperwork. Imposing the bar code on the material supplier will benefit both the supplier’s process and the new process at Riordan Manufacturing.
Manufacturing with Inventory
The manufacturing inventory is done manually at the end of each day. The manufacturing team submits a form to the inventory clerk with completed product data and raw material consumption. The data is entered into the inventory for assemblies and sub-assemblies. The bar coding of raw material could easily be extended to include sub-assemblies and completed products. Scanning the data into the inventory system would automate the process and provide real time work in process status. The manual forms completed by manufacturing and data entry by inventory clerk are eliminated. Cost savings realized from the revised process will easily provide a return on investment for the bar code system.
Final Product Shipping
The sales department completes enters customer orders into the shipping and billing system. Orders are filled and the shipping data is entered into the shipping and billing system. Copies of the orders shipped are sent to a clerk to be manually entered into the inventory system for update of completed stock. A physical inventory is conducted annual to reconcile quantities of raw material, sub-assemblies and finished product. Again, there are multiple independent systems that do not communicate and numerous manual entries on forms and data entry into the inventory control system. The bar code system described for the material receiving and manufacturing inventory could readily be implemented in final product shipping. The bar codes will allow for automatic data entry as orders are processed. The number of opportunities for error is significantly decreased. The need for the annual physical inventory may be eliminated, or the reconciliation scope significantly reduced.