Manufacturing has a reputation for precision and innovation. As a Fortune 1000 enterprise, Riordan cannot afford to have the issues of bottlenecking affecting their production. As a result, a detailed analysis of the bottlenecks, the effects, and appropriate strategic planning were examined. Lean production planning was examined as was new processes. The details of the new processes also outlined the benefits to the company.
Bottleneck Issues: The Effects
A bottleneck in a process is a specific part which falls short of meeting the demand. The capacity, which is necessary for that portion of the process does not have the capability of meeting that demand, has the most lag, or uses the most time or resources. Bottlenecks lessen the output of a process because the flow of the process is halted or slowed (Chase, Jacobs, & Aquilano, 2006).
Strategic capacity planning involves keeping the system balanced so the output of one level is the required input of another level. A bottleneck anywhere in this process would limit the thoroughput time within this system. This is evident in the example of the Riordan manufacturing of the electric fans. The manufacturing process requires specialized piece parts and a specialized labor supply with proper knowledge to create the product.
Supply Chain and Lean Production
Supply chain efficiency is measured by how quickly inventory turns over and weeks of supply. If a bottleneck exists in the supply chain, such as the packaging and shipping of the inventory, the company could not handle the demand of inventory coming in. Thus, the capacity of shipping resources would be less than the demand of inventory and a bottleneck is created (Chase, Jacobs, & Aquilano, 2006).
This is true for Riordan. The plant in Hanghzou, China experienced problems with shipping the inventory out of the Shanghai port in a timely and cost-efficient manner. Similarly, in lean production a bottleneck could be a machine, which cannot handle the demand at the proper costs and resources; subsequently, the process flow diminishes.
The ability of an organization to determine its production capacity to meet changes for the demand of its product is a process known as Capacity planning. Capacity, in this context, is defined as the maximum output of work that an organization has completed within a specified time frame.
The possibility of inefficiency is inevitable, especially when resources are under- utilized, or when there is a discrepancy between the organization’s capacity versus customers’ demand, or unfulfilled customers.
Capacity = (number of machines or workers) (number of shifts) (utilization) (efficiency) (Wikipedia).
Because the China plant has already confirmed that there are some individual customers that have schedule products throughout the year for the electric fans, it is necessary to add capacity to meet the increase in demand. This needs to be done to minimize inefficiency. The strategy to achieve this could be lead, lag, or match.
Types of Strategies
The Lead strategy is defined as an increase in capacity in anticipation of demand. This ensures customer demands are fully met, to satisfy, and keep them from going to competitors. However, it could result in excess inventory if the demand does not meet the forecast. The Lag strategy is defined as an increase in capacity after the plant is made to run at full capacity or beyond because of an increase in demand.
The risk of waste is decreased, but there may be loss of potential customers (North Carolina State University, 2006). The Match strategy is adding capacity in small amounts in response to changing demand in the market. This moderate approach is recommended for implementation of the electric fan production line at the China plant.
Lean Production Planning
Lean production planning is a concept developed in Japan, which is based on finishing goods when they are needed (Chase, Jacobs, & Aquilano, 2006). For Riordan to implement this type of plan, an entire new strategy will need to be developed for handling inventory. Currently, each Riordan plant handles inventory independently. Now Riordan must centralize inventory and ordering systems. The two systems need to be centralized because lean production is based on the theory that goods are produced when needed, thus eliminating waste (Chase, Jacobs, & Aquiliano, 2006).
Another change to implement is in the receiving of raw materials and the shipping of their finished goods. In China, the suppliers’ on-time delivery rate is only 93%. This rate will not work in a lean production planning environment. To increase this percentage, the plant will need to have deliveries more frequent so materials are always on hand. This would eliminate a potential bottleneck due to a lack of inventory having a negative effect on production times. Either way, it creates waste and will not maximize the efficiency of lean production.
Part of the just in time theory of lean production is it reaches the customer “in time”. This can be accomplished by proceeding with the Shanghai move. This would reduce the steps needed to distribute products to customers. In addition to a decreased throughput time for finished goods to reach the customer, Riordan could save money, thus eliminating wasteful spending.
By centralizing inventory and customer orders, increasing on-time deliveries from suppliers, and eliminating the shipping bottleneck, the Hangzhou plant can minimize the cash outlay by pre-planning production and developing an efficient system that eliminates the most waste possible.
New Supply Chain Process
It is extremely important for each organization within Riordan’s supply chain to coordinate with each other for inventory reduction, while maintaining or increasing customer satisfaction through delivery and service performance. Currently, various bottlenecks exist within their suppliers, distributors, inventory, and information management.
They should improve the processes by consolidating all of the company’s departments and functions by using Enterprise Resource Planning (ERP) and vendor management inventory system. A ERP system would allow their China location to integrate all departments, such as sales, inventory, manufacturing, and billing. The use of this system would serve many purposes: improvement of communication between departments, loss of minimal information and allow departments to retrieve information easily and efficiently (Topbits, 2010). This type of system would strengthen the relationship between each department by integrating the supply chain business processes and promoting shared information.
An ERP is also a system, which allows improved communication between the companies and the buyers. Experience has shown a collaborative inventory management system will demonstrate improvements in these areas that can result in the elimination of 20%-30% of the previously required supply chain inventory (The Supply Chain Company, 2010). This type of inventory system would allow Riordan to work with the buying companies by sharing information and inventory. Riordan would then have to maintain a decreased amount of safety stock throughout the year.
The benefits of the vendor management system are significant cost savings, less inventory, and fewer stockouts, resulting in more sales and higher customer satisfaction (The Supply Chain Company, 2010).
Presently, Riordan has several areas of concern for bottleneck formation. One such area exists in their supplier, another in shipping. With a few changes, these processes could improve thus providing several benefits to the company. In addition to the reduction of the bottlenecks, implementation of these systems would serve to increase sales, build relationships, and improve customer satisfaction.
- Chase, R. B. , Jacobs, F. R. , & Aquilano, N. J. (2006). Operations management for competitive advantage (11th ed). New York: McGraw Hill/Irwin.
- The Supply Chain Company. (2010). The Vendor Managed Inventory Solution. Retrieved May, 21, 2010, from http://www. i2. com/industries/consumer_industries/vmi.
- TopBits. (2010). Enterprise Resource Planning. Retrieved May 20, 2010, from http://www. Topbits. com/enterprise-resource-planning. html.
- Wikipedia. (2007). Capacity Planning. Retrieved May 23, 2010, from http://en. wikipedia. org/wiki/Capacity_planning.