Richard Morse, a MIT alumnus started National Research Corporation ( NRC ) as a procedure development company focused on developing vacuity engineering. NRC ab initio used the engineering to bring forth frozen orange juice dressed ores and instant java. In 1950 NRC applied this engineering for bring forthing of high pureness metals and started with Ta ( Ta ) production in 1959. NRC went through a series of ownership, with HC Starck AG ( Germany ) geting 50 per centum interest and a venture capitalist geting the remainder in 1976.
In 1986 Bayer AG ( Germany ) and Bayer Corporation US purchased bulk of HC Starck. In 1989 HC Starck ( HCST ) acquired Ta factory and wire production installations from Fransteel, therefore adding to its bing Ta decrease and pulverization fabrication installation. This mostly increased its portion of Ta metallurgic merchandises market.
II. Situational Analysis:
HC Starck International was fabricating Ta, an expensive metal used in assorted industries like aerospace, atomic reactor, surgical equipments. The largest purchasers were the makers of electrolytic capacitances and vacuity furnace parts.
The entire world-wide ingestion of Ta was about 550 dozenss yearly.
HCST used Ta dual salt, Ta Scrap and Ta ingot as a natural stuff for fabricating Ta pulverization, wire, and factory and fabricated merchandises. It sourced the natural stuffs from mined ore, bit generated from unfastened market, bit from its consumers, bit generated from its ain production and Ingot from authorities militias.
The natural stuffs are melted into an metal bar and cold forged into a 4inch thick sheet saloon, which was the starting stuff for the metallurgic merchandise division. These sheet bars were rolled into sheets of changing thickness. The full process resulted in production of scarp runing between 20-30 % . Figure 2 and illustrates the generic merchandise hierarchy.
Figure 1: Generic merchandise hierarchy
Though no replacements were available in the market to replace Ta, delays in supply of the Ta merchandises had frequently created a fright that clients might exchange to Zirconium as a replacement and if it worked good, consumer would ne’er exchange back to Ta which was priced four times more than Zirconium. HC Stack Inc besides late faced challenges for other providers, in peculiar the Chinese companies selling Ta wire. HC Starck besides experienced troubles in sourcing Ta bit, the handiness were unsure and this forced them to keep immense stock list. Besides the market demand for finished goods was really fickle.
Scheduling of Production:
Though new ERP ( SAP ‘s R/3 ) system was installed at Starck Inc, telling for natural stuff, planning and programming for production was done manually. Jim Mc Mohan, Supervisor of production control collected gross revenues order and converted them in to production prognosis, frequently for a whole twelvemonth on month bases and revised it a few times. I add-on to raw stuff telling Jim besides did manually performed store floor programming. SAP system were non used as there were jobs with the merchandise formula pricing ( cost ) and attempts to repair the job were taking longer than expected, doing the system undependable.
Orders from consumer were really fickle, to account for this uncertainness HS Starck acquired “ cover orders ” and scheduled production of these orders indiscriminately spread, throughout the twelvemonth. For illustration if it received a entire order for 5000 pess of tubing it produced a standard 20 pess tubing in batches and subsequently sectioned them in to changing sizes based on demand. But really frequently segmenting based on order sizes resulted in uneven sized pieces bring forthing a immense sum of bit.
Gross saless and Selling:
Gross saless and selling squad at H C Starck, Inc had systematically achieved gross revenues mark, return on assets. The squad uploaded its gross revenues figures and forecast through the SAP system, nevertheless the production planning continued the usage of manual methods, this resulted in ‘information black hole ” as the information forecasted was non utilized at the thaw store for planning, physical piece of paper still travelled from gross revenues to production, ensuing in longer lead times.
As a manner around to this the production planning, gross revenues and operations squad instituted a “ rub-a-dub ” meet every twenty-four hours to reexamine the cargo that was due in a hebdomad clip. The meeting managed to maintain everyone up dated and expedite delayed orders, but this resulted in most of the occupations being by base on ballss unless they made it to the ‘drumbeat list ‘ .
Lead clip and Inventory degree:
Inventory was really expensive and H C Starck maintained immense stocks, this was mostly due to scarceness of Ta bit. They besides purchased surplus to maintain it out of the custodies of rivals even though the demand was non immediate. At any clip they had more than adequate to guarantee high degree of handiness.
The mean lead clip was estimated at 7 hebdomads. Average fabrication clip was 2 hebdomads. Analysis showed that longer more than longer clip, up to 2 hebdomad, was utilized from the point the gross revenues orders were released to the point when stock suites issued stuff for processing. This procedure was still mostly manual and SAP R/3 system was non used.
The typical production routing used a custom-built policy with either 4 inch saloon of quater inch sheets as the get downing stuff. Depending on the concluding merchandise the stuff passed through multiple procedure orders before stoping up as concluding merchandise ( Figure
Figure 2: Production rhythm: Multiple procedure orders
To hasten on lead clip gross revenues squad frequently entered difficult orders on likely gross revenues, trusting that the operations squad would get down fiction even before the order is placed and the order would be read by the clip client placed their orders. Sometimes these worked good but frequently the SAP system required orders have bringing day of the months and so the gross revenues squad made up day of the months.
III. Problems countries highlighted as in the Case* :
The Metallurgical Products section at HCST was scheduled as a make-to-order job-shop, with client lead-time public presentation averaging seven hebdomads. Can we travel in for made to stock sort of agreement?
Order expediting is the regulation instead than the exclusion, and in fact a day-to-day meeting occurs to enable the expediting.
The works carries an norm of six months stock list, yet few points are sold from stock, or even made in a individual production measure from stock.
About all work base on ballss through some of the standard gages of 4 ” , A? ” , 1/8 ” , and 0.030 ” , yet no standard stock is held at these sizes other than a little sum at A? ” , and little left-over pieces at the other gages.
The Gross saless group was pressing hard to cut down client lead-times to fewer than three hebdomads. The end seemed come-at-able since production orders averaged merely over two hebdomads, but something needed to be done to rush the clip between when an order was received, and operations began working on bring forthing the concluding merchandise.
It seemed as though keeping stocks of some of the standard intermediate sizes would assist client lead times, since end-items could be produced in a individual production operation, but which points should be stocked, and at what degrees?
Besides, non everyone in the organisation was convinced that decrease of client lead-time was a precedence – some were more focussed on stock list decrease, while others felt that stock list degrees were non that of import.
Based on the job statement given in the instance, we now work on the strategic options and execution.
IV. Strategic Alternatives and Implementation
What to stock and how much?
Our merchandise demand analysis shows that for all merchandises being made out of Alloy-A, The top 8 ( a category stock list ) ( 20 % ) merchandises contribute 80 % of the gross revenues volume the several criterion divergences and the comparative criterion divergences per centums are shown as below
*Ref: -Designing and Pull offing the Supply Chain-Concepts, Strategies and Case Studies ( 3rd Edition ) . Page 119-120, Case Wrap Up.
1999 Invoiced Gross saless – Pounds per month
Disk – 10 ”
Since the standard divergence for these merchandises is reasonably high, a higher degree of stock list degree is advisable for these series of merchandises, besides most of the merchandises are in the signifier of sheets, which can be modified or value added to get at an alternate merchandise, these can organize a portion of the natural stuff stock list being kept in the system. Further on Alloy-A, the balance merchandises from 20 % ( B category stock list ) of the client demand and are characterised by low criterion divergences, hence they can be manufactured as and when an orders come in.
We see a similar form for Alloy-B
Here the demand is much more focused with the about 80 % of the client demand being focussed around top 6 of the merchandises ( 11 % ) . A similar scheme can be used as above. These merchandises can be made to stock ; most of it is in the signifier of welded tubings hence it would be advisable to put semi-finished stock of home bases of alloy-B of the coveted thickness so that complete merchandises can be made on short notice. A similar scheme for B category stock list can be adopted for Alloy-B every bit good
Raw Material Inventory Planning and Wastage Reduction
The corresponding Raw stuff stock list can be arrived at by ciphering the inefficiencies in the system, now it is given that there is wastage of 20 % in following phases of fabrication
There is wastage of 20 % in the first phase and wastage of 10 % overall in the 2nd phase, therefore the entire wastage is 28 % since the first procedure serves as a feeder for the 2nd procedure. We believe that the wastages can be avoided by presenting a minor procedure alteration during the tenseness turn overing procedure, that accounts for 20 % of the wastage and it is given that the same is due to the two terminals of the Ta sheet touching the cylindrical springs that are basically at that place to keep the sheet/bar in topographic point while it is undergoing turn overing operation. We suggest that the profile of the Tungsten caput be made so that it matches the profile of the “ peal membranophones ” therefore leting extra country of the Ta sheet to be exposed to the rolled operation therefore cut downing wastages. Depending on the preciseness with which the Tungsten profile is made the wastage of 20 % can at least be bought down to 5 % , a economy of 15 % .
However, for our current estimates we assume that the wastage is 28 % and we plan our natural stuff stock list consequently. Presently there is a pattern of hive awaying 6 months of natural stuff which is really high. Assorted grounds have been given in the instance to warrant the same, nevertheless at the terminal of the twenty-four hours ; stock list does barricade the company ‘s on the job capital. In the theoretical account suggested below, based on past gross revenues informations and the current lead clip of 2.3 hebdomads for fabricating which in bend is calculated from the clip the natural stuff is received and goods are packaged ready for despatch, we suggest that the undermentioned stock list be maintained for the two metals.
Inventory of Raw Material for Alloy A
Inventory of Raw Material for Alloy B
Drum all in meetings and execution of SAP R/3
The company should go on with the pattern of membranophone round ( DB ) meetings as they are a good agencies to cut down deformations in communications, placing urgencies and hastening declaration of pressing issues. However, the current intent of DB meetings is to pass on production and gross revenues urgencies which should non be the instance. SAP R/3 should be instantly implemented for the production planning phase and the procedure of publishing multiple production orders should be done off with by homologation of input parts.
D. Multiple Product Orders:
The job of issue of multiple production orders will besides be minimized one time we focus on cardinal SKUs as suggested in the stock list rationalisation theoretical account. One more intent of the DB meetings could be to press out uninterrupted issues with the execution of SAP for PPC ( Production, planning and control ) . However the treatment on planning should be kept out of prevue consciously by those go toing the meeting.
E. Cost Savings from natural stuff stock list Decrease:
H C Starck maintains big measures of natural stuff stock list. The entire cost salvaging from cut downing stock list degrees and doing the production a merely in clip ( JIT ) procedure would cut down the cost as shown below. The company can get down by hiving off the natural stuff procurance division, and develop the same as a Centre of excellence, providing quality natural stuff.
Avg. piece weight
Large turn overing
$ 25.00/ hour
Change over clip
Labour cost ( $ /pound )
$ 0.67 ( 1 )
Cost ( $ )
Inclusive of 10 % on Overtime
Raw stuff and finished goods monetary value:
Average monetary value ( in $ )
i»?Tantalite ore ( contained pentoxide footing )
$ 35 – 45
$ 135 – 240
$ 180 – 250
$ 100 – 150
A Average Material Cost ( $ ) ( 2 )
Entire Cost of natural stuff and work in procedure Inventory
Break Down and Finished
6 months Inventory
Cost of Material ( 2 )
Entire Cost ( 3 )
Average cost of work in advancement stock list ( WIP )
Total ( 80 % )
100 % ( 4 )
Raw stuff cost constituent for WIP
Labour cost ( 1*4 )
Entire ( WIP ) ( 5 )
Entire nest eggs ( 3-5 ) _
Therefore the entire economy signifier decrease in natural stuff stock list would be $ 32.89 million.
F. Cost salvaging from Safety Stock
Assuming that the fixed cost per service order ( SO ) is $ 2000 and a service degree of 97 % , cost of keeping the safety stock for 7 and 3 hebdomads lead clip for the top 10 % of merchandise line for metal A are shown below:
SAFETY STOCK Alloy A
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