Us Stroller Case Study Solution Of Robin

NRRTS publishes complex rehab case studies in each issue of our DIRECTIONS magazine. For your reference, we are posting each individual case study in a downloadable PDF format to our Web site.

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Unformatted text preview: CASE STUDY U.S. Stroller Clem Hawkins, director of manufacturing for US. Stroller, leaned back in his chair as he thought about the events of the past 2 weeks.l The president of the company, Judy Hawkins, Clem's sister, had just returned from a confer- ence on 111‘ manufacturing at the University of North Carolina. After the conference, she com- mented to Clem, “We have got to do something about the high inventories, poor customer service, and high costs. I think that a JIT ap- proach would work fine for our manufacturing plant. At the conference in North Carolina we heard of many companies that have used JIT as a way to reduce cycle time. improve quality, and ultimately reduce inventory and cost. In our in- dustry. the Japanese are making a strong entry. and unless we do something now. we may lose our market share and margins. Clem, I want you to take a close look at the plant and get back to me on how we can go about implementing a HT approach.” BACKG ROU ND U.S. Stroller is a leader in the production and sales of baby strollers in the United States. It has historically made very high quality strollers which sell at a premium price. The company is known for its innovative designs and its good distribution system. US. Strollers are sold through major department stores, discount stores. and baby equipment stores. Altogether, 2000 different sites in the United States distrib- ute the company's products. U.S. Stroller has been a market leader for over 50 years. At the present time it has 40 per- cent of the US. market. a competitor Graco has "This case was prepared as a basis for class discussion. not to illustrate either effective or ineffective handling of an administrative situation. 20 percent of the market, and Kolcraft has 10 percent of the market. Various other companies, each with less than a 10 percent share, have the remainder of the market. including two Japa- nese companies which have just entered the U.S. market. The Japanese companies seem to be selling a low-price stroller which emphasizes quality and reliability of design. U.S. Stroller started its business in I934 with the introductiOn of the regular model which it still makes. While the regular model has been updated over the years for differences in fabric and style, the basic design is still the same. The regular model folds easily for storage or trans- portation and sells for $49 retail. In I955, the company introduced a deluxe model which sells for a premium price and is oriented to the upscale market. This model fea- tures a design which permits the stroller to be converted to a baby carriage, as well as folding for storage or transporting. It also has an ad- justable footrest, a storage basket, and locking dual front-swivel wheels. This deluxe model sells for $99 retail (see Exhibit l for an illustration). In 1974. the company introduced its shop- ping center stroller. This model is very heavy duty, it does not fold, and it stands up well to the abUSe that strollers take in shapping centers. The shopping center model sells for $149 and has been extensively marketed in the United States. Currently, the company is selling 106,000 units per year of the three types of strollers. The amount of each type sold is shown in Exhibit 2. These amounts are divided by 52 to arrive at an average weekly usage. Sales are, of courSe. irreg- ular and can vary by 25 percent from the average weekly volumes shown in Exhibit 2. Production is leveled, to the extent possible, to attain a level work force. The financial statements for U.S. Stroller are shown in Exhibit 3. Sales are approximately $4.5 DEIUXE MODEl Chrome-Plated Steel Frame EXHIBIT I U.S. Stroller products. million per year. The gross profit is 25 percent of sales. and the net profit, after tax, for the fiscal year 1990 was a disappointing 2 percent of sales. Profits have been dropping over the past 2 years because of price decreases and the inability to maintain margins. The balance sheet in Exhibit 3 shows that inventories are turning very slowly. at a rate of 2.4 times per year. The plant is fairly . automated and includes up-to-date equipment. REGULAR MODEl Locking Dual Front-Swivel Handle Shown in Reversed Position On an after-tax basis the company has earned 3 percent on net assets and 8 percent on owner's equity. U.S. Stroller is a privately held company. PLANT DESCRIPTION Strollers made by the company consist of from 20 to 30 different parts. The frame is made out of chrome-plated tubing. The tubing is bought EXHIBIT 2 SALES VOLUMES Average ____"___ ‘ Annual§alg__ Weekly Sales Regular 54,000 1040 Deluxe 24,960 480 Shopping center 27010 E Total 106,000 2040 in standard lengths and then cut to size. bent to the proper shape. and drilled with holes for as- sembly. Each stroller has about 10 pieces of tub- ing which are assembled into the final frame. Wheels for the strollers are bought from an out- side vendor and attached to the tube frames. The padded seats and backs are also purchased from outside. The strollers have a plywood insert in- side the seat and in the back to give added strength. These plywood pieces are cut from large 4 x 8 foot sheets by the company and then inserted into the purchased fabric pieces. U.S. Stroller also buys other parts needed to make a stroller, including plastic parts, bolts, fasteners, wire baskets, etc. Altogether, about 50 percent of the cost of a stroller consists of materials which are purchased from outside. The plant layout has several work centers. shown in Exhibit 4. These werk centers include a tube-cutting department with six nearly iden- tical tube-cutting machines. After the tubes are EXHIBIT 3 FINANCIAL STATEMENTS ($000) FY90 (YEAR ENDED JULY 1, 1990) Balance Sheet Income Statement Sales 54558 Assets Cash S 106 Cost of goods Accounts rec. 480 Materials $1682 InventOry 1424 Labor 894 Net plant 987 Overhead 842 Total assets 52997 Total 53418 Liabilities Notes payable $1 200 A. Gross profit S 11 O lens-term debt 697 Sales expense 5 462 Owner‘s equity 1100 G&A expenSes 493 Total l8rOE :7 Subtotal 3 955 Profit before tax 5 185 Profit after tax 91 cut, they are placed in tube inventory until they are needed by the tube-bending work center Or the drilling work center. Tubes which need to be bent into Special shapes are bent by the two presses in the bending department. Bent tubes and straight tubes are taken to the drilling de- partment and drilled with the proper holes. Jigs are used to speed up the process and to ensure that the holes are located in the right places. The drilled tubes are then put back into inventory until they are needed by final assembly. There are a total of 10 different drilling machines in the drilling work center. Final assembly consists of one assembly line which is used to assemble all three types of strollers. This assembly line is changed over from one model to the next according to the final assembly schedule. The woodworking depart- ment consists of one large saw which is used to cut seat and back inserts from large plywood sheets. These seats and backs are put into inven- tory until they are needed by final assembly. when final assembly is begun. all parts are in inventory or are expedited in order to make the required batch of finished product. Expediting is done both inside the plant. to get the missing parts, and with outside suppliers. This expedit- ing is started 1 week ahead of when the material is needed in order to get all the material in-house to support the assembly schedule for the next week. An MRP system is used to plan and control inventories. A master production schedule is prepared on a weekly basis for 8 weeks into the future. The master schedule is then frozen for 4 weeks in order to allow time to fabricate the parts required and to get the parts in from out- side suppliers. Any parts which are not there when needed are expedited during the last week, as described above. New orders are only placed in week 5 or later in the master Schedule. The lot sizes for each of the strollers have been developed by use of the E00 formula. This is done by considering the setup time of equip- ment and the canying costs of inventory. The plant is scheduled on a lot-for-lot basis. For ex- ample. a lot in the master production schedule of 1000 regular strollers is translated directly into the parts needed to produce it. This would in‘clude 1000 stroller handles less any inventory on hand or on order. Due to lot-for-lot planning. -3- Tube Cutting (6 Machines) EXHIBIT 4 Plant layoul. a setup on the final assembly line also directly induces setups throughout the plant in tube cut- ting. drilling. bending. and scat cutting. The total cost of a changeover at final assembly is thus the cost of changing over the final assembly line it- self. plus the cost of changing over all the other production equipment affected by the lot-for-lot calculations. As shown in Exhibit 5. for the regu- lar model. the total setup time amounts to about It labor hours. The shop rate is currently $15 per hou r. fully loaded. Therefore a setup for final assembly of the regular model costs $165. Sim- ilarly, the cost of changeover for the deluxe model is $185, and for the shopping center model it is 5170. Setup time includes not only changing the machine over. but also bringing in new mate- rials and taking out the old. then making a pilot run to be sure the machine is making good parts. While there are minor setups when making dif- EXHIBIT 5 SETUP TIME FOR REGULAR MODELS Setup Work Center Time, hours Tube cutting 4.2 Drilling 2.4 Tube bending 1 in Wood saw .5 Final assembly Jig iota! i 1.0 ferent parts for the same stroller, the major setup is associated with changing over from one stroller model to another. The E00 calculations are shown in Ex- hibit 6‘ These calculations assume a holding charge of 25 percent per year. Note that the re- sulting E00 for the regular model is 2400 units, which is approximately I week of production. since the line can produce 2500 regular units per week when the entire line is devoted to the regu- lar model. Likewise. the deluxe model and the shopping center model will each require about .5 week of time to produce an E00. Using the E005 which have been calwlatcd. a typical master production schedule is shown in Exhibit 7. This master schedule is constructed as follows. Suppose the regular model is put into production first. Then a batch of 2400 units of regular strollers is scheduled in week 1. But 2500 units can be produced in l week. and so with 5 days of production per week, the lot of 2400 units will take 4.8 days (2400/2500 x S). It will then take an average of 2 hours per machine to change over the line to the next stroller {time that results in lost capacity}. As a result. the rest of the first weelt is devoted to changeover. Next. the deluxe model is scheduled in week 2. which requires 2.9 days of production (1 ISO/2000 x 5 days} for the E00 to be produced. Then 2 hours per machine are required to change over to the shopping center model. This process of sched- uling is continued. resulting in the master sched- . ule in Exhibit 7. EXHIBIT 6 ECONOMIC ORDER QUANTITIES D C S P D Annual Mfg. Setup Prod. Weekly Model Sales Cost Cost Rate‘ Usage 1 - D/ P EOQf Regular 54,000 $21 $165 2500 1040 .584 2400 Deluxe 24,960 537 $185 2000 480 .760 1150 Shopping 27,040 556 $170 1800 520 .711 960 ‘This is the maximum weekly production rate for a single product being produced. + = i EOQ iC (1 - 0/9) Inventory is maintained in finished goods ($765,000), work in process ($322,000), and raw materials ($337,000). The finished-goods inven- tory is distributed through three warehouses lo- cated around the country. An average of 80 days of supply is carried at each warehouse. It takes 4 weeks to reorder from the factory and 1 week for transit. Some inventory is held in safety stock. Likewise, 4 weeks of in—process inventory is held to provide high machine utilization and to facilitate scheduling. The company also holds 12 weeks of purchased parts in order to facilitate scheduling with vendors and to prevent line stoppages. OPTION 1: A PULL SYSTEM In thinking about JIT, Clem Hawkins was con- sidering two options. Option 1 involved going to a pull system of inventory control. Under this option, three separate final assembly lines would be set up, one for each finished product. This would eliminate changeovers at final assembly. Clem was also considering mixed-model assem- bly, which would have a similar effect. But this could be more complicated and would require development of some tooling for instantaneous changeover of the line from one model to the EXHIBIT 7 MASTER SCHEDULE FOR JULY 1990 Week Model 1 2 3 4 Regular 2400 2000 400 Deluxe 1150 1150 Shopping 684 276 324 “— next. Of course, setting up three assembly lines, instead of the present one line, would require additional investment (about $200,000) for jigs, fixtures, and assembly tables. If three assembly lines were used, the master schedule would be drastically changed to the one shown in Exhibit 8. Each week the same amount is scheduled to meet the forecast, thereby putting a uniform load on the plant. This loading is, of course, required for a pull system to work. Clem thought he could also reduce the length of time that the master schedule is frozen to 2 weeks. This will make it possible to drasti- cally reduce inventories at the field warehouses. to about a 15- to 30-day supply. He would like to achieve the guideline that what is ordered from the warehouses this week is scheduled to be pro- duced next week. Setting up permanent final assembly lines with a pull system makes it also possible to ded- icate certain equipment in the plant to each of the product lines (see Exhibit 9). For example, there are six tube-cutting machines. Since about one-half of the capacity is devoted to regular strollers, three of the tube cutters could be set up permanently for regular strollers. Clem would also need [.5 tube cutters for deluxe models and 1.5 cutters for shopping models. EXHIBIT 8 REVISED SCHEDULE (PULL SYSTEM) % Week Model 1 2 3 4 Regular 1040 1040 1040 1040 Deluxe 480 480 480 480 Shopping 520 520 520 520 TU BE CUTTING 3 Machines, Regular I Machine, Deluxe 1 Machine, Shoppi t Machine, Any use: Eliminate Tube Storage FINAl ASSEMBLY TUBE BENDING 1 Press, Regular I Press, Deluxe MW": TUBE DRILLING 5 Drills, Regular 2 Drills, Deluxe EXHIBIT 9 Pull system lay- out, dedicated equipment. This presents a problem: either one machine could be dedicated to each model. or two ma- chines could be. if one tube cutter were dedi- cated to each model, then one machine would be kept to change over as needed between the various models. If two machines were dedicated to each model, an additional machine would need to be purchased. Also, in this case there would be little flexibility with all dedicated ma- chines. In a similar way, some drills and tube benders could be dedicated to each model. But the saw presents a problem since there is only one saw. Either smaller equipment must be pur- chased and dedicated to models. or the saw could continue to be changed over for each product. Using the pull system, Kanban containers will be used to move inventory from one work center to the next. When the containers are full at a work center, all machines at the supplying work centers will be shut off. thereby limiting the maximum inventory to the number of full Kanban containers provided. The tube storage room will be eliminated. and all inventory will be held in Kanban containers on the shop floor. A smaller storage room for purchased parts will be needed, but Clem did not think that he could supply all purchased parts directly to final assembly, at least not initially. But purchased in— ~ ventories could be greatly reduced once the sup- 2mm.flwwm IDrllLAnyModel pliers are also on the Kanban system. Purchased parts could be supplied on the basis of daily, or certainly weekly. deliven‘es for all "A" items and less frequently for "B" and "C" items. OPTION 2: MANUFACTURING CELLS in this option a manufacturing cell would be provided for each model. The layout would look roughly like Exhibit 10. Each product would be made in a U-shaped cell. In the regular model cell, there would be three tube-cutting ma- chines, one bending press, five drills, and the fi- nal assembly line. This arrangement would have dedicated equipment which would be located in close proximity to each other. Material would flow into one end of the cell and finished product out of the other end. Purchased parts would be delivered to the cell directly by the supplier or in kits from a central storage and kitting room. A kit would contain all the purchased parts needed to assemble one unit of the final product. Two more cells would also be established: one for the deluxe model and one for the shopping center model. In this case we would need two tube cutters. one press, and three drills in each of these cells in order to maintain the present capacity. This would require Clem to purchase additional equipment (one drill. one press, and one tube cutter) at a cost of about $150,000. «~- ~... REGULAR MODEL CEll Tube Cutting STORAGE FOR PURCHASED A EXHIBIT 10 P “Ts Cellular layout. There are several advantages to the use of cells. As things are moved closer together, visual control of each Cell can be maintained. When there is a quality or maintenance problem, it will be readily evident. Also, the people working in the cell will gain an identity with the particular product produced. The cell takes less Space and provides the advantage of fast feedback. since everything is in close proximity. Of course. a Kanban system would also be used to pull parts thrOugh each of the cells. Many of the inventory reduction advantages described above will also be gained by the use of cells. As a matter of fact, the throughput from a cell might even be faster than the Kanban system described in option I. As a result, less inventory would be required by a cell. On the other hand, a cell gives less flexibility to demand changes. since all equipment is dedicated to that partic- ular product line. SUNDAY AFTERNOON During halftime of the Vikings and Bears foot- ball game, Clem could not help thinking about —-—- n-n- —_-—-—— _... —- -. DELUXE MODEl SHOPPING MODEL CEll. CEll _. Mu gutting \ Plus I rl 3 II: WOOD CUWINC (1 Saw) the options available for JIT manufacturing. He wondered how much each of these options would save in produc1ion costs and inventories. Also, would thc5e options have the same product quality. or would the cell produce a higher- quality produCI because of its close visual con- trol? Clem decided that he would request a study of these Options by his assistant. Joan Hankins. Joan had recently received her M.B.A. from UCLA and was a whiz at analyzing options such as these. DISCUSSION QUESTIONS 1. Evaluate the current situation facing U.S. Stroller. 2. Discuss the pros and cons of the options pre— sented in the case. 3. What will be the impact of these options on the MRP system currently in use? 4. What option do you recommend and why? ...
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