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MAN 5502 Case Studies: Polaroid, Blanchard, Cranberry

MAN 5502 Case Studies: Polaroid, Blanchard, Cranberry

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MAN  5502   Discussion  Questions  for  Cases  Spring  2012     Blanchard  Case  (EQO  Application)     Blanchard  Importing  and

 Distributing  is  a  liquor  distributor  and  bottler.    They  are   updating  the  inventory  control  and  production  planning  system.    A  student  intern   doing  the  work  discovers  that  not  only  is  the  production  planning  system  being   ignored  but  that  there  should  be  changes  made  to  the  systems.     Question  to  answer:     1)   Correct  the  EOQ  model  for  each  of  the  five  items  mentioned  in  the  case.    How   do  the  corrected  figures  compare  with  the  calculated  values  from  1969  and  with  the   productions  runs  from  June  of  1972?       The  original  EOQ  model  grossly  overestimated  the  set-­‐up  costs  because   several  factors  were  included  in  the  calculation  of  “S”  that  shouldn’t  have  been.  For   example,  the  blending  costs,  ranged  from  $1.15  to  $3.24  for  the  various  types  of   liquor.  However,  these  costs  should  have  all  been  entered  as  zero  because  those   functions  were  a  fixed  labor  cost  by  salaried  employees.  Changing  these  values   resulted  in  a  decrease  of  “S”  from  about  74  to  6.25.  The  unit  cost  should  have  also   excluded  any  costs  from  tax  or  duties  because  those  taxes  are  charged  after  the  sale.   Additionally,  the  interest  rate  should  not  have  been  used  when  calculating  “K.”   Instead,  the  20%  before-­‐tax  return  on  wine  merchandising  should  have  been  used.   These  changes  resulted  in  the  EOQ  changing  from  a  low  of  137  and  a  high  of  327  in   1969  to  a  low  of  67  for  rum  to  a  high  of  191  for  rum  in  1972.  Also,  the  ROP  changed   from  a  low  of  137  and  a  high  of  327  in  1969  to  a  low  of  30  for  rum  to  a  high  of  165   for  vodka  in  1972.  See  charts  below  for  additional  comparison.     The  production  runs  of  1972  have  a  higher,  more  variable  demand  than   those  of  1969.     Corrected  EOQ/ROP   Demand   2455   1421   800   3096   449                           Setup                       Blending  cost   0.00   0.00   0.00   0.00   0.00   Size  changeover  cost   0.00   0.00   0.00   0.00   0.00   Label  changeover  cost   6.25   6.25   6.25   6.25   6.25   Order  processing  cost   0.00   0.00   0.00   0.00   0.00   Total   6.25   6.25   6.25   6.25   6.25                           Unit  Cost                       Materials  cost   2.20   2.35   5.73   3.79   4.01  

Bottling  labor   Fixed  overhead   allocation   Variable  overhead   Customs  duty   Federal  distilled  spirits   tax   Federal  rectification  tax   Total       Carry  cost  percentage   Cost  of  capital   Other  carrying  cost   Total       EOQ           ROP       Old  EOQ/ROP   Demand       Setup   Blending  cost   Size  changeover  cost   Label  changeover  cost   Order  processing  cost   Total       Unit  Cost   Materials  cost   Bottling  labor   Fixed  overhead   allocation   Variable  overhead   Customs  duty   Federal  distilled  spirits   tax   Federal  rectification   tax  

0.10   0.92   0.50   0.00   0.00   0.00   3.72           20.00%   2.50%   22.50%       191           165  

0.10   0.92   0.50   0.00   0.00   0.00   3.87           20.00%   2.50%   22.50%       143           96  

0.10   0.92   0.50   0.00   0.00   0.00   7.25           20.00%   2.50%   22.50%       78           54  

0.10   0.92   0.50   0.00   0.00   0.00   6.07           20.00%   2.50%   22.50%       180           208  

0.10   0.92   0.50   0.00   0.00   0.00   5.53           20.00%   2.50%   22.50%       67           30  

2455           1.15   8.85   11.78   51.43   73.21           2.20   0.10   1.31   0.50   0.00   25.20   0.00                  

1421           1.08   8.85   11.78   51.43   73.14           2.35   0.10   1.31   0.50   0.00   25.20   0.00  

800           3.24   8.85   11.78   51.43   75.30           5.73   0.10   1.31   0.50   1.55   27.09   0.00  

3096           2.62   8.85   11.78   51.43   74.68           3.79   0.10   1.31   0.50   0.00   27.09   0.76  

449  

2.33   8.85   11.78   51.43   74.39  

4.01   0.10   1.31   0.50   0.00   25.20   0.00  

Total       Carry  cost  percentage   Cost  of  capital   Other  carrying  cost   Total       EOQ           ROP  

29.31           9.00%   2.50%   11.50%       327           165                      

29.46           9.00%   2.50%   11.50%       248           96  

36.28           9.00%   2.50%   11.50%       170           54  

33.55           9.00%   2.50%   11.50%       346           208  

31.12  

9.00%   2.50%   11.50%   137  

30  

    2)   What  are  the  disadvantages  of  the  formal  EOQ/ROP  system  and  the  actual   system  used  for  scheduling  bottling  runs  at  Blanchard?    Which  systems  do  you   prefer?    What  improvements  can  you  recommend?     The disadvantage of the EOQ/ROP system is that the system requires perpetual inventory analysis, which is expensive and difficult to maintain. Also, you must establish a new EOQ/ROP every period, because it doesn’t reflect changes in demand. The disadvantage of Blanchard’s system is that by having a safety stock designed to maximize service levels, Blanchard is tying up its capital resources in inventory. These capital resources could be used more efficiently to finance growth of the business or to invest in production machinery that would increase capacity. I recommend using the EOQ system because it smoothes out the restocking process and creates better customer service because running out of inventory is less likely.           McLeod  Moters     This  is  an  inventory  problem.    Students  should  look  into  where  the  inventory  is  in   the  systems  and  why  it  is  there  and  what  can  be  done  about  it.     1) How  long  does  it  take  for  one  batch  of  BN-­‐88-­‐55s  to  go  through  the  McLeod   manufacturing  process?     It  takes  5.1  weeks  to  do  all  of  the  5  steps,  as  well  as  the  set-­‐up  and  waiting  times.   Here  are  all  of  the  waiting  times  that  were  added  together  to  get  5.1  business   weeks:  

  1 Day Set-up machine (30 min) 1. Tap holes, Concave a. Inform Supervisor b. Inform Production Control c. Issue work order 3 Days 1 Day Move full bin (10 min) Move bin to next step (10 min) Set-up machine (30 min) 2. Tap 4 Holes, Convex a. Inform Supervisor b. Inform Production Control c. Issue work order 3 Days 1 Day Move full bin (10 min) Move bin to next step (10 min) Set-up machine (30 min) 3. Turn Convex Face a. Inform Supervisor b. Inform Production Control c. Issue work order 3 Days 1 Day Move full bin (10 min) Move bin to next step (10 min) Set-up machine (30 min) 4. Turn Concave Face a. Inform Supervisor b. Inform Production Control c. Issue work order 3 Days 1 Day Move full bin (10 min) Move bin to next step (10 min) Set-up machine (30 min) 5. Inspect & Finish

a. Inform Supervisor b. Inform Production Control c. Issue work order Move bin (10 min)       2) What  is  the  minimum  work-­‐in-­‐process  inventory  that  McLeod  could  have  and   how  much  does  it  have?    What  would  a  reasonable  size  be?     Using  Little’s  Law,  I=X*CT   The  throughput  is  one  batch  every  20  hours,  as  stated  in  the  footnotes  of  the   case.    20  hours  is  equivalent  to  ½  of  work-­‐week.  So  inventory  is  equal  to  5.1   weeks*2  batches  per  week,  or  10.2  batches.  10.2  batches  of  1,248  equals  12,730   individual  units.  The  minimum  WIP  would  be  3.1 min*(2,500 units/2400 min) = 3.15 units.   A  reasonable  WIP  size  should  be  smaller  than  the  current  12,730  units.  The   process  of  standardizing  the  units  should  have  reduced  the  number  of  WIP  needed   to  meet  demand,  but  instead  the  number  increased.  The  waiting  time  should  not  be   as  high,  which  is  driving  the  number  of  units  in  production  up  to  unreasonable   levels.     Polaroid  (quality  and  SPC)     1) What  is  the  magnitude  of  cost  of  quality  problems  at  the  R2  plant?    How   effective  were  its  past  procedures  for  quality  management?     The  defect  levels  are  now  10  times  higher  after  Project  Greenlight  because   they  have  risen  from  1%  to  10%.  Additionally,  out  of  45  samples,  20  had  a   finger  height  that  was  out  of  control.  Its  past  procedures  were  ineffective,   because  they  were  rejecting  samples  that  had  excess  regents,  when  that   wasn’t  affecting  customer  service.  Sampling  was  also  destroying  perfectly   good  products  and  creating  excess  scrap,  when  process  control  could   eliminate  the  need  for  so  much  testing.     2) Using  the  data  in  the  exhibits  construct  and  analyze  the  appropriate  SPC   charts.    What  conclusions  should  Rolfs  draw?         Because  the  X  Bar  Bar  chart  for  finger  heights  has  data  points  for  August  that   lie  outside  of  the  UCL  and  LCL  As  a  result,  finger  height  is  out  of  control.   Finger  heights  are  being  produced  inconsistently  by  the  operators  because   some  of  the  operators  (A)  are  creating  units  that  fall  above  the  UCL  while   others’  units  fall  below  the  LCL  (C).  See  the  following  charts  for  the  ranges   and  averages  of  both  finger  height  and  pod  weight.    

  Finger  Heights  -­‐  X  bar  bar  

x  bar  bar   2.0603     R  bar     0.3099   UCL       2.2099     LCL   1.911       Pod  Weight  -­‐  X  bar  bar  

 

x  bar  bar   UCL    

2.8052     2.837    

R  bar   0.0671   LCL   2.772  

 

   

Finger  Height  -­‐  R  bar  

x  bar  bar   2.0603     UCL     0.621         Pod  Weight  -­‐  R  bar  

R  bar   0.3099   LCL   0  

 

x  bar  bar   UCL    

2.8052     0.134    

R  bar   0.0671   LCL   0  

 

          National  Cranberry  (process  Analysis)     1) Analyze  the  process  fruit  operation  at  Receiving  plant  #1.          
Weighing  &   Grading Dumping

Dry  Bins: 4000  BBLs

Wet  Bins: 1200  BBLs

Multi-­‐purpose   Bins: 2000  BBLs

Destoning: 1500  BBLs

Dechaffing: 3000  BBLs

Destoning: 3000  BBLs

Dechaffing: 1500  BBLs

Drying: 600  BBLs

Separating: 1200  BBLs

Bulking  &  Bagging

The  bottleneck  is  the  drying  machines  at  a  capacity  of  600  BBLs.       2)    What  recommendations,  both  short  and  long  term,  would  you  make  to  Mr.   Schaeffer?     In  the  long  term,  I  recommend  that  Shaeffer  make  capital  investments  in   more  resources.  If  he  adds  3  more  dryers  ($60,000  each),  then  he  can  increase   capacity  to  1200.  In  that  case,  the  new  bottlenecks  would  be  separating  and  the  

number  of  wet  bins.  He  could  then  increase  capacity  even  further  to  1500  if  he   converted  two  of  the  dry  bins  to  wet  bins  ($10,000  each)  and  bought  another   separator.  This  is  cost  effective  because  National  Cranberry  makes  $38.24  per   barrel.  So  if  they  can  increase  capacity  by  900  barrels,  that  is  an  additional   $34,416  in  revenue  per  day.  Thus,  the  investment  will  pay  for  itself  quickly.   In  the  short  term  I  would  open  the  plant  earlier  in  the  day.  If  there  is  more   time  for  the  cranberries  to  make  it  through  the  process,  there  will  be  fewer   cranberries  that  have  to  sit  overnight  before  they  finish  processing.  

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