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Eastern Gear, Inc.

Eastern gear Inc., in Philadelphia, Pa., is a manufacturer of custom made gears ranging in weight from a few ounces to over 50 pounds. The gears are made of different metals depending on the customer’s requirements. Over the past year 40 different types of steel and brass alloys have been used as raw materials. See Exhibit 1 for details. Eastern gear sells its products primarily to engineering research and development laboratories or very small manufacturers. As a result the number of gears in most orders is small; rarely is exactly the same gear ordered more than once. The distribution of order sizes for March 1998 is shown in Exhibit 2. Recently the president of Eastern Gear decided to accept a few larger orders for 100 gears or more. Although lower prices were accepted on these orders, they helped pay the overhead. It was found that the large orders caused many of the small orders to wait for a long time before being processed. As a result some deliveries of small orders were late. Exhibit 1 - Raw Materials Type of material A B C D E F G H I J K All others Total Order Entry When a customer wishes to order a gear, the order is taken by James Lord, sales manager and marketing vice president. The customer specifies the type of gear desired by submitting a blue print or sketch. The quantity of gears required and the type of material are also specified by the customer. On occasion the customers engineer will call up after the order has been placed and request a change in the design. In these cases, it may be necessary to stop production and wait for new raw 1987 usage $(000) $36 10 15 43 110 18 32 75 40 60 30 53 $522

as shown in Exhibit 3.500 14. Recently this production time has increased to 4 weeks. the raw material. These materials often take from 1 to 2 weeks to arrive.163 4.800 16. and the next week it is in another.250 8. depending on the operations needed for a particular order. a gear blank.000 18. Joe Irvine. As a result the customer is contacted directly when the information is needed. First. March 1998 Order Size 1 2 3 4 5 8 10 15 20 25 30 40 50 100 200 400 700 1000 Number of Orders 80 53 69 32 82 47 64 22 42 27 18 22 10 4 2 1 2 1 578 Physical Layout and Materials Flow Eastern Gear utilizes a standard job-shop layout.652 35. is sent to the milling work centre. Upon receipt of the customers order.600 20.185 .172 31. the controller.068 9. Each work centre has a common set of machines or processes.600 32.987 26. depending on the supplier and the type of material ordered. In the past the production process for most gears has taken about 2 weeks after receipt of raw materials.392 15. Next the gear blanks are sent to the Total $ Value of Orders 3. After receiving the customer order. Exhibit 2 . A typical order will take the following path.693 12. the supervisor reviews the order and places it on file until the raw material arrives. Joe Irvine expressed concern about the bottlenecks which appear in the production process.000 $312. Here the teeth are cut into the edge of the gear according to the customers specifications. and the second copy is sent to Sam Smith.Sales.682 21.200 4.871 13. The materials flow from one work centre to another.materials or for the design to be clarified. These bottlenecks make it difficult to get the orders out on time. Mr Smith places a purchase order for the raw materials required. One week the bottleneck may be in one machine centre. The customers prints submitted with the order do not always contain the tolerances or finishes required during machining. After the order is received.555 23. one copy is sent to the production supervisor. The customer order is then routed through the shop along with the materials.

and all milling machines are in another work centre. The gear is then sent to a grinding centre. the gear may be sent to heat treating if this operation is required by the customer. where a finish is put on the gear teeth and the surface of the gear. As a result it takes a relatively long time (4 weeks) for an order to make its way through the shop. For example all drills are located together in one work centre.Layout Receiving Dock Milling Machines Receiving and Raw Materials Storage Heat Treating Finishing and Grinding Centre Shipping & Finished Goods Storage Shipping Dock Tool Crib Lunch Room Drilling In Exhibit 3. Large and small orders are processed together. As a matter of fact large orders are helping to keep the shop at full capacity. they are inspected by the next available worker and shipped to the customer. where one or more holes may be drilled in the gear. Exhibit 3 . While this layout facilitates development of worker skills and training. it results in a jumbled flow of products through the shop.drilling works centre. note how the machines are grouped by similar type on the shop floor. Company Background . The typical order spends 90 percent of its time waiting in line for a machine to become available. No special work flow is utilised for different order sizes. Next. After the batch of gears is completed. Only 10 percent of the time is actually spent processing the order on a machine. There is constant interference of the orders being processed in the shop.

but over the last several months a small profit has been made. Mr Williams also spends his time looking for past-due raw materials and lost orders as well as explaining late orders to customers. The company engineer is Sam Bartholomew. employee problems. Mr Bartholomew who attends the weekly production meetings. See Exhibit 4 for more details. Each order which is behind receives a red tag. Exhibit 4 . The company is currently experiencing about a six percent return rate on completed orders due to poor quality. and overseeing of the supervisor. Each morning Matt reviews the work in progress in the shop and selects those orders which appear to be behind schedule.5 million instead of $5million. Mr Rhodes handles contacts with some of the large customers.Business has been booming at Eastern Gear. the company has recently added an expediter. For the first two years the company lost money. Sales are up by 100 percent in the last quarter. procurement and maintenance of equipment. arranges the financing needed by the company and sits in on the weekly production meeting. Although sales are rapidly increasing. and he spends about ten hours a week on the factory floor talking with individual workers. Joe Irvine. Matt Williams. and other production problems are discussed. sales could be expanded to $5. During these meetings. According to the market survey. His responsibilities include design of the company’s products. If total delivery lead time can be reduced to the former 3 to 4 weeks.Financial Data 1985 Sales 560 Manufacturing Costs Materials 63 Labour 136 Overhead 70 Depreciation 172 Total 441 Manufacturing Costs Sales 70 Expenses G&A 75 Expenses Total Costs 586 Profit Before (26) tax 1986 1500 273 587 216 398 1474 130 110 1714 (214) 1987 3100 522 1063 412 422 2419 263 297 2979 121 1988 1063 214 327 140 150 831 80 93 1004 59 The organization chart for the company is shown in Exhibit 5. In 75 percent of the cases the returned orders have failed . Roger Rhodes is the president and founder of Eastern Gear. At the present time about 20 percent of the orders have rush tags on them. sales will be $5 million in calendar year 1988 if the current delivery lead time of 5 to 6 weeks is maintained. scheduling problems. Because of increased delivery lead times. a recent market survey has indicated that sales can be expanded even more in the next few years. indicating that it should be treated on a rush basis.

the company will receive rush orders from its customers. How can this case be related to operations strategy and process design concepts? . for example. the raw materials are rush-ordered and received the next day. If the order is accepted. Occasionally. About 10 percent of the orders are handled on a rush basis. What action should Mr Rhodes take to solve his problems? 3. are highly skilled and require at least 2 years of vocational-technical training plus several months of on-the-job training. a trusted employee. Exhibit . the order is rushed through production in 4 days. The work force consists of 50 employees who are highly skilled or semiskilled. For example in one returned order. Within the last quarter. This is accomplished by Fred Dirkson. What are the major problems being faced by Eastern Gear? under go one or more operations or the operations have been improperly done. The employees are not unionized and good labour relations exist. who hand-carries the rush orders through all operations. The work force is managed using a family-type approach. The milling machine operators. 10 new employees have been added to the work force. all the gears were missing a hole. In this case the order is referred directly to Roger Rhodes for approval. After receipt of the raw materials.5 Organization chart President Roger Rhodes Sales Manager James Lord Engineer Sam Bartholomew Expeditor Matt Williams Controller Sam Smith Foreman Joe Irvine For your tutorial you need to prepare responses to the following questions 1.