SUBJECT: OPERATIONS AND PRODUCTION MANAGEMENT

CASE TITLE: CONTINUOUS IMPROVEMENT MANAGEMENT Rockford Motor Systems Task: To describe an enterprise for practical use of the CONTINUOUS IMPROVEMENT MANAGEMENT.

Introduction The enterprise 'Rockford Motor Systems' was created in 1970, initially employing 80 workers. The company produced driving axles for Rambler. In 1980, the company was purchased by an industrial group 'Armas' which increased the number of employees to 135 and diversified the enterprise's production by camshafts that were being made for Ford, Chevrolet and Rambler. In 1986, new investments have allowed the company to install assembly lines for the production of electric motors for windshield wipers for such automobile makes as Chevrolet, Chrysler and Ford. The new type of manufactured products has caused an increase in the employment structures up to 250 workers. In 1990, the company was purchased by an European group 'Perkins' and so obtained the OEM status (Original Equipment Manufacturer) and increased, in 2004, the staff level to 275 ( 205 of which were strictly related to production units) in the two basic business areas of the enterprise: the Mechanical Processing Department and the Assembly Department. The Assembly Department is responsible for the production of: electric motors and driving components for windshield wipers, starters, electric motors and driving components for ventilators and cooling systems for cars such as: Chevrolet, Chrysler, Ford and Nissan. The process of assembly is carried out manually in the way that each of the workers assembles one of the components, which he then places on the assembly line, sending it to further posts where the installment is continued. On the last post of the assembly line all the products are subjected to the quality control. The Mechanical Processing Department is responsible for the production of driving axles and camshafts for cars of the same types as mentioned above. In this Department also some elements of assembled products are manufactured (in the enterprise only 50% of the whole output is produced, the rest being imported from the United States). The Mechanical Processing Department is equipped with conventional machine tools like lathes, drills, milling machines and grinders.

GOALS OF THE ENTERPRISE 'ROCKFORD MOTOR SYSTEMS' ACTIVITY The company set itself the task to supply only the products of the highest quality which will satisfy the clients expectations, taking under consideration their requests regarding conditions, places and deadlines of the deliveries, taking special care of not violating the environmental conditions of the region and, at the same time, caring about the satisfaction of its employees and contributing to the development of the community that lives in the company's surroundings. 1

THE VISION To become the leader in motor products trade, to deliver products of the highest quality and the best services to its customers.

CURRENT SITUATION OF THE ENTERPRISE At present, the company cooperates with customers from Latin America, the United States, Canada and Europe and, starting from the next year, plans to enter the Asian market. In 2005, the firm has turned to external consultants with the request to assist in conducting the analysis of functioning of the production system of the company. The reason for this was the fact that since the January of this year the company expected an increase in the demand for products made by the Assembly Department and the Mechanical Processing Department. As it has been decided that the enterprise should stop its importing from the United States, which means that the Mechanical Processing Department would produce 100% of the components destined for the Assembly Department ( in comparison to 50% of all components manufactured previously), and that the production for the new clients from the Asian market, such as Honda, Isuzu and Mitsubishi, would be implement. Table number 1 shows the list of the products manufactured by the company, the demand for them in the current year and the forecast of the demand for them in the year 2008:

Table 1. The company's output.

Monthly demand currently (number of pieces/month) Forecast of the demand (number of pieces/month)

Products / Receiver

The Assembly Department Chevrolet Motors for windshield wipers CX01 Chrysler Motors for windshield wipers CY 101 Ford Motors for the cooling system FX002 Nissan Driving element of the radiator's ventilator NN900 Honda Motors for windshield wipers HO001 Isuzu Motor for windshield wipers IZ012 1 000 920 150 1 200 1 100 300

1 500 0 0

1 550 250 350 2

Motor for the cooling system IZ013 0 Mitsubishi Driving element of the radiator's ventilator MT001 0 The Mechanical Processing Department Chevrolet Lid for the driving element for windshield wipers 1 000 Casing of the driving element for windshield wipers 500 Driving axle 1 000 Chrysler Lid for the driving element for windshield wipers 900 Casing of the driving element for windshield wipers 450 Driving axle 920 Ford Lid for the cooling system motor Casing for the cooling system motor Camshafts Nissan Lid for the driving element of the radiator's ventilator Casing for the driving element of the radiator's ventilator Camshafts Driving axle Honda Lid for the driving element for windshield wipers Casing of the driving element for windshield wipers Isuzu Lid for the driving element for windshield wipers Casing of the driving element for windshield wipers Lid for the cooling system motor Casing of the cooling system motor Mitsubishi 50 50 150

350

500

2 400 1 200 1 000

1 840 920 1 000

600 300 300

1 000 500 750 750

3 100 1 550 250 250

0 0

500 250

0 0 0 0

700 350 700 350

Lid for the driving element of the radiator's ventilator Casing for the driving element of the radiator's ventilator Total number of the components made by the Assembly Department Total number of the components made by the Mechanical Processing Department Total number of the components manufactured by the company

0 0

1 000 500

3 570

5 600

8 020

19 060

11 590

24 660

As we can see from the table above, the company expects an increase of more than 100% in the current monthly production, which mostly concerns the Mechanical Processing Department. At present, both Departments work from Monday till Friday in three shifts and, additionally, the Mechanical Processing Department itself works also on Saturdays in two shifts and on Sunday in one shift. 75% of the scheduled deliveries are executed at the time predetermined. The value of the scrap in the Assembly Department equals to 5%.The 90% of which has been possible to remanufacturing. The number of scrap in the Mechanical Processing Department amounts to 4, 75% .The 15% of which has been possible to rework. We should add to these amounts 1% of the defects identified by outside customers. Taking under consideration the current organizational and technical situation of the company , we can observe that the enterprise 'Rockford Motor Systems' will not be capable to comply with the new products demands, planned starting from the January of the next year. For this reason, the company has decided to carry out, in the period from January till February, an analysis of its production system in order to detect the sources of inefficiency and wastes that should be reduced or eliminated in such a way that the production plans for the next year would be executed properly.

RESULTS OF THE ANALYSIS OF THE COMPANY'S PRODUCTION SYSTEM Area: the flow of information and communication inside the company

The enterprise has not any efficient information and internal communication system, especially between warehouses, production and delivery departments. Such system would allow realizing orders with better efficiency and on time, to purchase necessary materials, raw materials and components. Such system would also let the company avoid numerous delays on the assembly line, very often caused by the lack of materials, raw materials and spare parts, all of which is delivered by the Maintenance Department. It is the typical practice that all arrangements between Departments of: Production, Storages and Delivery are made verbally (in person or by phone). 4

There occur also some problems with passing on arrangements between Personnel Department and Production Department, which has a negative impact on professional trainings prepared and organized by the company. It happens quite often that the subject matter of a training organized by the Personnel Department does not respond to the current needs of the Production Departments. The training program is frequently only partly realized or has to be even canceled because of the fact that the amount of time needed to complete the daily production demand does not allow workers to participate in the trainings organized for them by the Personnel Department. The information which comes from the Production Department and the Quality Control Department is not transferred ( or it is transferred with delays reaching up to two weeks sometimes) to all of the company units that should make use of this type of information in their activities. It is related to the fact that till now neither have there been invented any rules in the enterprise, nor has there been introduced a system of intercommunication between the departments and units that should take part in the given process of the exchange of information. For this reason, it happens a lot that important information does not reach the destination or is omitted. In the enterprise, there is an evident lack of precise and updated information on stockpile of spare materials, production-in-progress and finished products, which results in many errors committed in prepared production projects. The only way to compare what has been planned with what has actually been produced, is to examine the stocktakings made at the end of every week. In the enterprise, there is also a lack of reliable and current information about the stockpile of spare parts for machines and devices, which are indispensable in order to assure a proper work of the Motion Maintenance Department. This causes frequent unplanned stoppages of machines and devices and leads to a decrease in the efficiency of the Mechanical Processing Department and the Assembly Department.

Area: product engineering.

Each change in the model of the product manufactured causes stoppages of the machines and devices Department ranging from 4 to 8 hours in the Mechanical Processing, and in the Assembly Department up to 12 hours. First of all, it is related to the lack of relevant documentation of the preparatory-completing activities on the assembly and production lines as well as to the bad control and organizing of these activities. Introducing any change in the construction of tools or instrumentation used during the processes executed in the company requires repeatedly from 2 to 4 weeks, owning this to the fact that system of identification and storage of structural-technological documentation does not exist in the enterprise. This 5

causes that the drawings which have been designed numerous times before must be designed once again, and each change in the construction causes necessity of remaking the whole documentation from the very start. In the construction works of the new instrumentation, which are being carried out in the company, the analysis of the technological aspect of the construction is rarely applied, which generates a large number of problems occurred in the production phase.

Area: the process engineering

The enterprise is not equipped with the relevant measuring devices used to control the quality of products. It is mostly manual conventional equipment (e g. micrometers and calliper) that the company uses. The accuracy of the measures that can be made by means of this equipment is insufficient from the point of view of the precision of the products manufactured. All of the lathes which possesses the company are conventional they are controlled manually. In case of this type of machine tools, the accuracy of processing depends more on the person operating the machine tool than on the parameters of the device, which has a negative impact on recurence of the accuracy of the products manufactured in the enterprise. Besides, manuallycontrolled conventional machine tools are characterized by large preparatoryfinishing periods. Assembly operations are also carried out manually and for this reason their precision, as it took place in the case of the Mechanical Processing Department, is exclusively dependent on the fitter's dexterity. Assembly lines are not equipped with the instrumentation allowing to avoid errors while assembling. Although many of the assembly operations could be easily mechanized or automated, low costs of the labor force make them still being performed manually. All of the machine tools which the company owns are manual-operated so that there can only be one object mounted during the execution of the operation, which results in extending the time of unit production and the set-up time either. First of all, the enterprise uses tools made of fast-cutting steel, which are frequently characterized by low durability of the blades. This causes stoppages of machines, which is connected with the necessity of sharpening the tools and frequent defects caused by premature wears of the edges of the cutting tools. The enterprise does not use any systems to identify and classify manufactured products and their component parts, which makes the standardization of the processes and employed instrumentation harder and often causes the necessity of preparing the previously worked out technological documentation once again.

Area: motion maintenance

The Motion Maintenance Department looks after current repairs of the machines and devices owned by the enterprise. The level of repetition of machines and devices stoppages, caused by the same reasons, is high. One should take note of the fact that in many cases the Department is not in possession of complete technical and motion documentation of the equipment.

THE ANALYSIS OF COSTS As it was mentioned before, the company intend to enter the Asian market next year. To do so, though, the enterprise has to reduce the costs of products so that their price was competitive on the markets mentioned above. At present, the price of a concrete product (motor for the cooling system for Mitsubishi)the company plans to come onto the Asian market with is 35.00 USD, while the current price of a product of comparative parameters available now on the Asian market equals to 22.50 USD (the difference of price amounts to almost 50%). A group of outer advisers have not only made an analysis of functioning of the production system in the company, but have also analyzed selectively the costs of the products that the enterprise wants to offer on the Asian market. This has allowed to determine the components of production costs and can stand for the basis for the analysis of the possibilities to reduce their prices and, thereby, to obtain much more competitive prices not only in Asia, but also on other world markets. According to the analysis, the cost of production is counted in the following way (Table 2): Table 2. The cost of the cooling system motor for Mitsubishi

The component of costs

Materials and raw materials Directly production workers Motion maintenance Non-production time and the processing of repairable defects Defects Other indirect costs Total cost

Cost (USD)
$ 7.25 $ 5.25 $ 3.80 $ 2.75 $ 0.75 $15.20 $35.00

Cost (%)
20.7% 15.0 % 10.9 % 7.9 % 2.1% 43.4% 100%

As one can observe on the basis of the data presented in Table 2, 64,3% (equivalent of 22.50 USD, which is exactly the price of the product from Asia) of all costs comes from activities connected with the motion maintenance, the nonproduction time and the second processing of repairable defects, the costs of defects and a great indicator of other indirect costs. A similar structure of costs components 7

can be observed in case of other products manufactured by the enterprise. Costs are counted in the following way (only chosen components):

Motion maintenance = 44,133.25 USD/month, which, along with the output of 11,590 parts per month, gives us the cost of the motion maintenance of one part equal to 3.80 USD Non-production time and repairable defects = 31,900.00 USD, which, along with the output of 11,590 parts per month, gives us the cost of one part equal to 2.75 USD.

This data comes from the documentation made available by the company and is integrated in the following way: Motion Maintenance (chosen elements): Salaries = 10 workers * 2.50 USD/h * 8 hours/day * 30days/month = 6,000 USD/month Overtime hours = 8 workers * 7.50 USD/h * 6 hours/day * 30days/month = 10,800 USD/month Spare parts = 10,000 USD/month

The non-production time and repairable defects (chosen elements): Change of a model = 4 hours/change * 10 changes/month * 205 workers * 2.50 USD/h = 20,500.00 USD/month Repairable defects = 4 hours/day * 30 days/month * operators * 2.50 USD/h = 6,000.00 USD/month

Taking under consideration the above-mentioned data, one may conclude that thanks to enhancing the current organizational and technical level in the enterprise, through removing the reasons for the ineffectiveness observed in the analysis of operation of the production system in the company, it will be possible to minimize the values of the costs components which have a negative impact on the products' prices. Achieving this state of matter would allow to improve the level of competitiveness of enterprise, which consequently would make it possible for the company to enter new markets.