National Cranberry Case Report

Operations Management - I

Team Name: Group_E13

Authors:
Somitra Baldua
Akanshu Verma
Abhin Ketan Kakkad
Sounak Bhadra
Chinmay Dharap
Danish S Mehta

Section: E

August 2019
To: Hugo Schaeffer
From: Group_E13
RE: RP#1 processing

Memo

NCC is one of the largest cranberry cooperative in North America.Company’s strategic objective
is to improve its production operations in terms of overtime costs and truck waiting times before
the onset of 1971 crop. NCC has been facing extremely high overtime costs despite investing
$75,000 for a fifth Kiwanee dumper at their receiving plant 1 (RP1). Moreover, high waiting
times for truck unloading has led to wide resentment amongst the growers because of the
significant cost. To solve this problem, we analysed the process flow diagram for RP1 breaking
down each individual unit separately for wet and dry berries. Implied utilization for each
workstation was used to evaluate the bottleneck. It was observed that drying process for wet
berries with an implied utilization of 180% was the bottleneck resource significantly limiting the
capacity of entire cranberry production process. Since demand at the bottleneck (1080 bbl/hr)
was significantly higher than capacity (600 bbl/hr), this led to inventory build-up at the bins.
Since bins designated for wet berries had a limited capacity of 3200 bbl, this led to queuing up of
trucks waiting to get unloaded once bins capacity was exhausted.

In order to analyse the inventory build-up and resultant overtime and waiting costs, inventory
build-up rate (480 bbl/hr) and inventory draw down rates (600bbl/hr) were used to plot inventory
build-up profile. The bottleneck resulted in an overtime of ~9.5 hours and 163 truck hours of
waiting time worth $16,300 cost. Thus the total costs including overtime labor cost and truck
waiting time is ~$70,300.

In order to solve the problem, option to purchase either 1 dryer or 2 dryer was evaluated.
To analyse, bottleneck resource of the entire process was analysed and subsequent inventory
build-up graphs were evaluated basis new inventory drawdown rate and inventory build-up rate.
These were used to compute the impact on overtime costs as well as truck waiting hours and
cost.
1 new dryer reduced overtime by 56%, savings of $30,240 in overtime costs with $81 as truck
waiting cost at an investment of $25k. Thus total costs including investment is $54,835.
2 new dryer reduced overtime by 83%, savings of $44,820 in overtime costs with no waiting of
trucks at an investment of $50,000. The total cost including investment is $59,180.

Original State 1 new dryer 2 new dryer

Labour overtime cost 54,000 $23,760 $9180
Truck waiting cost $16,300 $81 0
Investment 0 $25,000 $50,000
Total cost $70,300 $54,835* $59,180

Hence, it is recommended to purchase 1 additional dryer because of the above mentioned

economic benefits. Moreover, since the industry is highly seasonal in nature, such high level of
demands are observed only during 3 months which will enable high production utilisation
throughout the year.
 Causes of Delay:

1-16
Temporary holding bins
Dry Berries
250 bbls /each
Total Capacity: 4000 bbls

Dry
berries
Kiwanee Dumpers 17-24
Trucks 5 dumpers Temporary holding bins
Capacity: 5-10 min/truck Wet berries Destoning, 3 units
75 bbls/truck (average: 7.5minutes) 250 bbls /each 1500 bbls/hour/unit
600 bbls/dumper Total Capacity: 2000 bbls Total Capacity: 4500 bbls/hr
Total capacity: 3000 bbls

25-27
Temporary holding bins Wet
Wet berries berries
400 bbls /each
Total Capacity: 1200 bbls

Dechaffing
3 units
1500 bbls/hour/unit
Total Capacity: 4500 bbls/hour

Drying
3 units
200 bbls/hour/unit
(Max.)
Wet berries Total Capacity: 600 bbls/hour
Dry berries
9 Jumper Separators
3 separators lines
400 bbls/hour/line
Total Capacity: 1200 bbls/hour

Resource bottleneck

Figure1: Process Flow Diagram for RP#1

BOTTLENECK ANALYSIS

The below table gives the utilization of each of the individual workstation.
Please refer to Exhibit 1 for detailed calculations.

Demand Capacity Implied Utilization

Kiwanee Dumpers 1440 3000 48%
Dry berries bins 360 4000 9%
Wet berries bin 1080 3200 34%
Destoning 360 4500 8%
Dechaffing 1440 4500 32%
Drying 1080 600 180%
Separators 1440 1200 120%

Since drying process has the highest implied utilization it is the bottleneck in cranberry
processing which needs to be resolved.
Its utilization is 50% higher than the next highest utilization implying a high degree of mismatch
between the capacity and demand in the entire process.

INVENTORY BUILDUP ANALYSIS (Exhibit 2)

Since drying is the only process where demand is greater than capacity, inventory builds up at
the drying unit.
Demand for wet berries = 1080 bbl/hr
Capacity = 600 bbl/hr
Thus, inventory buildup rate = Demand – Capacity = 480 bbl/hr.
Time to reach maximum capacity = Max capacity/buildup rate = 3200/480 = 6.67 hours
Since time to reach maximum capacity will be before 7 PM, this will result in build-up of
significant truck inventory

Since berries arrive over a 12-hour window from 7 AM to 7 PM, 35 trucks with 2560 bbl of wet
berries will be waiting outside the plant at 7 PM. Post 7 PM, inventory will first reduce from the
waiting trucks at an inventory drawdown rate of 600 bbl/hr (Figure 1). (Exhibit 2)

Post 11:16 PM, when all the waiting trucks have been unloaded, drawdown of bin inventory will
begin at the same inventory drawdown rate of 600 bbl/hr (Figure 2). This will result in an
overtime of 9 hours 36 mins. (Exhibit 2)

Also area under the graph of truck inventory buildup = total waiting time = 163 truck hours
Hourly rate for leasing trucks = $100
Hence, cost due to additional wait time = $16,300

Also given overtime hours for 1970 = 12,000

Assuming 50% seasonal workers, over time pay rate = (1.5*2.25*0.5) + (3.75*0.5*1.5) = $4.5/hr
Thus overtime cost = $54,000
 Inventory buildup bin
3500
3000
2500
Inventory

2000
1500
1000
500
0 11:00 AM
10:00 AM

12:16 AM
4:00 PM
1:00 PM
1:40 PM
3:00 PM

5:00 PM
6:00 PM
7:00 PM
8:00 PM
9:00 PM

3:16 AM
10:00 PM
7:00 AM
8:00 AM
9:00 AM

1:16 AM
2:16 AM

4:16 AM
4:36 AM
12:00 PM

11:16 PM
Inventory buildup bin

Figure 1: Inventory build up in the bins

Truck inventory
3000
2500
2000
1500
1000
500
0
1:40 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 11:16
PM PM PM PM PM PM PM PM PM PM PM PM
Figure 2: Inventory build up in the trucks

ANALYSIS OF INVESTMENTS

1. Kiwanee dumper

Cost per dumper is $75,000. Each dumper has a capacity of 600 bbl/hr however with demand on
a peak day is only 1440 bbl/hr which can be easily fulfilled using 3 dumpers instead of 5. Since
one extra dumper can be used for breakdowns, adding an extra dumper was not a profitable
decision.

2. 1 or 2 new dryers

1 extra dryer (Exhibit 3)

Addition of 1 new dryer will increase the capacity by 200 bbl/hr and hence utilization will reduce
to 135%. Drying process will still remain the bottleneck with a new increased capacity of 800
bbl/hr.
Inventory buildup rate = Wet berries Demand – Capacity = 1080-800 = 280 bbl/hr
Time to reach max capacity = 3200/280 = 11.44 hours
Thus truck will being queuing up only at 11:26 PM.
Moreover, only ~3 trucks will be waiting with ~159 bbl of wet berries till 7 PM.
Inventory drawdown rate = 800bbl/hr
This will result in overtime of only 4 hours 12 minutes, 56% reduction with investment of
$25,000.
New overtime hours = Earlier overtime hours * Change = 12000 * 0.44 = 5280 hrs
Per hour overtime rate = $4.5/hr
New overtime cost = $4.5 * 5280 = 23,760, Savings = $30,240

Also area under the graph of truck inventory buildup = total waiting time = 0.81 truck hours
Hourly rate for leasing trucks = $100
Hence, cost due to additional wait time = $81.09; Reduction of cost by 99.5%

Inventory buildup bin Truck inventory

4000 200
3000
2000 150
1000 100
0
50
10:00 AM
11:00 AM

3:00 PM

7:12 PM
1:00 PM
1:40 PM

4:00 PM
5:00 PM
6:00 PM
6:26 PM

8:12 PM
9:12 PM
7:00 AM
8:00 AM
9:00 AM

12:00 PM

10:12 PM
11:12 PM

0
6:26 PM 7:00 PM 7:12 PM

*Inventory buildup rate = 280 bbl/hr, Inventory drawdown rate = 800bbl/hr

2 new dryers (Exhibit 4)

Addition of 2 new dryers will increase the capacity by 400 bbl/hr and hence utilization will
reduce to 108%.
In this instance, separation process will become the new bottleneck and inventory buildup rate
will be equal to the difference between demand and capacity.
Capacity of separator = 1200 bbl/hr
Demand = Wet berries demand from drying + Dry berries = 1000 + 360 = 1360
Thus Inventory buildup rate = 160 bbl/hr.
Hence inventory will build to ~1920 units until arrival of trucks at 7 PM.
Inventory drawdown rate =1200 units per hour
Resulting overtime = 1 hour 36 minutes, 83% reduction at additional cost of $50,000.

New overtime hours = Earlier overtime hours * Change = 12000 * 0.17 = 2040 hrs
Per hour overtime rate = $4.5/hr
New overtime cost = $4.5 * 2040 = $9180; Savings = $44,820
 Inventory buildup bin
3000
2000
1000
0

Evaluation summary
Original State 1 new dryer 2 new dryer
Labour overtime cost 54,000 $23,760 $9180
Truck waiting cost $16,300 $81 0
Investment 0 $25,000 $50,000
Total cost $70,300 $54,835* $59,180
*Assuming truck waiting is incurred for 90 days of peak demand from Sept to December

3. Light meter system for color grading

NCC currently pays a premium of $0.5 per bbl for No. 3 berries. However, because of human
interventions, half of the berries marked as No. 3 were No. 2B in reality.
Introduction of light meter system will reduce the false positives and improve the yield.
Economic impact
Volume of No. 3 rated berries in 1970 = 450,000 bbl
Proportion of 2B berries in the above = 50%
Number of 2B rated berries = 225,000
Savings with installation of color grading = Savings per unit * Total number of units = 125,000
System cost = -$10,000
Since operator will replace chief berry receiver at the same pay grade, no change in wage cost.
Net savings = $125,000 -$10,000 = $115,000

CONCLUSION
Under the given conditions, NCC is incurring significant overtime costs as well as truck waiting
cost. The major bottleneck in the operation process is the drying process which has an implied
utilization of 180%. Truck waiting costs are also aggravated by the limited capacity of wet
berries storage bins (3200 bbl/hr), which is only 44% of overall bins storage capacity, despite
wet berries contributing to 75% of the demand.
Thus basis the analysis of multiple option, our recommendation is to to move ahead with
installation of 1 dryer which will reduce the overtime during peak hours by ~ 7 hours at an
additional investment of $25,000. Truck waiting cost will also be only $81/day during peak
months of September to December. Total cost is also minimized as compared to initial construct
and purchase of 2 new dryers.
Moreover, since demand will be highly variable during rest of the season, buying only 1 machine
will keep overall fixed costs in check and will ensure higher plant utilization
EXHIBIT 1

Utilization calculations
1. Kiwanee Dumpers
Using Little’s Law:
Capacity = 60* (1/average time to dump a truck) * # of dumpers * capacity of single truck
= 60 * 1/7.5 * 5 * 75
= 3000 bbl/hr

Demand = 17,280 bbl/ day

1 day = 12 working hours
Therefore, per hour demand = 1440 bbl/hr

Implied utilization = 𝐷𝑒𝑚𝑎𝑛𝑑/𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 1440/3000 = 48%

2. Bins

Demand = 1440 bbl/hr

Given that 75% of berries are wet berries
Thus Demand for wet berries = 1080 bbl/hr
Thus Demand for dry berries = 360 bbl/hr

Dry Berries:

Given that bins numbered 1-16 exclusively caters to dry berries

Capacity per bin = 250 bbl
Total capacity = capacity/bin * # of bins = 250*16 = 4000 bbl
Demand for dry berries = 360 bbl/hr
Thus Implied utilization = 360/4000 = 9%

Wet Berries:

Given that bins numbered 17-24 exclusively caters to wet berries

Capacity per bin numbered 25-27 = 400 bbl
Capacity per bin numbered 17-24 = 250 bbl
Total capacity = capacity/bin * # of bins = 250*8 + 400*3 = 3200 bbl
Demand for wet berries = 1080 bbl/hr
Thus Implied utilization = 1080/3200 = 34%

3. Destoning

Destoning is done only for dry berries.

Capacity of each destoning unit = 1500 bbl/hr
Total capacity = capacity/unit * # of bins = 1500 * 3 = 4500 bbl/hr
Demand for dry berries = 360 bbl/hr
Thus Implied utilization = 360/4500 = 8%

4. Dechaffing

Dechaffing is done for both the dry berries as well as wet berries
Capacity of each dechaffing unit = 1500 bbl/hr
Total capacity = capacity/unit * # of bins = 1500 * 3 = 4500 bbl/hr
Demand for berries = 1440 bbl/hr
Thus Implied utilization = 1440/4500 = 32%

5. Drying

Destoning is done only for wet berries.

Capacity of each drying unit = 200 bbl/hr
Total capacity = capacity/unit * # of bins = 200 * 3 = 600 bbl/hr
Demand for wet berries = 1080 bbl/hr
Thus Implied utilization = 1080/600 = 180%

6. Separation

Separation is done for both the dry berries as well as wet berries
Capacity of each separation unit = 400 bbl/hr
Total capacity = capacity/unit * # of bins = 400 * 3 = 1200 bbl/hr
Demand for berries = 1440 bbl/hr
Thus Implied utilization = 1440/1200 = 120%
EXHIBIT 2

Inventory build up rate = 480 bbl/hr

Inventory drawdown rate = 600 bbl/hr
Time Inventory buildup bin
7:00 AM 0
8:00 AM 480
9:00 AM 960
10:00 AM 1440
11:00 AM 1920
12:00 PM 2400
1:00 PM 2880
1:40 PM 3200
3:00 PM 3200
4:00 PM 3200
5:00 PM 3200
6:00 PM 3200
7:00 PM 3200
8:00 PM 3200
9:00 PM 3200
10:00 PM 3200
11:16 PM 3200
12:16 AM 2600
1:16 AM 2000
2:16 AM 1400
3:16 AM 800
4:16 AM 200
4:36 AM 0

Truck
Time
inventory
1:40 PM 0
2:00 PM 160
3:00 PM 640
4:00 PM 1120
5:00 PM 1600
6:00 PM 2080
7:00 PM 2560
8:00 PM 1960
 9:00 PM 1360
10:00 PM 760
11:00 PM 160
11:16 PM 0

EXHIBIT 3
Inventory build up rate = 280 bbl/hr
Inventory drawdown rate = 800 bbl/hr
Inventory buildup
Time bin
7:00 AM 0
8:00 AM 280
9:00 AM 560
10:00 AM 840
11:00 AM 1120
12:00 PM 1400
1:00 PM 1680
1:40 PM 1960
3:00 PM 2240
4:00 PM 2520
5:00 PM 2800
6:00 PM 3080
6:26 PM 3200
7:12 PM 3200
8:12 PM 2400
9:12 PM 1600
10:12 PM 800
11:12 PM 0

Truck
Time
inventory
6:26 PM 0
7:00 PM 159
7:12 PM 0
EXHIBIT 4
Inventory build up rate = 240 bbl/hr
Inventory drawdown rate = 1200 bbl/hr

Inventory buildup
Time bin
7:00 AM 0
8:00 AM 160
9:00 AM 320
10:00 AM 480
11:00 AM 640
12:00 PM 800
1:00 PM 960
1:40 PM 1120
3:00 PM 1280
4:00 PM 1440
5:00 PM 1600
6:00 PM 1760
7:00 PM 1920
8:00 PM 720
8:36 PM 0