1

Lean Implementation and Supply Chain Development at Oak Hills

Prof. Dave McCarthy

Intro to Supply Chain Management

04/14/2014

Monika Kotowska

Christina DiPietro

Melissa Moreira

Jennifer Viernes

Samantha Chavanga
 2

It is with no doubt that the distribution centers and manufacturing environments are

changing and companies are looking for better opportunities to optimize people, processes and

technology. Therefore, developing a competitive supply chain based on speed, innovation, and

quality, to deal with unpredictable market conditions has become a vital part for most

organizations.

Oak Hills facility is a unit of The Oil and Gas Services Company (TOGS) that produces

testing equipment used in old and gas exploration. Oak Hills is currently experiencing an

industry-wide recurring slump. Their current lead-time of domestic order for the testing

equipment lies in between one to two weeks, with international orders yielding up to three

months. Urgent requirement lies within the high costs associated with keeping the exploration

idle – costing an average of $50,000 to $100,000 per day. In intending to reduce their lead-time

to one week, as well as to increase operational efficiency, Oak Hills also plans to enhance

customer service with the help of lean manufacturing techniques. Oak Hills level of inventory is

much higher than necessary because of the high demand volatility and lack of vendor

management.

The main issues that Oak Hills facility is facing are, employee related concerns, worn out

machines, workload on quality department, the lack of quality checkpoints, and process

inefficiency. All of which need to be solved before implanting the lean system. The lean system

will help improve the processes and quality of the facility as well as lessen the wastage.

However, employees are the key to this change; we need to change the current work environment

to help boost the employee morale. Furthermore, machines and systems need to be updated in
 3

order to reduce waste of raw material and to save time and manpower. The management and

employees at Oak Hills need to work together and communicate with one another in order to

implement lean system successfully.

QUESTIONS

1. What are the specific quality problems Oak Hills is facing, and how will they influence

the company’s ability to convert to a lean system?

There are four main quality problems that Oak Hills is facing are - Employees related concerns,

damaged machines, Workload on quality department, and Lack of Quality.

 Employee related fears: There is a lack of communication from management to

employees regarding current lay-off’s due to the economy issues, which has diminished the

employee morale. Additionally, issues of unfair bonuses pools are awarded on team basis, which

employees are cross functionally trained, and are sometimes forced to assist other employees to

complete the rush jobs.

 Damaged machines: Oak Hills has been utilizing old worn-out machines for years in

which are not up to par with current levels. This results in waste of raw materials and employee

turmoil at work level creating negative impact on the company’s expenses and employee

confidence.

 Workload on quality department: The quality control department has been overloaded

due to the fact that all seven units that are being used by the company are being started

simultaneously, and all assemblers have to bring in their first boxes of the batch for quality

assurance checks. Operating in this form will jeopardize the success of the quality control

department and will result in many faulty products which in return can destroy the image of the

company.
 4

 Lack of quality checkpoints: Oak Hills has a lack of quality checkpoints in which the

company is not able to monitor the direction or the production of work in progress. The company

does not perform quality checks when packing the products; this is only done during assembly.

Therefore when products reach the customer in bad condition, Oak Hills cannot assign the faults

to the correct department.

Oak Hills must ensure that these major issues become resolved before executing a lean

system. Lean systems put into consideration a practice of zero wastage with improvement in

processes and quality. The key individuals to conduct this change are the employees; in the

current situation it might not be easy for the employees to accept the issue at hand easily --

management must understand that quality is not for specific individuals only but both for the

employees and management and help created an easy transition to guide employees into using

this system by communicating and educating these changes.

2. What changes in the manufacturing environment need to be undertaken in order to

convert the current system to a lean system? Think about this from both a short-term and

a long-term perspective.

The changes that need to be made in the manufacturing environment are as follows:

 Organization behavior: The lean system is reliant on the coordination of efforts

between employees and the management. For the company to conduct the lean system they have

to make sure that the management and all the employees are able to embrace lean views and the

technicalities of the system. Management has to implement a proper information system that

enables the employees to learn more about the system.

 Connect with customers/suppliers: While Oak Hills is considering reducing the lead-

time to one week, it is very crucial for the company to make sure it has constant communication
 5

with its suppliers and customers. The company should have real-time data on drilling projects

and the various project information of their internal customers such as E&E and Triangle. This

not only sorts their short-term problems, but will set them up for the long run.

 Structure every activity and simplify the workflow: This procedure is very important

in the sense that it focuses attention on production processes of the company. The productions

manager should establish a proper system through which orders can be placed directly to avoid

frantic disruptions of the work schedule.

 Begin improvements: There are many improvements that the company has to consider,

improvements like the quality of the product, reduction of raw materials, and product wastes. It

goes into line with the lean system viewpoint that dictates zero wastage.

For Oak Hills to maintain excellence and process development that aligns with the lean

system in long term, the important aspects is change that has to be put into place by leadership

and create lean system thinking. The company has to be positioned in the lean system processes

to be able sustain the quality in the long run.

3. How will the implementation of lean system impact employees, and what can be done to

smooth the transition?

Implementing a Lean system does not dictate a specific result only outcome; it focuses on

changes within all dimensions of the organization. This system begins with compliance and

changes in overall views by the organizations employees, therefore, impacting internal sectors of

the organization in several ways.

Team Dynamics:

Lean systems require multifunctional teams with rotational team leadership in order to

include all involved. Currently, Oak Hills has established this system in its shipping department
 6

comprising a team of four men – the deliverer, assembler, assistant, and packer. However, some

implementing to this system must occur. It is stated that although rotational duties exist amongst

individuals, overall bonuses were team based, negating the fact that these members are involved

in more than just one team. Rewards must then be considered for not only teamwork, but

according to each task a single employee is responsible for successfully executing. This will

create more productivity from its employees while reducing stress. Furthermore, in order for this

system to become a successful mechanism within the organization, it must be integrated

throughout the firm in its entirety, having all employees possess multifunctional skills.

Employee education/communication:

To achieve superior results and to entice a smooth transition, employees must receive

appropriate education and training. Without this, employees will fail to posses skills needed to

create value within the organization. Another major factor needed at Oak Hill, is trust and

communication among team members and supervisors. Currently, no such connection exists

between all departments. Rumors of impending mergers and lack of communication from

management has dampened employee morale, provoking fears of unemployment. Employees

must be aware of all issues and opportunities that exist within the company, and be able to

embrace lean views in order to keep the organization functioning smoothly.

Overall, Oak hills management must implement these changes in methods including and

involving all employees. Communication seems to be the leading factor to which failure seems

to plague operations. Oak hills must keep all employees informed about changes and benefits.

The implementation of Lean system will enable employees to become relieved of the stress by

rush orders, and will create benefits and rewards as incentives to all employees for maximizing

results leading to smoother operations across the company.

 7

4. At what stage in the development of a supply chain is Oak Hills, and what can be done to

improve the supply chain?

It is evident that a proper supply chain network does not yet exist at Oak Hills. Large

volume foreign orders yielding lead times of up to three months, as well as many erratic

Exploration and Extraction unit (E&E) domestic orders leading to rush jobs seems to be a

continuing occurrence for Oak hills. The current relationship with the Exploration and Extraction

unit (E&E) is scarce, preventing any accurate demand forecasting opportunities causing Oak

hills plant an inventory turnover of only five times annually, prompting high inventory holding

costs, delivery costs, and overtime pay associated with expediting orders. In addition, Black

Dome, a manufacturing company supplying Oak hill its sensor board needs, lacks in on-time

delivery creating late deliveries and rescheduling problems for Oak hills and E&E.

In order to repair these issues and strengthen the supply chain connection between all

involved, Oak hills must adopt a practice of supply chain integration, using proper direct

communication channels providing Oak hills with information concerning any current or

impending projects by Exploration and Extraction unit (E&E). This will enable forecasting

demands of testing instruments, and reduce all costs associated with rush orders as well as the

amount of raw material inventory held onsite for unexpected orders. In addition, Oak Hills

enlists of Materials Requirements Planning System (MRP), but must utilize this system entirely

to schedule and manage with Black Dome the production planning and requirement planning to

eliminate late deliveries and rescheduling.

 8

5. For Oak Hills, what is the connection between demand management and the supply

chain?

Demand management is directly linked to supply chain management because it involves

prioritizing demand when supply is lacking. Proper demand management facilitates planning and

use of resources for profitable results. Oak Hill is facing issues with the constant demand that

continuously fluctuates causing many consequences. One of these consequences is a demand

issue that Oak Hills is not updated with information of current or upcoming projects of its

customers causing them to deal with rush order jobs. In order for them to complete orders on

time, they must keep inventory levels high causing increased holding costs. Other than holding

costs there are other issues associated with the demand unpredictability of Oak Hills orders such

as delivery costs and overtime costs.

Lean system is powerful in reducing waste but Oak Hills must manage supply chain

communication on its own because lean manufacturing does not guarantee to fix the demand

dilemma. Supply chain management can be used in this situation by creating a production

schedule. If Oak Hills receives details of its clients including Exploration and Extraction unit

(E&E) projects, it can then schedule the production process, leading to decreased inventory

costs.

6.What should Oak Hills do? What problems might occur in implementing your

recommendations, and how can these problems be avoided or neutralized?

Implementing lean manufacturing can solve some of the issues involving the production

process, but it can raise some issues within the company as well. One factor to be considered is

that it is normally difficult for people to accept change. The way to get people to accept change

is by communicating to stakeholders, clients, and employees the benefits of a lean system before
 9

implementing it. Once they have knowledge on the topic, this will allow them to accept the new

change. Another problem that needs to be considered is the cost of implementing the lean

system. Changing the process and techniques will cost money but management will need to be

convinced about all the profits that will occur if they accept lean manufacturing. In the end, Oak

Hills will encounter some issues while implementing the lean system but these issues can be

resolved with communication.

Conclusion/ Recommendations

Based on the analysis, the Oak Hills facility needs urgent and strategic solutions to its

challenges: the findings show that the facility’s product lines are not well managed due to little

information about the current and impending Exploration and Extraction (E&E) projects, the

costs of inventory holding and overtime pay is contributing to high overhead costs. The

employee morale is low, hence poor customer service; demand is unpredictable, poor

management of quality and workflow in the production system. There is wastage due to defects

in the production system, caused by worn out machinery. The problems are not only in the

production process, it is clear that the employees are not properly motivated due to poor

communication, and a poor reward system. Employees should be aware of what is going on, they

should be properly trained, and they should be compensated based on their input and

effectiveness; this will increase employee morale, as well as their productivity levels.

In order to have a smooth transition into the lean system, it advisable that management

communicates the change to all the stakeholders in the supply chain, including employees. Oak

Hills facility has little knowledge of upcoming projects of the E&E units in its supply chain; the

public relations and marketing departments should employ supply chain integration to ensure

that they are in directly contact with the project managers of their customers and everyone in the
 10

supply chain. Using this information, they can be able to plan better for real time drilling

projects, thus reducing the number of rush orders (demand management). The MRP system

should also be implemented in the ordering of cases from Black Dome and Precision Milling to

reduce the inventory holding costs, and the delays that occur. The worn out machinery in the

production process, especially the assembly presses should be refurbished or replaced. This will

help in reduce wastage in the production process due to product defects.

 11

Reference

Shankar, Venkatesh . "Integrating Demand and Supply Chain Management."

http://www.pearsoned.ca. N.p., n.d. Web. 2 Apr. 2014.

<http://www.pearsoned.ca/highered/divisions/text/cyr/readings/ShankarT3P2R3.pdf>.