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Operations Management for Distribution Ehgineering

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Scenario:

You are a junior analyst in the Distribution Engineering, Maintenance, and Productions Management group of the central engineering department of the Canbide Corporation, located near Torrance, CA.

The Canbide Corporation is a multi-national, publicly traded (NYSE), US - based, manufacturing company with annual sales nearing $10 Billion. Canbide is one of the pioneers of the petrochemical industry and is the acknowledged technology leader in several market sectors and benefits from large licensing royalty fees for those technologies. Canbide is the low cost producer for a number of commodity products. Canbide's current marketing approach is based on providing a wider selection of products at a single location than do any of their competitors.

Two years ago, in a surprising move, Canbide purchased a leading Korean electronics company. As a result, Canbide is now in the PC printer, toner cartridge, copier, and electronic imaging business as well. The PC printer and cartridge product lines are closely aligned and often share facilities. The copier and electronic imaging facilities are, for the most part, free standing facilities. The chemicals and electronics businesses have, until now, been run separately.

In a suburb of Tulsa, Oklahoma, Canbide operates a Central Research & Development / Central Engineering Department for the chemicals business. A similar facility for the electronics business is situated in Torrance, CA. The divisional research and engineering departments are also located at these facilities. The divisional research and engineering groups are the experts on the specific reactions or production processes and equipment associated with that division's products. The central research and engineering groups are focused on providing experts in specific subjects who cross divisional boundaries and generally work as internal consultants for the divisional research and engineering groups and often work on plant level issues.

Mr. Iwami, president of the electronics business group, is pressing his divisional VPs to solve several problems. There is internal pressure for a new distribution facility in the Pacific Northwest. There are quality problems at a facility in Nebraska. There are customer service problems at most distribution locations, but they are especially bad at the facility located near Denver, CO. There are inventory / materials handling problems at the Newark, NJ facility.

Your supervisor has alerted you to three potential projects for the coming year.

Customer Service problems at the Denver facility: This facility has been in existence since the 1930s. It has slowly grown physically since then. New production units have repeatedly been added on the periphery of the facility, leading to widely scattered production units within the facility that currently measures about 2km by 1km. The customer service issues arise from several sources. First, customers desiring to pickup multiple products must now drive from point to point within the plant to pick up each product. There are often waiting lines at each loading point. A second problem is the arrival pattern of trucks to pick up products that materially contributes to gridlock within the facility.

Production Facilities in the Pacific Northwest: For the past few years, the performances of the three production facilities in the state of Oregon have been declining. Inventory levels are up, on-time shipments are slipping. Costs are rising. Scrap rates are increasing. Delivered quality still remains strong.

Copier rehab facility near Charleston, SC: The copier rehab facility near Charleston, SC receives "trade-in" copiers from distributors across the country and restores them to "good as new" condition. The facility stocks certain parts that are always replaced and others that are often replaced, based on wear and condition. Moreover, sometimes, copiers require parts that are not stocked, leading to a delay in the repair of that copier. They have a target (imposed by the copier division VP) that copiers spend no more than seven days at the facility before being released for re-sale. Since the facility has no visibility of incoming copiers and has no precise knowledge of what parts may be required, materials and labor planning is difficult.

As the junior analyst you will be in charge of analyzing various operations management issues concerning Canbide Corporation ranging from customer service to location to operations for all three facilities. You will be making recommendations on changes, improvements and the possible use of Operations Management (OM) tools.

Assignment: 500-1000 words

Your ad hoc team at the Charleston, SC facility has already developed your set of recommendations. Your next task is to develop a presentation of your recommendations to a group consisting of the plant manager, divisional VP, your boss, and your boss' boss.

These parties are interested in your presentation for the following reasons:

The current plant manager is interested in action. This presentation should briefly discuss the problems and the history behind them, then proactively shift focus to the recommended corrective actions. The presentation should at least tentatively assign responsibility for each action to the appropriate plant level staff or operations group. It should also identify what resources the plant manager should request, if any, from divisional or corporate level staffs.

The divisional VP is interested in results. Remember that a VP is very busy, so try not to get too lengthy in this portion. It should quickly present what actions were recommended to the plant manager, but should spend comparatively more time on how the divisional staff may best provide support to the plant.

Your boss is most interested in the quality of the work that you have done. The presentation to your boss should include a more detailed description of current situation and focus more on the analytical and problem solving approaches which were used.

Your boss' boss may or may not be interested in seeing or hearing your presentation. He may be primarily interested in learning about how satisfied the plant manager and divisional VP seemed to be with your work.

To create your presentation, you should:

Define the problem
Identify the alternatives
Determine the evaluation criteria
Evaluate the alternatives
Choose an alternative.

Your recommendations (a "bullet point" format would work well for this portion of your deliverable).
A list of which additional plant staff members you would want to attend the formal presentation to the plant manager.
A risk analysis with each recommendation (Risk Analysis recognizes each possible decision combination and the set of possible payoffs and probabilities).

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Solution Preview

Operations Management Problem at the Copier Rehab Facility at Charleston, south Carolina

Background
The restoration of traded in copiers by the Charleston rehabilitation facility is a classic example of an operations management challenge. With a target total time (seven days) in the system for any given copier and lack of input on the arrival rate of copiers to the plant and also what parts will be needed, meeting the target and planning for inventory of parts is very challenging.

Statement of the Problem
Given the target total time in the system, how can the rehabilitation facility improve its supply chain management, particularly, its inventory management?

Alternative Courses of Action
Alternative 1: Analyze historical data for the volume of copier repaired by the facility over the past three years. From this analysis, the arrival rate of copiers can be based and a reasonable estimate of how many copiers will be incoming for a given period can be achieved. Moreover, from this analysis the facility can isolate what parts needed ever became out of stock - how often and how many. This will help the facility to create a plan for its inventory.

Alternative 2: Enter into a Just-in-Time arrangement with key suppliers such that key materials are available when needed.

Alternative 3: Gather data from the field, particularly from distributors, to get a reasonable estimate of how many copiers will be incoming for trade-in in a given period. From this estimate, the company can make a reasonable plan of what parts it will have to buy and stock in.

Evaluation Criteria
In identifying the most effective alternative, I suggest the use of the following criteria and that the Kepner-Tregoe Matrix be used.

Criteria 1: reduction in total time spent in the rehabilitation facility by any copier before it is released for re-sale
This criterion is the most important of all given that the company has a target. Moreover, the longer a copier in the system the higher is the implicit cost to Canbide Corporation as a result of storage cost and cost of lost opportunity due to delayed re-sale of the copier. Thus, this criterion is given a 50% weight.

Criteria 2: reduction in stock out of parts. This criterion supports the attainment of the total system time target. A reduced incidence of stockout can speed up the movement or repair time of a copier throughout the facility as needed and critical parts are available whenever needed. Thus, this criterion is given a weight of 35%.

Criteria 3: additional resources required by the alternative. The alternative should be both efficient and effective; otherwise the benefit from implementing the alternative might be less than its cost. The weight for this criterion is 15%.

Alternative Weight
Criteria
Reduction in total time 50%
Reduction in stockout 35%
Additional resources 15%

Evaluation of Alternatives

The three alternatives were ranked according to their contribution per criteria - 3 being the highest and 1 being the lowest scores. Then ...

Solution Summary

The solution examines operations management for distribution engineering. A presentation is created to define the problem, identify the alternatives, determine the evaluation criteria, evaluates the alternatives and finally chooses one.

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