Caso De Estudio

PRODUCTION I

Members: Luis Bazurto, Ma. Claudia Orozco, Gino Portes.

Cornwell Glass

Cornwell Glass produces replacement automobile glass for all makes of cars. Cornwell has a sophisticated forecasting system that uses data from past years to find seasonal factors and long-term trends. The system uses data from past weeks to find recent trends. The following table presents the forecasted demands for the coming year on a weekly basis.

Week Demand Week Demand

April 15 1829 November 4 1864

22 1820 11 1989

29 1887 18 2098

May 6 1958 25 2244

13 2011 December 2 2357

20 2063 9 2368

27 2104 16 2387

June 3 2161 23 2402

10 2258 30 2418

17 2307 January 6 2417

24 2389 13 2324

July 1 2434 20 2204

8 2402 27 2188

15 2385 February 3 2168

22 2330 10 2086

29 2323 17 1954

August 5 2317 24 1877

12 2222 March 3 1822

19 2134 10 1803

26 2065 17 1777

September 2 1973 24 1799

9 1912 31 1803

16 1854 April 7 1805

23 1763

30 1699

October 7 1620

14 1689

21 1754

28 1800

Cornwell uses these forecasts for its production planning. It manufactures several types of glass, and demand is aggregated across products and measured in pounds.

It is obvious from the demands that there is a great deal of seasonality/cyclicality in the demand pattern. Cornwell will need to take this into account in developing a production plan for the coming year.

Cornwell must consider the costs of hiring or firing workers; using overtime; subcontracting; and holding inventory or running out of the product. The holding cost for glass is $.12 per pound per week. The company estimates that the cost of a late order is $20 per pound per week late.

Cornwell currently costs out each hire at $5.63 per pound (based on training costs and production rates per worker). It costs out each fire at $15.73 per pound (based on unemployment compensation and loss of good will). The company currently has the capacity to manufacture 1,900 pounds of glass per week. This capacity cannot be exceeded under any plan. At most, 2,000 pounds can be subcontracted in a given week, and overtime is limited to 250 pounds per week. Glass that is manufactured during overtime costs $8 per pound more than glass manufactured during regular time. Glass that is subcontracted costs $2 more per pound than glass that is produced during overtime.

The current inventory is 73 units, and currently production is working at full capacity, 1,900 units. Cornwell has not been able to determine whether demands not met in the current month can be met later or whether these orders are lost.

DISCUSSION QUESTIONS

Find the production schedule Cornwell should follow under the various assumptions and policies, and detail the differences among these schedules.

The better solution is the following

Auto Parts, Inc.

Auto Parts, Inc., is a distributor of automotive replacement parts. With no manufacturing capability, all the products it sells are purchased, assembled, and repackaged. Auto Parts, Inc., does have extensive inventory and assembly facilities. Among its products are private-label carburetor and ignition kits. The company has been experiencing difficulties for the last 2 years. First, profits have fallen considerably. Second, customer-service levels have declined, with late deliveries now exceeding 25% of orders. Third, customer returns have been rising at a rate of 3% per month.

Phil Houghton, vice president of sales, claims that most of the problem lies with the assembly department. He says that although Auto Parts, Inc., has accurate BOM indicating what goes into each product, it is not producing the proper mix of the product. He also believes it has poor quality control, its productivity has fallen, and as a result, its costs are too high.

Treasurer Dick Houser believes that problems are due to investment in the wrong inventories. He thinks that marketing has too many options and products. Dick also thinks that purchasing department buyers have been hedging their inventories and requirements with excess purchasing commitments.

Assembly manager John Burnham says, "The symptom is that we have a lot of parts in inventory, but no place to assemble them in the production schedule. When we have the right part," he adds, "it is not very good, but we use it anyway to meet the schedule."

John Tolbert, manager of purchasing, has taken the stance that purchasing has not let Auto Parts, Inc., down. He has stuck by his old suppliers, used historical data to determine requirements, maintained what he views as excellent prices from suppliers, and evaluated new sources of supply with a view toward lowering cost. Where possible, John reacted to the increased pressure for profitability by emphasizing low cost and early delivery.

As president of Auto Parts, Inc., you must get the firm back on a course toward improved profitability.

DISCUSSION QUESTIONS

Identify both the symptoms and problems at Auto Parts, Inc.

The problems with the company is that there is a low inventory turnover is for this very reason that accumulates, we must also emphasize that the existing problems in the assembly causes this inventory buildup because that exists in the area of assembly a neck of bottle. Moreover, there is a problem with suppliers, which has not been adequately determined.

What specific changes would you implement?

To make specific changes must focus on the problem or the root cause of all these problems, which in this case occurs in the assembly area. Therefore, here we must find and exploit our bottleneck, so we can gradually reduce the accumulation of inventory, then having exploited this restriction we can subordinate the other parts of the assembly area for adequate flow is created. Finished it should increase the capacity of our restriction to increase the flow of production. Finally, we would have to find our next restriction system and follow the steps above, so we are on the path to continuous improvement.

Ikon's Attempt at ERP

Material Requirements Planning (MRP) and ERP Ikon Office Solutions is the world’s largest independent office technology company, with revenues approaching $5 billion and operations in the U.S., Canada, Mexico, the United King-dom, France, Germany, and Denmark. Ikon is pursing a growth strategy to move from what was more than 80 individually operating copier dealers to an integrated solutions company. Its goal is to provide total office technology solutions, ranging from copiers, digital printers, and docu-ment management services to systems integration, training, and other network technology ser-vices. The company has rapidly expanded its service capability with an aggressive acquisition effort that has included technology services and document management companies.

Given these objectives, the company seemed to need ERP software. A few years ago, it be-gan a pilot project in the Northern California district to assess the possibility of using SAP’s en-terprise software applications companywide. Chief Information Officer David Gadra, who joined Ikon about a month after the pilot system was turned on, however, decided not to roll it out. Ikon will take a $25 million write-off on the cost of the pilot.

“There were a number of factors that made us decide this project was more challenging than beneficial for us,” says Gadra. “When we added everything up—human factors, functionality gaps, and costs incurred—we decided our environment is ill defined for SAP.” Instead, Ikon is bringing all 13 of its regional operations onto a home-grown application system.

“I don’t blame the consultants or SAP,” he says. “We made errors on our side in estimating the amount of business change we’d have to make as part of this implementation.”

The vast majority of the $25 million loss represents consultant fees; less than 10% went to pay for the software itself. At any given point in the project, Ikon was paying 40 to 50 outside consultants $300 an hour. Ikon budgeted $12 million to get the system running. That cost came in at over $14 million, including $8 million paid to IBM for consulting.

A major reason the company decided to drop SAP was its conclusion that the software didn’t sufficiently address the needs of a service company like Ikon, as opposed to those of manufac-turers. For example, SAP didn’t have an adequate feature for tracking service calls. Ikon also had great difficulty assembling an internal team of SAP experts. Ikon’s costs were high because the firm relied heavily on consultants.

“I am extremely disappointed by Ikon’s announcement,” says SAP America president Jeremy Coote, describing Ikon’s earlier pilot as on time and “extremely successful.” Coote calls Ikon’s decision to scrap the project “an example of what happens when you don’t sell at the corporate level” as well as the divisional level. A newer version of SAP is to include a service management module.

DISCUSSION QUESTIONS

What are the information needs at Ikon and what alternatives does Ikon have to meet these needs?

Ikon wants to provide ofiice technology solutions, ranging from copiers, digital printers, and docu-ment

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