A supply chain is the process of moving information and material to and from the manufacturing and service processes of a firm (Jacobs & Chase, 2011). Two components encompass the focus of the supply chain: the production, planning, and inventory control process and the distribution process. The supply chain is part of daily business operations and directly affects productivity, efficiency, and financial profitability. Proper management of the supply chain ensures a business delivers quality, cost-efficient products to customers while remaining competitive in today’s global market.
Team B provides a review of Riordan Manufacturing’s (RM) production strategy and describes supplier relationships and how they affect the supply chain. Finally, Team B explores how lean production principles and inventory requirements can be used to determine appropriate supply chain processes.
Electric Fan Manufacturing Strategy
RM uses the level production planning strategy of maintaining a stable workforce to produce electric fans at a constant output rate (Jacobs & Chase, 2011). Shortages and surpluses are absorbed with inventory levels, order backlogs, and potential lost sales (Jacobs & Chase, 2011). Employees benefit from stable work hours at the cost of increased inventory levels, increased potential of lost sales, risk of obsolete products, and decreased customer service (Jacobs & Chase, 2011).
Electric Fan Supply Chain
RM’s supply chain process flow in Figure 1 provides raw materials to the manufacturing plant and warehouse at the input end and the supply of completed plastic fans to the customer on the output end of the supply chain (Jacobs & Chase, 2011). The supply chain for the individual manufacturing processes is detailed in Figure 2.
Riordan Manufacturing Supply Chain
Manufacturing Department Supply Chain Process
Supplier Relationships and the Supply Chain
RM uses vertical integration as the framework for structuring supplier relationships. A vertically integrated process allows RM to control supply chain activities. Strategic activities are a key source of competitive advantage. Instead of outsourcing non-core activities and maintaining only core competencies under management control, RM evaluates each activity using required coordination (the difficulty of ensuring how well activities integrate with the process), strategic control (degree of loss that would result if supplier relationship were severed), and intellectual property techniques (Jacobs & Chase, 2011). Other types of losses important to consider include specialized facilities, knowledge of major customer relationships, and investment in research and development (Jacobs & Chase, 2011). RM does not outsource activities requiring frequent information exchange but instead outsource highly standardized, well understood, and easily transferrable activities to specialized business partners. Such strategic planning led to RM offshoring their entire fan operation from Pontiac, Michigan, to Hangzhou, China in 2000. This decision allowed RM to operate in a more feasible location, expand exponentially, and maintain financial stability (Jacobs & Chase, 2011).
Electric Fan Supply Chain Metrics
A performance measurement system is vital for businesses to operate efficiently and effectively. According to Jacobs and Chase (2011), “process performance metrics give the operations manager a gauge on how productively a process currently is operating and how productivity is changing over time” (p. 116). Two metrics used to evaluate the performance of the RM’s electric fan supply chain are utilization and productivity. Utilization measures the rate at which resources are used compared to time available for use by calculating time activated divided by time available (Jacobs & Chase, 2011).
Productivity metrics determine the amount of output per unit of time by calculating output divided by input (Jacobs & Chase, 2011). Metrics used by consumers to measure supplier performance are also the strategies suppliers use to improve their services. Examples of metrics include improved quality through lower product defects, cost-efficiency, timely delivery, and shorter order fill time. Globalized businesses must not only have capable supply chain partners that support global market initiatives but also have the capability to lower supply chain costs (Handfield, 2012).
Lean Production Principles
RM can adopt Toyota’s lean principles by using the just-in-time inventory approach that emphasizes elimination of waste (Jacobs & Chase, 2011). The lean process is essential for inventory management to reduce manufacturing cost and increase productivity. Inventory is controlled using the lean principles by eliminating extra processes and ordering supplies just-in-time based on value streaming. Value streaming involves understanding “the value-adding and non-value-adding activities required to design, order, and provide a product or service from concept to launch, order to delivery, and raw materials to customers” (Jacobs & Chase, 2011, p. 421).
RM’s electric fan production system uses a push system for input from a number of specialized departments such as receiving, molding, trimming, and assembly. Implementing a pull system for its production process helps master the lean production principles through more efficient inventory management and shorter lead time by focusing on building what customers want, when they want it versus producing too many goods that sit in inventory or become obsolete (Turner, 2013).
Forecasting sales provides necessary information to determine inventory needs, production plans, and resource needs to create customer value. Sophisticated statistical analysis, cyclical and seasonal factors, and historical data are important factors in creating a sales forecast for RM.
Forecasting techniques can be subdivided into two major groups: qualitative and quantitative. Qualitative techniques use subjective data that is difficult to represent numerically. It is based on the opinion and judgment of key persons, specialists in products and markets. Quantitative techniques involve numerical analysis of past data unbiased by personal opinions or judgment. This technique employs mathematical models to project future demand. Quantitative forecasting is subdivided into two major groups: time series techniques and causal techniques. RM forecasts future sales based on an average of the previous three years production with the idea that history repeats itself. A quantitative forecasting using the time series technique results in the forecast in table 1. This demand forecast provides information management needs to make decisions on production planning, inventory, and marketing activities.
Electric Fan Production Planning
Aggregate Production Plan
RM’s electric fan aggregate production plan in Table 2 specifies the optimal combination of fan production rate, workforce level, and inventory on hand to minimize the total production-related costs over the planning horizon (Jacobs & Chase, 2011). Because RM uses the level production planning strategy, inventory is a cost of business that RM accepts. RM will continue to employ a stable workforce at the cost of inventory. This results in level production of 96K units per month. Fluctuations in demand shown in Figure 3 are absorbed by inventory levels, order backlogs, and potentially lost business (Jacobs & Chase, 2011).
Riordan Manufacturing Electric Fan Demand and Production
Master Production Schedule
RM’s master production schedule in Table 3 is the time-phased plan specifying how many and when RM plans to build each electric fan model.
Materials Requirements Plan
Materials requirements planning (MRP) is essential to manufacturing organizations for calculating and maintaining optimum inventory levels to meet production requirements. Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for dependent demand items. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product (Reference for Business, 2nd ed., 2013). A proper MRP puts the organization in a proactive position rather than reactive. MRP assists in reducing inventory levels and component shortages and ensures the right materials are in the right place at the right time, which increases productivity.
Other benefits include improved plant efficiency, reduced overtime, higher production quality, and less scrap and rework. RM uses MRP to optimize production based on forecasted sales. Table 4 provides a forecast of finished goods inventory based on the forecasted demand. With this data the organization can forecast and plan for future production requirements and use materials requirement planning to coordinate accurately inventory, shipping, and production. Riordan Manufacturing uses a fixed order system or meeting its materials requirement needs. They procure the assembled motors for the fans from local manufacturers in quantities adequate to meet its order requirements. They also purchase the plants plastic polymer requirements from local suppliers. To assure consistent operations and quality control, Riordan manufacturing has a set of procedures developed for the management of receiving raw materials, tracking products during manufacturing, accounting for the finished goods inventories.
The supply chain is an integral part of an organization’s manufacturing process. A successful supply chain is able manage production costs, increase efficiency and effectiveness, and control inventory flow while averting financial impacts from unexpected supply chain disruptions. Last, an effective supply chain is easily integrated into a business’s production planning, scheduling, and forecasting strategies to achieve maximum results.
Handfield, R. (2012). Supplier Development Strategies and Outcomes. Retrieved from http://scm.ncsu.edu/scm-articles/article/supplier-development-strategies-and-outcomes Jacobs, F. R., & Chase, R. B. (2011). Operations and Supply Chain Management (13th ed.). New York, NY: McGraw-Hill Irwin. Reference for Business, Encyclopedia of Business, 2nd ed. (2013). Materials Requirement Planning. Retrieved from http://www.referenceforbusiness.com/small/Mail-Op/Material-Requirements-Planning-MRP.html Turner, C. (2013). Pull System. Retrieved from http://leanmanufacturingcoach.com/pullsystem.htm