Production & Operations Management - Essay Example

Production and Operations Management - Case: Hank Kolb, Director of Quality Assurance - Table of Contents I. Hank Kolb Case ………………………………………………………… 3 a. Causes of Quality Problem on Greasex Line …………………… 3 b. Steps Hank should follow for Continuous Improvement ………. 3 II. Calculate Break-Even of Product Value for Using Express Mail and Parcel Post ……………………………………………………………… 4 III. U.S. Airfilter Company ………………………………………………… 5 a. Average Inventory Turnover for the Company ………………… 5 b. Strategic Plan to Increase Inventory Turnover …………………. 5 b.1 Finish Goods …………………………………………… 5 b.2 Raw Materials …………………………………………… 6 c. The Average Number of Weeks of Raw Material Supply …….... 6 IV. Rezoning of Property …………………………………………………… 7 a. Decision Tree of the Problem …………………………………... 7 b. Best Solution for the Problem …………………………………... 7 c. Expected Net Profit ……………………………………………... 7 c.1 No Re-zoning …………………………………………… 7 c.2 With Re-zoning …………………………………………. 8 c.2.1 Shopping Center to a Large Department Chain 8 c.2.2 Shopping Center to Insurance Company …….. 8 c.2.3 1,500 Apartments to Real Estate @ $3,000 …… 8 c.2.4 1,500 Apartments to Real Estate @ $2,000 …… 8 c.3 Conclusion ……………………………………………….. 8 Hank Kolb Case Causes of Quality Problem on Greasex Line There are a lot of internal factors that contributes to the quality problems on Greasex line. This includes: (a) inefficient personnel – the operator that fills the equipment lacks working experience in running the machinery equipment, presence of the operator within the site, and lack of real-time report; (b) the automated filling equipment is not exclusively designed for Greasex line purposes and has no regular schedule for maintenance; (c) purchaser(s) do not have knowledge on the quality of spare parts needed for the equipment; and (d) lack of testing on the effects of contoured can on the speed of filling or filling hydrodynamics from a high-pressured filling head. Steps Hank should follow for Continuous Improvement Hank should implement a regular real-time reporting from operator(s) of Greasex line to ensure that necessary actions will be provided to cut down on ‘down-time’ errors and regular maintenance for machine. Ensure that effective training on handling the machinery should be provided by the company. Encourage purchaser to deal with operators carefully regarding the specs of materials needed. Take time to do laboratory tests on impact of contoured cans on speed of filling machine, etc). Compute for opportunity loss of using incompatible automated filling equipment for Greasex line. If feasible, recommend to invest on new automated filling equipment to cut down on cost due to high number of rejects and down-time in operations. Calculate Break-Even of Product Value for Using Express Mail and Parcel Post Considering that the inventory carrying cost is at 25% per annum of the product value and that the fact that there are 365 days per year, an item that costs $100 would cost $25 to carry in inventory for a year. To compute for the break-even cost, the cost savings should be equal to inventory carrying cost. Such that: Shipping Cost Savings = Inventory Carrying Cost = Item Value x 0.25 x Number of days 365 days per year To compute for the value of carrying cost, we use the formula: Item Value = 365 x Shipping Cost Savings 0.25 x Number of days Carrying Cost Rate = 0.25 # of Days Saved 2 Weight (lbs.) Computation Express Mail Parcel Post Cost of Saving Break-Even Product Value Break-Even Product by Pounds (Overnight) (3-Day) 2 15.00 2.87 12.13 35,419.60 17709.80 3 17.25 3.34 13.91 40,617.20 13539.07 4 19.40 3.78 15.62 45,610.40 11402.60 5 21.55 4.10 17.45 50,954.00 10190.80 6 25.40 4.39 21.01 61,349.20 10224.87 7 26.45 4.67 21.78 63,597.60 9085.37 8 27.60 4.91 22.69 66,254.80 8281.85 9 28.65 5.16 23.49 68,590.80 7621.20 U.S. Airfilter Company Average Inventory Turnover for the Company To solve for the average turnover, the formula is: Inventory Turnover = Cost of Goods Sold / Average Aggregate Inventory Value Note: All values in millions of U.S. dollar The Average Aggregate Inventory Value should include all the inventory items with a cost value for the company. This includes: raw materials, work-in-process, finished goods, and distribution inventory owned by the company. Strategic Plan to Increase Inventory Turnover Finish Goods To increase inventory turnover, I would focus on implementing Just-in-time manufacturing schedule to ensure that the work-in-process and finished goods at the Louisville plant is kept at a minimal value. At the same time, the schedule of delivery should be efficient to avoid keeping the finished goods within the plant vicinity. Both strategy will result to lesser inventory of finished goods in the warehouse. For slow-moving items, it is important for production manager not to produce excess item. To lessen on-hand slow moving items, sales manager could implement a temporary sale on available products. It is better to sell excess items when the excess product is still saleable. Waiting for it to deteriorate and get damaged by sitting in the warehouse is a waste of money on the part of the company. Raw Materials There should be a strict control over the purchase of raw materials. Therefore, the practice of first-in first-out should be strictly implemented to avoid damages in available raw materials. Also, raw materials on hand that are not in use is a waste in the company’s available resources. The Average Number of Weeks of Raw Material Supply To solve for the average number of weeks of raw material supply, we use the formula: Weeks of Supply = (Average Aggregate Inventory Value / Cost of Goods Sold) x 52 weeks Weeks of Supply   1st Quarter 2nd Quarter 3rd Quarter 4th Quarter   (Jan. - Mar.) (Apr. - Jun.) (Jul. - Sep.) (Oct. - Dec.) 92.86 88.14 76.47 74.29 Given that the company has reported to have used $500M worth of materials during the year and considering that the cost of goods sold provided remain constant, the average weeks of supply of raw materials on hand is 92.86, 88.14, 76.47, and 74.29 during the first, second, third and forth quarter of the year. Re-zoning of Property Decision Tree of the Problem Best Solution for the Problem The best solution for the problem is to solve the net expected profit that the lady could get from investing on this project. The net expected profit will serve as the benchmark in her decision-making process. Computation of Expected Net Profit No Re-zoning The net expected profit is $400,000. [(600 homes x $4,000) - $2 M] With Re-zoning Shopping Center to a Large Department Chain The net expected profit is $1 M. [$4M - $3 M] Shopping Center to Insurance Company The net expected profit is $2 M. [$5M - $3 M] 1,500 Apartments to Real Estate @ $3,000 each The net expected profit is $1.5 M. [(1,500 Apartments x $3,000) - $3 M] 1,500 Apartments to Real Estate @ $2,000 each The net expected profit is $0. [(1,500 Apartments x $2,000) - $3 M] Conclusion Based on the computation of the net expected profit, the lady could earn as much as $2 M for establishing a shopping center in a new land (re-zoning) and selling it to an insurance company afterwards. However, this option has only 30% probability that the project could prosper. The next best option is to develop 1,500 Apartments to real estate selling at 3,000 each. This option has a higher chance or probability (60%) that the project would materialize. The worst scenario is likely to occur if the lady constructed 1,500 Apartments and sell it at $2,000 each. This option would give her a break-even. It is even possible for the lady to occur some net loss in case of uncertain events. *** End *** Read More