Group Project
Company Background
We started a facemask business named WOOMP to produce face masks. We have a total of 26,000 cubic feet factory in Kwun Tong. Here is our factory floor plan:
The warehouse is 10,000 cubic feet, where all supplies and finished products are stored in the same warehouse in different racks. Our factory works 22 days per month and 8 hours per day. There is a cleanroom required for face mask manufacturing, and three production machines are currently in the cleanroom. We used the machine model CJ-120A to produce face masks, which can produce 120 pieces of face masks per minute automatically. During the production process, the machine needs four materials: non-woven fabric, melt-blown cloth, nose-clip wire, and cotton elastic string. Moreover, we have one worker to load the materials to the machine every two hours.
Our business started with a single machine in January 2020. The second machine was bought in July 2020, and the third was bought in July 2021. We are selling face masks in which 1 pack has 50 boxes, and 1 box has 50 pieces. When we have only one machine, the production quantity is 507 packs per month. Since the pandemic has become more serious, the demand keeps increasing, so we add two more machines to increase our supply to 1,520 packs per month.
Our company has four departments under the operation department: procurement, manufacturing, inventory, and warehouse. However, some operation problems in each department need to solve. Therefore, we represent the manufacturing and inventory departments to analyze the issue.
Manufacturing Department
Current issues
In the current mask production process, we have three machines to produce masks, and 1 minute can produce a total of 360 pieces. In step 2, our worker can handle 150 pieces in a minute. In the final step, our worker can handle 2,500 pieces in a minute and reload the material for 10 minutes every 2 hours. There are two workers to handle step 2 and step 3 respectively.
1. Production process inefficient
For the current issues, three machines can produce 360 pieces of mask in step 1, yet a worker in step 2 only packs up to 150 pieces per minute, so the second step becomes the bottleneck of our production process. There are only 150 pieces available for packaging, while the step 3 capacity is 2500 pieces per minute. We can see the bottleneck will affect the step after.
2. Lack of emergency support
The whole production line consists of only two workers delegated with a vital part of the production line. If any emergencies happen during the production, for example, the worker is not feeling well, or one of the workers is absent from work, the subsequent process cannot be performed. It is hard for the department to find another worker to replace them at short notice.
3. Work pressure
Also, the work pressure of the worker in step 2 is a serious problem. The maximum capacity of step 2 is to pack 150 pieces per mins. However, three machines in step 1 can produce 360 pieces per min, which means 210 pieces are waiting to be processed. It puts pressure on the worker in step 2 that he needs to work faster. He may ignore the quality of the mask because they need to work fast to handle the remaining pieces. Moreover, our product may appear some defective masks with stains or stitching errors due to the lack of quality check. Finally, our company may receive customers complain because of the product’s poor quality.
4. Slow production
The problem in steps 2 and 3 halted because the step 3 worker needed 10 minutes to reload the machines every 2 hours. The subsequent steps cannot be performed because no masks are manufactured during the reloading time.
5. Idle time
The last problem is sitting idle the worker in step 3 because of an insufficient mask to pack in one box. Step 3 worker can group 2,500 pieces of mask per minute, but it only receives 150 pieces per minute due to the capacity of step 2. It needs to wait for 2,500 pieces of masks to group them into one pack. It means there is an unoccupied time when workers wait for the mask. In addition, Idling workers usually tend to procrastinate, so it may eventually lead to steps 2 and 3 failing.
Improvement
Given the current issues, we have come up with several methods to improve the production rate.
1. Extend daily working hours/ working day
Firstly, we can start by extending the daily working hour from 8 hours to 9 hours. The new production rate for each machine will become 570.24 packs per month.
2. Hire more workers
Second, we can hire more workers. For instance, hire two more workers to handle step 2. The capacity will increase from 150 pieces to 450 pieces. Not only can step 2 more than able to handle the production rate of the machines but also substitute one worker when the worker is absent. It can also reduce workload for the step 2 worker and thus less pressure for all workers.
3. Assign Step 3 worker to help with Step 2 workload
In addition, we can further improve the original plan to have the step 3 worker assist in the production of step 2 as the worker would have a lot of idle time for handling the boxes passed down from step 2. Therefore, the step 3 worker can assist the step 2 worker in packing 2,400 pieces and returning to the worker's duty and completing it within 2 minutes, and the worker will still be able to keep up with the process. It can keep the workers occupied with a reasonable amount of workload.
4. Change the reloading manner
Turning our focus to the mechanical side of things, we can change the reloading procedures and reload one machine while the other two machines are still running so that steps 2 and 3 will not be suspended due to zero output made in step one. As you can see here in the graph, while machine one is reloading, the other two are still running, and step 1 output would decrease to 240 pieces.
Each method is presumed to operate individually. If we combine them, some changes shall be made. If we assign a step 3 worker to help with the step 2 workload, we will only need one additional worker. We also need to install an RFID scanner for counting. Workers in step 2 would need to scan the bar code on the box to keep count, and when 2,500 pieces are packed in boxes, step 3 worker would need to return to the worker's duty. The three machines can produce 360 pieces per minute which are less than 450 pieces per minute of output in step 2. Therefore, those workers would not be fully occupied. In this case, the newly hired worker can help with reloading materials instead. The whole procedure will take 10 minutes, during which one out of three machines will be suspended only. With one machine out of commission for the time, step 1 output will drop to 240 pieces per min. Step 2 output capacity will also drop to 300 p/min because one worker reloads the machines' materials. Materials will need to be reloaded every 1 hour and 50 minutes before the machines run out of materials completely.
The exact workflow will be three workers working on step 2 normally, and when 2,500 pieces are passed down from step 2, step 3 worker will be back to conducting step 3
With the new method fully capable of handling output from step 1, each machine output increases to 570 packs per month. Originally, the output will only be 1,520 packs. The new production rate will become 1,710 pieces per month.
Cost implication
We will hire one additional worker for process step 2, pick up the mask and put it in the box. Here will be an additional labour cost to hire a new worker, and the new worker's hourly rate would be 70 HKD, working for 8 hours per day and 22 days per month, there will be around 12,000 HKD monthly salaries. Also, to improve the production rate, we have proposed to extend the daily working hour, from the original 8 hours to 9 hours. And we may be further extending the daily working hour, which really depends on the mask demand. If the working hour extended, there will be overtime pay for our workers. The OT pay will be 80 HKD per hour. Therefore, the total OT pay will be around 5,000 HKD. And the total additional direct labour cost is around 18,000 HKD per month.
2. Time cost
Apart from the labour cost, there would be some time costs. For the new worker, we need to put extra effort to teach the worker about the working process. And for implementing the newly revised process, we need to provide additional training to our existing workers. It also may take time for our workers to adopt the new working process and schedule. In addition, our manufacturing manager needs to closely supervise the new working process to ensure the new process can run smoothly. It may require our manager to readjust the new procedure if we find a bottleneck timely. Therefore, to implement the new process to increase the production rate, our manufacturing department manager need to put additional time into it.
3. Cost of RFID
Moreover, we will scan the RFID for counting the amount of the mask in step 2. There is a package cost of around 40,000 HKD, which provides an asset tracking software application license, two handheld readers, and the ability to use RFID to tag and identify assets. Then, we can build a database to store that information to keep monitoring and tracking. Furthermore, we need to purchase one more barcode scanner for the third machine, and it would be costed around 500 HKD.
4. Wasted cost
And there will be some material cost, as we changed the material reloading from original every 2 hours to every 1 hour and 50 minutes, which bring 10 minutes earlier. Therefore, the remaining material in the machine would be wasted, and we estimate the wasted material cost would be around 400 HKD per time.
To summarize, we have calculated the total monetary cost for improving the production rate is around 100,000 HKD per month.
Inventory Department
Reorder Policy
Due to the problem that the supplies may come too early and occupy the space of the finished product in the warehouse, causing the error to occur, we use the reorder policy with uncertain demand to manage our supply.
Firstly, is to calculate the economic order quantity (EOQ). Our annual demand in 2021 is 16,011 packs, so the EOQ is around 693 packs per order. Based on the EOQ, we can determine the probability that demand is greater than the reorder point is 0.004328, and then we got the Z value of 2.63 from the Z-table. To translate the Z value into the optimal reorder level, we need to determine the mean and standard deviation of lead time demand. We divide the annual demand by 365 and then times the lead time 15 days. After that, we also get the population standard deviation of 328.1938. Since this standard deviation is based on the monthly data, but the lead time is half a month, we need to time 0.5 to get the standard deviation of lead time 164. Then, we determine the reorder level is around 1,089 packs.
This reorder policy has considered the uncertain demand, so we need to re-evaluate the economic order quantity with the expected backlog cost. The standardized normal loss value is 0.0013, the expected number of backlogged units per order is 0.2132, and the modified economic order quantity is 741 packs per order. Then we also need to re-evaluate the optimal reorder level. The probability that demand is greater than the reorder point is 0.004628, and the Z value is 2.61. Finally, the modified optimal reorder level is 1086 packs. To summarize, we should reorder materials to produce 741 packs of face masks more when our inventory reaches 1,086 packs to reduce the chance of stock-out or over-stock. Under this reorder policy, our inventory cost is around $11686.76 US dollars.
However, EOQ is the ideal order quantity for a company to minimize the cost related to inventory, such as holding cost, order cost, backlog cost, etc. The reorder point is the inventory level that we need to reorder the materials to avoid stockout. If we reorder the products within a short time period, the inventory cost will increase. Also, the low order quantity may cause the chance of stockout increase and the backlog cost to rising, which means we may have a loss for the unfulfilled order. Therefore, we cannot rely on the EOQ model to order our materials.
Contingency Plan – Overstock
1. Promotion Plan
We can have a promotion plan to offer discounts. Discounts can attract customers and help us to sell the overstock inventory effectively. We should start with providing a low discount and increasing to a high discount, which can slowly lower the selling price to find the best selling price and avoid a loss. For example, we can offer a bulk discount. When people buy more face masks, the price will become lower. Also, we can directly promote and offer discounts to companies for purchasing a large number of face masks to conduct B2B promotions.
2. Donations
Under the pandemic, Hong Kong people need to wear face masks every day, but some grassroots citizens do not have the financial means to buy face masks. Therefore, we can donate some face masks that are excessive to NGOs or charities to practice corporate social responsibility. Also, we can get a good reputation and build trust in our brand to attract more customers to buy our products.
Prevention Plan – Overstock
1. Software
We need to have a prevention plan to lower the opportunity for overstock. We can adopt some inventory management software, forecasting software, or demand planning to automate our reorder process. The software can avoid human error to ensure efficiency and accuracy. For instance, we can use Zoho Inventory, an inventory management software that can automate our order and inventory management to monitor the process from order to receive and track the delivery.
Contingency Plan – Stockout
1. Extend the working hours
We designed to extend the working hour and days of the workers, which means they will work 10 hours a day, and/or three more working days in a month, depending on whether the demand is extremely high or just a bit higher than normal. Besides, part-time workers are also a feasible plan to deal with the problem, since it can instantly increase the productivity of the workers and allow rotating shifts, so that we can have an option of maintaining the manufacturing activity for more than 8 or 10 hours a day, to deal with the stock out.
2. Outsourcing
Outsourcing is also on our list of solutions, but we are putting it as the lowest priority. We will do it only when the demand is much higher than we cannot meet. So you may wonder why we still suggest outsourcing our production when it will cost much higher. Here is the answer, we actually compare the cost of buying a new machine, which will long term increase our productivity, which seems more effective, efficient and cheaper than outsourcing. However, not only is the machine price considered, as our factory is already full, we have to rent another factory for that machine. Also, new employees, the setup cost, the time cost, etc., is much higher than outsourcing in terms of the short term contingency plan. So, when demand fluctuates, we do not suggest buying a new machine; instead, outsourcing will be a better choice.
Prevention Plan – Stockout
We should store a level of safety stock to meet the fluctuating demand. We should also have close communication with our supplier, so we can follow each other schedules and prevent any situation that is out of our expectations.
1. Track the inventory regularly
We should also track the inventory regularly, for example, for one week or even shorter, to immediately do the reorder process when it meets the level. Moreover, we can find whether there are any potential suppliers in the market. When the current supplier faces a delay problem or any situation where they cannot provide the materials, we can still run our manufacturing activity.
Cost implication
1. Opportunity cost
There will be an opportunity cost for the discount and donation plan that we will lower or have no sales revenue. But at the same time, this can help us eliminate the holding cost of those inventories. We suggest using the existing software in the market to lower the cost of the inventory system. Here is the choice of software that suits our needs, from low price to high. According to our research, Zoho inventory is good enough to provide inventory tracking, auto the reorder process, and supplier management, like creating a price list of our suppliers. Also, we can choose between trying out all the trials, but it will relate to the cost I will talk about. Besides the money cost of the software, there are two more costs that we cannot estimate recently: searching cost and switch cost. That is all about the cost generated before deciding which software to use, including the time of doing marketing research and data inputting when trying out the trial.
2. Labour cost
The last part is the plan's cost for the stock run out. About the labour cost, if we choose to extend the work hour, there will be an overtime salary of about 7,000 HKD. If there is an extra workday, then it is about 3,000 HKD. If we choose both, the total cost will be 32,000 HKD per month. For the part-time worker, we assume that they will work four days a week, which is 6,400 HKD per month per worker.
3. Outsourcing cost
Except for the search cost that we cannot estimate, the procurement cost is 1,900 HKD per pack. Take the sales figure for December last year, and there would be a shortage of stock of 499 packs. Assuming we had no inventory, the procurement cost would be nearly 950,000 HKD. Again, since it is a high-cost solution, it is our lowest priority to face the demand under the fluctuating and short-term shortage.
Reflection
After this group project, we got more familiar with what we learned in this course. We choose the manufacturing and inventory departments to analyze the problems and provide solutions. This assignment gave us a case of each department, and we needed to find out the issue by ourselves. After that, we also need to estimate the cost of our solution. The process makes us feel like we are actually helping a company improve its operation. We searched for all the possible solutions and discussed them together. For example, if we want to add a new machine, we have a lot of situations that need to consider. We tried to contact the machine supplier at 1 a.m. to ask for the machine's price. Also, we need to expand our factory or rent a new factory if we want to add a new machine, which involves the rent cost, license to operate a face mask factory, etc. Therefore, we think that the cost of outsourcing is cheaper than buying a new machine. For the inventory department, we knew more about the problem of the reorder level greater than the order quantity. It will increase the inventory cost and the opportunity for stockout so that we cannot manage our inventory according to the EOQ model.
-----------------------------------------------------------------------------------------------------------------------------
References
Strategic Inc.
https://www.sstid.com/blog/the-cost-of-rfid-heres-what-you-need-to-know/
Zoho Inventory.
Syncron Inc.
Intuit Limited.
.svg.png){kind=logo}
留言
發佈留言