Riordan Manufacturing’s Supply Chain Design
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Riordan Manufacturing (Riordan) is a global plastics manufacturing firm established in the early 1990’s. According to their website, Riordan currently has 550 employees and projected annual earnings of $46 million. Their focus is to be an industry leader in using polymer materials to provide solutions to their customer’s challenges. Current product lines include plastic beverage containers, custom plastic parts and plastic fan parts. Team A will be evaluating the plastic fan operation and its current supply chain. Manufacturers must consider the amount of work that needs to be done before deciding on a manufacturing strategy. The company’s production process design must be consistent with the volume and variety of products manufactured. Due to the unique nature of electric fans production and customer requirements, Riordan utilizes a level manufacturing strategy. One of the benefits of using this type of manufacturing strategy is the ability to maintain a stable workforce that works at a constant output rate (Jacobs and Chase, 2011). In addition, shortages and surpluses are absorbed by shifting inventory levels, order backlogs, and lost sales. Stable work hours help the company keep continuity of employees.
The level manufacturing strategy works best for Riordan because the company forecasts its production of fans based on an average sales of the last three years. The company keeps a small inventory to account for changes in demand. Riordan uses two metrics to measure performance of the supply chain, the cost of production and customer responsiveness. The cost of manufacturing the fans should be minimized thereby maximizing profits. The cost of the process of getting the fans from Riordan inventory to the retailer should also be as low as possible to keep the prices low on the customer end. The process should continually be analyzed in order to see where cost savings can be made. Another measurement of performance is customer responsiveness. Customer surveys are a good way to get feedback on the service and the product performance. The company can make improvements to the process based on the information received. Repeat business and recommendations are a good indicator of customer satisfaction. Continual feedback and communication with the consumer, both the retailer and end customer, is a good way to improve the process flow of the fan production. Process Flow Diagram
Riordan manufacturing is comprised of three different manufacturing plants that produce their products. The plants are located in Albany, Georgia, Pontiac, Michigan, and Hangzhou, China. Each plant is considered an independent revenue entity and has full financial responsibilities for its income statement and balance sheet. Riordan maintains a collaborative relationship with its suppliers, and both recognize the mutual dependence needed for business success. The company contracts with suppliers to purchase particular items such as plastic polymer requirements and fully assembled motorized parts. In turn, the suppliers agree to deliver the products according to the negotiated terms and delivery requirements. Riordan uses on-time delivery metrics to measure supplier performance taking into account shipping delays caused by unexpected circumstances beyond the supplier’s control. One of the supplier improvement strategies implemented by management includes the relocation of the China operations to the city of Shanghai.
The relocation would result in significant cost savings, operations with more substantial urban infrastructure, and better positioning to market and ship products throughout Asia and Europe (H. Hugh McCauley, personal communication). Riordan’s China plant is current running based on the climate and the quantity of fans that will be produced. A local Chinese company furnishes Riordan with electric motors for the fans and manufactures the amount based on Riordan’s forecast. However, the local Chinese company has not been successful and only delivers 93% of the product requested each time. Riordan may need to evaluate if an additional supplier is needed to provide additional motors in order to meet the company’s forecasted demand. Additionally, with the current supplier, Riordan is not able to keep an inventory of motors on hand to cover warranty issues or satisfy unexpected orders. These changes will result in cost savings and help Riordan stay prepared for customer service and delivery issues.
The implementation of lean production principles may be used to maximize the company’s efficiency. Even though the company uses a make-to-stock process, a lean approach could help lower labor, material, and energy costs of productions. “Lean production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, work-in-process, and finish goods” (Jacobs & Chase, 2011). Operations managers could synchronize the company’s production system with the rate of demand to produce only the products that the customers want and to produce products only as quick as customers want them. The synchronization would eliminate waste in inventory and production. To maximize effectiveness, the production methods used should reinforce the occupational development of employees. This would place a greater emphasis on the workers being the primary agents to improve operations. Value stream mapping may be used facilitate employees better in understanding the production processes, thereby promoting efficiency and waste elimination.
Riordan’s forecast for the demand of fans is based on a quantitative approach of the average sales for the last three years. This forecasting method assumes historical trends can be used to predict future sales and trends reasonably. The strategic capacity plan provides and determines overall capacity levels of capital intense resources, equipment, and facilities. The company believes the size of the labor force best supports the competitive long-range strategy. Several options can be made for improvement of the current method of operations. First, the customer demand should be included in forecasting to minimize waste. Second, forecasting should include requirements techniques for determining capacity for individual products and predict sales. A time series analysis can give an idea of related data from the past demand to help predict the future. Fan future demand can be determined by the monthly sales trends using the time series analysis.
Based on Riordan’s 2005 invoices, the electric fan operation is approximately 17% of total sales. The sales of fans do not fluctuate seasonally and appear to be relatively consistent. Based on the sales data in the past three years (2009, 2010, and 2011) the average sales increase is 3.67%. Therefore, the electric fan sales forecast for the current year will be $11,739,000 (See Appendix A).
An aggregate production plan is devised based on the sales forecast. The historical data indicates that sales levels are consistent month to month. Therefore, the production rate will not be varied for seasonality. There are twelve different types of fans sold by Riordan. The production breakdown by type is also based off of the historical data. Since there is minimal variability in production, Riordan would benefit from using a fixed-order quantity model for raw materials. This method allows for inventory to be ordered when amounts drop to a specified level. This method will aid in preventing raw material shortages that will cause a disruption in production. The aggregate production plan, master schedule, and materials requirement plan are attached (See Appendix B).
Riordan Manufacturing strives to be a solution provider for their customers. This may be achieved by providing superior products at competitive prices. A strong supply chain that is monitored and frequently evaluated for efficiency will give Riordan the ability to meet customer’s needs and achieve increased profitability. Understanding the production process, suppliers, and customers are all important in a strong supply chain. The sustainability for the future in growth and profit depends on focused management and production within the supply chain.
Jacobs, F. R., & Chase, R. B. (2011). Operations and Supply Chain Management, 13th ed. New York: McGraw-Hill Irwin. University of Phoenix. (2014). Riordan Manufacturing. Retrieved from University of Phoenix, OPS 571 website.