The case study describes problems facing an electric motor company in the United States that has to deal with; fluctuating demand for her products, large inventories, as well as a long lead time. The company imports castings from a supplier in Mexico, which takes at least four days to deliver the castings supplies. This case study will explore two of the company’s problems, solutions that were initiated to tackle them, as well as how best the company could further improve its services.
High costs of manufacture by the old method
One of the main problems that faced the electric motor manufacturing company was the large inventory management which led to stock-outs and this was mainly due to the fluctuations in customer demand. Fluctuations in customer demand as well as their need to get the orders on time made it very difficult to use the old inventory system to manage the supply of castings from the Mexico-based supplier. Furthermore, it took at least four days to transport the casting supplies from the supplier to the United States where the company was based, increasing the cost of production. As the team states, there was nothing they could do about customer fluctuations, but they had to do something about controlling the inventory.
Transition from the old control system to new AIMS
Another problem that came out was the long lead time. We find that even though transportation of castings took about one week (specifically four days) it was still difficult to sort them out and deliver to customers within that period, it still took them another two weeks, excluding the one week spent during transport, to deliver the motors to customers. In addition to this, the company had to contend with a large variety of electric motors produced for sale, which had to be sorted and warehoused for preparation to delivery. These problems prompted the transition into a new control system at the motor company. But this also came with challenges of the increased cost of implementation.
How the company solved the problems
The problems presented above, plus the many other logistics problems usually obtainable in such situations needed significant measures, to keep or improve on the normal production. This had to be done as urgently as possible since the supplier was increasingly getting frustrated and worried about the whole situation.
High costs of manufacture due to Large Inventory and delays
According to sources from the company, stock-outs were caused by the large inventory and fluctuations in customer demand thereby leading to a higher cost of production. This necessitated a change in the inventory system to counter this demining problem. To do this, they had to transform the whole inventory system, and this they did by implementing a pull system as well as by streamlining the chain supply. These were done in the following ways.
Having known that they could not make any changes to the customer demand curve, they resorted to reduce the inventory, this they believed would free up their capital so that they may make orders based on a their new pull system. They also needed to communicate with the supplier so that supply chain would be streamlined. They designed the pull system taking into consideration the lean commitment and knowledge. They had to implement the casting Kanban to be able to control their inventories effectively. It had to succeed because they were committed to further implementations in the future, and this was just the beginning. So they started by classifying castings into three groups, the first named A, the second, B and the third C. This was important in monitoring their flow and customer demand. Having established their flow, in terms of volume, their classification was defined further as high runners, moderate and low. This depended on the rate at which they were demanded by the customers. With that establishment in place, the management decide that Volume A would be in Kanban, and Volume C be supplied on make-order basis. This left volume B to supplement volume A at the Kanban whenever it is was full. This way, they were able to reduce inventory by a significant margin. It reduced stock-outs which were largely witnessed in volume B castings. These were used as benchmarks for building the Kanban, through the use of estimations by calculating the following, weekly average orders and the safety stock required.
Transition from old control system to new AIMS
Another problem that kept creeping into the electric motor company is the long lead time which started with estimations of transportation time, through to sorting, the large inventory and other logistical issues. These problems needed an urgent solution and a new control system that would improve the flow of products from this company to their customers. Initial conditions forced them to freeze delivery for two weeks, which when added to the one week of transportation made it three weeks of waiting. Fortunately, this could be reduced by a very significant margin; the set up of a new pull system as well as the Kanban was to be instrumental in ensuring these changes succeeded. To make this work, after calculating the average and safety stock, the next step which would reduce lead time was launched.
To make this a success, the company developed a visual control system that could monitor as well as trigger the Kanban, this alone saved a lot of time, given that it was formally manual. Another change that was aimed at reducing the lead time was done by communicating to the supplier about reducing the supply order lead time, which was also a success. Finally they developed a way through which they could expedite custom issues in Mexico, still giving them more opportunity to cut on the lead time. In the end, significant improvements were made as the inventory stock reduced from 37323 by almost two-thirds to 12976, while the lead time moved from more than 18 days to less than 7. This was a great improvement indeed.
What the company should do to further improve the outcome
To further reduce lead time, custom procedures in the United States should have been tightened a bit. Instead of leaving volume B castings, which according to the management, caused the highest stock-outs, they should have had their warehouse, either at the Kanban or anywhere close, to ensure that they had their own stock, since according to the new system, their availability relied on availability of volume A castings. Automation has been integrated with technology in the modern world, implementing full automation in inventory and other departments would be crucial in further reducing the led time. Finally, the decision to relegate volume C could have been well, but their status as make-to-order would lower their delivery, especially to customers who would require them urgently.
The electric Motor Company faced several challenges, the major of which caused delay in delivery and stock-outs. Implementation of a pull system was important as a step towards a reduced lead time, thereby enhancing confidence, efficiency and reliability of the company. However, more needs to be done to further improve their services.