Introduction
Pacific Global Dominican Inc. is a leading manufacturer of converted papers in Dominican Republic and Puerto Rico. The primary paper products include sewn papers for packaging of cement and animal food. Other paper products include notebooks, napkins and tissue papers. The main departments of operation in the company are the warehouse and the manufacturing units. The critical processes in the company include procurement and quantification of the paper rolls. The procured paper rolls are transported to the warehouse for storage and later to the manufacturing units for the conversion processes. The operations in the warehouse are affected by raw material stock-outs and inaccuracies of the inventory. The primary problem derailing operations relate to poor inventory data. The errors in the inventory records lead to inefficient decisions regarding restocking. Therefore, Just in Time (JIT) orders are not foreseeable in the company.
Current Process Analysis (as-is process)
Existing Problems
The company relies on Kraft paper rolls supplied by Czech Republic and Sweden suppliers. The lead-time for delivery is three to four months. The tissue paper rolls are supplied by the United States and Argentina. Due to the human error in the data compilation of paper rolls, the production is significantly affected by the extended ordering and delivery time. Stock outs lead to the failure of fulfilling the customers. The sales of the company have considerably reduced in the recent past. The reduction in sales is attributed to the manual processes that result in inefficiencies in the data entry; hence, negatively affecting warehouse operations. The costs of production and inventory inaccuracies in the warehouse are the main problems facing the company.
Problem Analysis
Total Quality Management (TQM) is a method that is strategically applied to enhance productivity. TQM techniques involve comprehensive approaches that horizontally influence operations in organizations (Chopra, Miendl & Kalra, 2006). The implication is that all departments work in synergy and operations are monitored to ensure that there are no departments that reduce the efficiency of the organization. TQM is based on three characteristics of participative management; teamwork and continuous process management (Taylor & Russel, 2009). One critical issue with Pacific Global Dominican Inc. was the operational failures in the management of the warehouse; hence, the manufacturing processes were affected. TQM entails synchronizing the operations from the supply of the raw materials to the production and the reverse process to ensure that adequate stocks are available for uninterrupted operations. The application of technology will bring fit to the process.
Six Sigma
In the contemporary business environment, competition has increased. Due to the competition, companies have adopted measures to reduce the cost of production, increase efficiency, reduce lead times and enhance the quality of products (Sebastian, 2008). For instance, Pacific Global Dominican Inc. needs to devise measures that will ensure that the manipulations and the inaccuracies in the inventories are reduced if the company is to retain its market share. To overcome the challenges, the company should implement lean and six sigma strategies. According to Martin (2007), the approach to business operations using six-sigma helps organizations to acquire a competitive edge (Martin, 2007). In addition, the six-sigma helps in identification of bottlenecks and redundancies. The solution to the problems leads to manufacturing products at a lower cost, faster and increases operations in the various key departments. Six-sigma is based on the framework of defining, measuring, analyzing, improving and controlling (Martin, 2007). The lean strategy applies tools such as stream mapping, single piece flow and 5S program (Martin, 2007). The following is an analysis of Pacific Global Dominican Inc. using six-sigma.
Defining the Critical Outputs
According to Chopra, Meindl and Kalra (2002), six sigma is a fact-based quality improvement process that uses data to detect and prevent the defects. Defining the critical outputs ensures that the problems in the operations are identified. Czech Republic and Sweden suppliers supply the Kraft paper, which is the main raw material, while United States and Argentina suppliers provide the paper rolls for the manufacture of tissue paper. The time for the ordering and delivery takes about four months. The staffs working in the warehouse enter the data on the received stock manually. The different quantities of Kraft papers and the tissue papers are placed in the store without technological identification mechanisms. The retrieval process of the paper rolls to the manufacturing units is manual, no proper identification of the stock available and the stock that is required for the production.
Measuring the Work
The efficiency of services in an organization determines the production efficiency (Taylor & Russel, 2009). The availability of all materials required for the production increases the production efficiency. The failure in management of the inventory creates bottlenecks that result in imbalances in the production process. The typical operation processes in the company involve receiving the paper rolls from the suppliers.
Data Collection
The inventory data is manually recorded and transported to the warehouse. The retrieval process relies on the manual data to locate the paper rolls and subsequently taken to the manufacturing units. Although the cycle is definite, many working hours are lost in the process of entering data and then retrieving the paper rolls.
Analysis
Analysis involves investigation of the processes and data collected in order to verify cause and effect relationship. According to Martin (2007), analysis provides understanding of the cause of the defects that are being examined. Analysis helps to identify alternatives that can increase efficiency (Sebastian, 2008). The ordering process and the entry of data for the paper rolls are manual. The manual system results in the stock outs without replacements or more stock being ordered before usage of available stock. The ordering and delivery time takes about four to six months. Therefore, failure of ‘Just In Time’ ordering derails the manufacturing process by approximately four months. Bearing in mind the four months wait time from the supply countries, the paper vendors run out of stock and have to look for alternatives. The result is that the company has been experiencing a decline in customers; consequently, the market share has drastically reduced.
Improving the Process
In order to remain competitive, Pacific Global Dominican Inc. should streamline the warehouse operations and production processes. The solutions must allow efficiency in the inventory flow. The improvement entails investing in technology that will ensure a seamless flow of operations in the warehouse and manufacturing units.
Controlling the Processes
The paper rolls brought by the suppliers will be entered into the RFID system. Two employees will carry out the tagging of the products and subsequent entry of the data to the RFID system. The paper rolls will then be moved to the storage areas in the warehouse using the AGV. Two AGV machines operated by two employees will be used to move the stock to the designated areas.
Technology Appraisal
To ensure efficiency in the stock movement, the process will entail the use of Radio Frequency Identification (RFID) and Automatic Guided Vehicle (AGV) technologies. The RFID uses transponders to store and retrieve data remotely (Bendavid, Fosso & Lefebvre, 2006). RFID is a three-tier system. The first tier includes a tag that contains a chip attached to the objects that are supposed to be identified. The second tier is a reader that interrogates the tags and responds without manual contact while the third tier is a computer system to manage RFID equipment (Fink, Gillet & Grzeskiewig, 2007). The technology is suitable for the automatic identification of products. The RFID stores information such as the actual location of a product, the destination and the history of the product. It also includes data on the environmental conditions that relate to the product (Fink et al., 2007).
The RFID technology helps in the identification and provides crucial information for assets in the warehouse. The technology increases efficiencies and eliminates bottlenecks in a supply chain. According to Visich and Khumawala (2007), application of RFID in the warehouses creates benefits of monitoring and identification of the stock available in the warehouse. Veeramani, Tang and Gutierrez (2008) noted that the RFID technology assists organizations to increase the capability of monitoring the stock in and stock out.
In the Pacific Global Dominican Inc, the paper rolls received from the suppliers are recorded on paper sheets and arranged manually in the warehouse. The company has 15 permanent employees working in the warehouse. Two employees are mandated with receipt of the supplies, labeling, and manual data entry. The two employees are also tasked with monitoring the stock, dispatch to the manufacturing units and notifying the managers on the movement of stock. In addition, the company hires extra ten casual workers during the delivery dates to arrange the new stock. Due to the manual system applied, some data on the inventory is not accurately captured. For example, stock in and stock out. In addition, the use of paper roll clamps to place and retrieve the stock from the warehouse is time-consuming due to the inadequate identification process of the stock. To solve the problem, an AGV system is to be introduced in the company. The AGV uses magnetic fields, lasers, and cables for navigation (Olmi, 2011). The AGV is widely used in large warehouses to move materials around. The technology is faster compared to the manual processes.
Project Critical Appraisal
Comparative Analysis
What was and what is
The main problem with the old system was the manual application of data entry, manual placement of the paper rolls in the stores and the retrieval process. As a result, there were inefficiencies in the inventory and high cost of production. The outcome was oversupply, or running out of due to poor stock monitoring mechanisms.
The New System
The new system applies current technological advancement processes to monitor the stock and in the placement of the stock available. In the old system, fifteen employees conducted the warehouse operations, and it took a lot of time to retrieve the raw materials from the warehouse. The new system integrates all the operations from the warehouse to the manufacturing units. The RFID system and the AGV reduced the inventory inefficiencies and ensured that the activities of the warehouse were easily monitored. The stock in and stock out was easily established, and the stock levels could be replaced efficiently without creating shortages or failures.
Checking of the Supplies
The process of receiving the new stock required manual data entry in which the stock was labeled manually, and data entered into the stock sheets. It took approximately one hundred and forty minutes to complete flow cycle from the receipt to the manufacturing. However, the new RFID system allows quick tagging of the stock and entering it into the computer system. The application of AGV ensures the stock is transported to the designated warehouse points faster. The new system is efficient as it accomplishes the work in two hours compared to over eight hours in the manual system.
Placement and Retrieval of the Stock
In the old system, the paper rolls were moved manually and arranged in the storage places. The process was labor intensive. Fifteen employees performed the duty of placement during the busy days of paper rolls receipts. In addition, the subsequent movement of the material from the warehouse to the manufacturing units took a lot of time as the system entailed manual movement of stock. The new process allows an automated process in which processes are integrated into a computerized system creating an efficient cycle. The placement process using the RFID allows easy identification of stock; hence, easy stock movements in which stock levels are updated automatically.
Productivity
The aim of the integrating new system is to improve the production efficiency and reduce the cost of production. The output of the 15 employees working in a warehouse is approximately 50 minutes to complete the receipt and checking, the placement of paper rolls in the warehouse takes 40 minutes. The ordering and delivery to the manufacturing units takes 50 minutes. The employees are paid on an hourly basis; the cost of labor for an employee per minute is $5. The employees in the warehouse work 8 hours a day. The company does not pay overtime to the employees.
Old system
I minute =$5
60 minutes=5×60=$300 per hour
Cost for total flow of time= 140 minutes×5=$700
Total labor cost for one day=8 hours×$300=$2,400 a day
New Technological System
- Labor cost of 1 minute=$ 5
- Labor cost of an hour =5×60=300
- Cost for total flow of time=30×5=$150
- The cost for total flow of time decreased by (700-150) =$550
The new system checks 100 paper rolls per hour in comparison to 10 paper rolls per hour in the manual old system.
The system places 50 paper rolls per hour in comparison to 12 paper rolls per hour in the manual old system.
Through the system, 25 orders and retrievals of paper rolls can be made to the manufacturing units per hour in comparison to five paper rolls in the manual old system.
Therefore, we can concur that:
- 140 minutes cycle time=$700 of labor cost
- 30 minutes cycle time=$150
- The labor cost for cycle time reduced by $550 (700-150)
There are 15 employees in the warehouse. Each employee is paid a salary of $1500 a month.
- 15 employees ×$1500=$22,500 cost of salaries
The new plan only four employees are required to work in the warehouse:
- $1,500×4=$6,000
Therefore, the salary cost is reduced by $(22,500-6,000) =$16500 per month.
In addition to lowering the operational cost, the new system increases efficiency in the inventory management.
RFID resulted in improved sales as the stock outs were solved. According to Fink et al., (2007) the accuracy improves the identification of the raw materials available. The process allows feasible planning of schedules, improves the manufacturing runs and the final products are readily available for the paper vendors. In addition, cash flow improves because of increased utilization of the raw materials. The RFID enhances deployment of inventory management methods such as the First in First Out (FIFO) and Last in First out (LIFO); thus, improving productivity in the company. The RFID readers situated in different parts of the warehouse capture data faster without requirement of the manual tallying. Furthermore, the movement of the materials is increased by the AGV transportation.
Product Qualifier or Product Winner
According to Taylor and Russell (2009), the overall objective of supply chain is to ensure that performance is efficient, and there are no breakdowns in the manufacturing. Taylor and Russel (2009) noted that streamlined processes, alignment and visibility of information characterize integrated flow chain. The RFID and AGV processes guarantee the seamless flow. In addition to the reduction of the cost of production, the process of monitoring the stock ensures that there is efficiency; stock is replaced on a timely basis; hence, a seamless flow of operations.
The introduction of cost savings mechanism by application of the technology ensured that the company gained competitive edge. In addition, the new technology increased production processes. The output per hour increased; hence production of 200 paper rolls a day (25 paper rolls per hour) in comparison to 40 paper rolls per day in the old system (5 paper roll per hour). The constant supply of the warehouse ensured that adequate stock of the papers rolls was always available; hence, the bottlenecks caused by the disruptions were eliminated. Uninterrupted production ensured that the paper vendors do not look for alternatives in the competing companies.
The new system injected efficiency into the system. Less time was required to carry out the operations in the warehouse. The work done by 15 employees was reduced to 4 employees, saving $16500 a month while the cost of production per cycle was reduced from $700 to $150. The percentage time reduction is 78.5% (i.e. from 140 30 minutes per cycle).
The plan to use the RFID system and AGV qualifies as product winner because the inefficiencies in the inventory were solved. In addition, the AGV significantly reduced the number of warehouse attendants from fifteen to four employees.
Net Present Value
The operation of the new technology will require a purchase of the tags for the various products in the warehouse. The cost of a tag is approximately $0.25. One tag reader costs $1500. The software to operate the entire system is relatively expensive. Therefore, the total cost to install and run the system will cost $300,000. Other costs include the repair and maintenance costs. The cost of the two AGVs is approximately $22,000. Therefore, the investment for the two technologies is $ 322,000 with an interest rate. The salary saving achieved is $16,500 per month, which translates $198,000. Therefore, from salary savings alone it will take one year and six months to break-even. The operational cost reduction coupled with the efficiency achieved presents a good investment for the company.
Conclusion
The main objective of investing in technology is to improve services to the customer, improve efficiency, and reduce the cost of production. Companies intending to achieve a competitive edge apply technology to increase efficiency in the supply chain and production operations. The use of six sigma and TQM techniques ensures that wastages in the chain and production processes are eliminated. The main problem that compromised the competitiveness of Pacific Global Dominican Inc. was the manual operations and the ineffective warehouse processes that resulted in inventory and reduced manufacturing runs. The company sales decreased as the paper vendors shifted to other producers.
Proper analysis of the operations leads to the identification of bottlenecks. The identification of the problems and integration of technology to solve the problems increases the operations in the warehouse processes. The analysis of the activities is best carried out by application of the six-sigma project initiatives. The six-sigma project initiatives entail assessing the current business situation and understanding the key issues affecting the company. The use of RFID system and the AGV technologies integrated the operations in the warehouse. The technological integration improved the operations efficiency and enhanced the stock monitoring. The new technological system returned the company to its effectiveness.
References
Bendavid, Y., Fosso, S. & Lefebvre, L. A. (2006). Proof of concept of an RFID-enabled supply chain in a B2B ecommerce environment: Toronto: International Conference on Electronic Commerce.
Chopra, S., Meindl, P., & Kalra, D. (2006). Supply chain management strategy, planning and operation. London: Pearson Education.
Fink, R., Gillett, J. & Grzeskiewics, G. (2007). Will RFID change inventory assumptions? Strategic Finance, 89(4), 35-39.
Martin, J. (2007). Lean six sigma for supply chain management the 10-step solution process. New York: McGraw-Hill Companies.
Olmi, R. (2011). Traffic Management of Automated Guided Vehicles in Flexible Manufacturing Systems. Ferrara: University of Ferrara.
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