Company X operates three Oregon-based facilities. These facilities specialize in different aspects of the printer and copier business. Unfortunately, these facilities are not optimized to work together and are suffering from several problems thanks to this lack of optimization. The P facility produces printers for PCs. It is housed in the same physical location as the T facility, which produces toner cartridges. The S facility is in a different physical location than the P and T facilities and provides various parts of them. This facility is located 70 miles from the other facilities and is separated by a large body of water with a single bridge. Company X needs to reevaluate how this portion of the supply chain operates and consider alternatives that will lead to improved performance.
The first major problem in the supply chain is the proximity of the two physical locations. The facilities are separated by 70 miles of roads resulting in 90 minutes of drive time. Unfortunately, part of that drive includes a bridge over a large body of water. During periods of high traffic or traffic incidents, the bridge becomes a bottleneck and offers the potential for length time setbacks. The center of gravity method for location selection suggests that the locations of suppliers and customers should be taken into account when deciding on a location for a facility (Collier & Evans, 2008). Since the S facility sends all of its production to the P and T facilities, the center of gravity method indicates this facility should be located as close to those facilities as possible. Not only does relocating this facility eliminate the bottleneck created by the bridge, it also drastically improves the travel time between the two locations. The reduced travel time means that more shipments can be made between the facilities and that shipments can be fine-tuned to provide just-in-time delivery of the parts necessary for printer and toner production.
The S facility utilizes various accessory parts such as pins, springs, and clips in the sub-assemblies they produce for the P and T facilities. These accessory parts are ordered by and delivered to the P and T facilities. Once a day, these parts are shipped from those facilities to the S facility. Unfortunately, the S facility frequently runs out of these accessory parts and must wait for the next delivery before recommencing the assembly process. Studies have shown that optimizing both the order and delivery processes can lead to significant cost savings in the supply chain (Grove, 2004). Although it is acceptable for the P and T facilities to manage the order process based on their own production schedule, having the accessory parts delivered to their own facilities and then shipped to the S facility adds unnecessary overhead. A better solution is to move the order and delivery process to the S facility. The S facility has the ability to improve the order process by increasing order sizes for parts that are used in sub-assemblies for both the P and T facilities. With deliveries being made directly to the S facility, the accessory parts can be used as soon as they arrive, rather than waiting for the single daily shipment from the other facilities. The result is more efficient use of accessory parts, especially those that arrive late in the workday.
Although the S facility has relatively more storage space than either the P or T facility, this space is mostly occupied with work-in-process (WIP) inventory. WIP inventory is partially completed product that is waiting to be completed and shipped (Collier & Evans, 2008). If the S facility is moved closer to the P and T facilities, the more frequent shipments can result in a reduction of WIP inventory. Currently, the facility must work on a schedule that fits the demand of the P and T facilities into eight daily shipments. This results in some production runs being put on hold as new product is needed to fill the upcoming shipment. With more shipments being delivered to the P and T facilities more quickly, the S facility has the luxury of completing production runs in the most efficient manner, rather than a manner designed for an expensive shipping schedule.
Obviously, the relocation of a manufacturing facility is no small undertaking. While Company X’s management investigates the costs and benefits of moving the facility, the change in accessory part ordering and delivery can be made immediately. This change will have significant impact on the efficiency of the production lines at the S facility. This change represents the single greatest benefit to the Oregon facilities with almost no cost. In fact, a more efficient ordering process will likely lead to savings as the S facility is better equipped to take advantage of economies of scale.
Collier, D. A., & Evans, J. R. (2009). OM 2008 edition. Mason, OH: South-Western.
Grove, S. (2004). Optimizing the supply chain. Health Management Technology, 25(1), 24. Retrieved April 24, 2009, from CINAHL with Full Text database.