Smog Co. The Smog Co. production system…

Smog Co. The Smog Co. production system
This_is_the_case_of_Smog_Co.,_a_small_supplier_of_well-engineered_components._Smog_
produces_a_range_of_products_grouped_into_families._Production_of_one_of_the_highervolume_
product_families_ has_ been_ organised_ into_
a_flow_ process_made_ up_ of_ four_
steps,_ which_ follow_ one_ after_ the_
other_ in_ sequence._ Changeover_ from_ one_
product_ to_ another_ is_ relatively_ simple,_
but_ takes_ around_ 10_ minutes_ per_
machine._ To_ minimise_delays_caused_by_changeovers,_products_tend_to_be_made_in_batches._These_
batches_move_from_ one_ step_ to

Smog Co. The Smog Co. production system
This_is_the_case_of_Smog_Co.,_a_small_supplier_of_well-engineered_components._Smog_
produces_a_range_of_products_grouped_into_families._Production_of_one_of_the_highervolume_
product_families_ has_ been_ organised_ into_
a_flow_ process_made_ up_ of_ four_
steps,_ which_ follow_ one_ after_ the_
other_ in_ sequence._ Changeover_ from_ one_
product_ to_ another_ is_ relatively_ simple,_
but_ takes_ around_ 10_ minutes_ per_
machine._ To_ minimise_delays_caused_by_changeovers,_products_tend_to_be_made_in_batches._These_
batches_move_from_ one_ step_ to_ the_
next,_where_ they_queue_ on_ a_first_in,_first_
out_ basis_to_be_worked_on,_after_which_they_move_to_the_next_step._This_process_is_shown
in_Figure_6.9.

Key_measures_of_the_performance_of_this_process_are_the_utilisation_of_people_and_of_
machines._The_objective_is_to_keep_utilisation_of_both_as_high_as_possible._In_this_situation,_if_people_or_machines_are_idle__and_material_is_available__they_are_used_to_make_
something._Naturally_ it_wouldnt_make_ sense_
to_make_ anything._Instead_ the_ production_manager_has_a_feel_for_what_is_needed,_and_uses_a_forecast_from_the_sales_department_
to_make_ an_ early_ start_on_products_
that_it_is_considered_will_be_ required_in_
the_ near_future. Fred_ Hollis,_ the_ Smog_
production_ manager,_ felt_ pleased_ with_
performance_ as_ he_ looked_out_across_the_factory._He_was_pleased_because_his_machines_and_people_were_
busy,_there_were_plenty_of_finished_goods_on_hand,_which_the_sales_team_could_use_to_
supply_customers,_and_there_was_stock_to_call_upon_if_product_demand_increased._Everything_seemed_to_be_under_control.
Changes to customer requirements The_motivation_ to_change_from_
the_current_ system_ has_ been_ low_ in_
the_ past,_ as_ the_ process_at_Smog_Co._is_a_reliable_one,_which_has_worked_well_for_the_company._The_big_
three_customers,_who_ take_ three-quarters_ of_
sales,_ tend_ to_ order_ the_ same_ things_
in_ similar_quantities_one_week_in_advance_of_delivery._With_a_production_lead_time_of_three_
weeks,_Smog_Co._uses_a_forecast_to_schedule_production_and_make_sure_that_finished_
goods_stocks_will_be_available_to_meet_predicted_demand._Consistent_demand_meansthat_forecasts_are_often_close_
to_ real_demand,_so_stock-outs_are_ rare._In_fact,_
the_only_ time_ this_occurred_was_an_incident_a_couple_of_years_ago,_when_a_key_machine_went_
down_and_a_spare_part_took_a_long_time_to_source._Current_inventory_levels_now_include_
safety_stock_to_provide_cover_against_a_similar_problem_in_the_future.
When_the_company_found_that_certain_finished_goods_were_selling_slowly,_the_sales_
team_was_particularly_good_at_finding_a_way_to_move_them._Sometimes_prices_were_cut;_
at_other_times_Sales_used_special_promotions._If_production_was_too_high,_or_the_forecast_
was_a_bit_optimistic,_then_there_were_ways_of_selling_surplus_stock,_and_the_sales_team_
seemed_to_enjoy_the_challenge. Recently,_
however,_ this_ well-understood_ position_ has_
begun_ to_ change._ The_ main_ customers_have_started_to_use_a_number_of_new_strategies_to_compete_with_each_other._
First_one,_and_now_a_second,_has_announced_that_it_will_be_reducing_the_call-off_time_for_
its_products_from_one_week_to_two_working_days._At_the_same_time_they_are_all_looking_
for_a_5_per_cent_cost_reduction,_and_are_demanding_quality_improvements.

A traditional reaction to customer
demands for better service The_ combination_ of_ demands_
for_ better_ services_ caused_ Smog_ management_
some_ concern._ The_ obvious_ response_ to_
the_ changes_ in_ ordering_ patterns_ was_
to_ increase_ stock_levels_to_cater_for_unexpected_variations_in_demand._This_approach_had_worked_
before,_when_it_was_used_to_justify_the_safety_stocks_that_covered_production_problems._
It_seemed_worth_trying_again,_so_stocks_were_increased.
Things_went_well_over_the_first_few_months,_during_which_time_delivery_performance_
remained_good,_whilst_the_customers_went_ahead_with_their_plan_to_reduce_the_order_
lead_time._Keeping_up_with_these_orders_provided_the_production_manager_with_a_few_
headaches._ Preventing_ stock-outs_led_ to_ an_increase_in_
the_number_ of_batches_being_ expedited_through_the_factory._This_disrupted_the_production_plan,_increased_the_number_of_machine_changeovers_and_lowered_productivity._As_a_result,_overtime_increased_
in_order_to_maintain_output. The_ higher_
level_ of_ inventory_meant_ that_ quality_
problems_ were_ harder_ to_ detect._ In_one_case_a_new_operator_missed_a_drilling_operation._By_the_time_the_first_customer_
discovered_ the_ error,_ nearly_ two_weeks_worth_
of_ production_ had_ to_ be_ recalled_ and_
reworked. The_higher_inventory_levels_were_also_taking_up_more_space._Fred_Hollis_had_submitted_a_requisition_to_the_finance_director_to_pay_for_more_storage_racking._The_extra_racks_
were_necessary_because_existing_ones_were_full,_and_parts_stored_on_the_floor_were_suffering_occasional_damage_in_an_increasingly_cramped_factory._Some_parts_were_returned_
recently_by_a_customer,_who_felt_that_damaged_packaging_indicated_damaged_products._
Naturally,_ Fred_ was_ concerned_ when_ his_
request_for_more_ storage_ space_ was_
turned_ down_owing_to_spending_reductions_imposed_in_response_to_price_cuts_demanded_by_
customers. Reflecting_ on_what_ had_ happened_ at_
Smog,_ the_ increase_ in_ stock_ levels_
had_ badly_ affected_competitiveness._ Smog_Co._was_
experiencing_ the_consequences_of_ trying_ to_
forecast_ demand_ and_ using_ the_forecast_
to_ determine_what_ to_make._ Their_make_
to_ stock_approach_was_responsible_for:

_ removing_the_companys_ability_to_be_responsive_to_changes_in_either_quantities_or_
product_mix;

_ increasing_costs_and_making_quality_problems_worse;

_ burying_underlying_production_problems_under_inventory,_and_thereby_preventing_
efforts_to_uncover_and_resolve_them. In_conclusion,_whilst_the_company_had_been_motivated_to_change_by_its_customers,_
the_direction_it_took_seemed_to_have_caused_many_problems.
(Source:_After_an_original_by_Paul_Chapman)
Questions 1 List_ the_actions_ that_Smog_Co._
took_ to_ respond_ to_ the_new_demands_being_placed_
on_it_by_customers._Group_your_responses_under_the_headings_of_stock_levels,_level_of_
expediting_and_storage_space._Briefly_describe_the_effects_that_these_actions_had_on_
production_performance. 2 Use_the_pyramid_of_key_factors_that_underpin_JIT_(Figure_6.8)_to_describe_the_factors_
that_caused_these_actions_to_affect_the_companys_ability_to_respond_to_the_demands_
being_placed_on_it_by_customers.