Operation management at Eastern Gear MBA6151 unit II case study

Current and future problems Eastern Gear faces EG is a company that has traditionally produced custom gear on a small scale, and recently was given the opportunity to start producing lar

Operation management at Eastern Gear

Le Viet Anh

Columbia Southern University

Business process analysis is a strategic analysis that identifies and generates a visual representation of the processes flow of different areas within an organization This work is varied and applied in many areas to benefit organizations looking to reduce costs and improve efficiency Analyzing and recognizing inefficiencies in business processes is very common today Management must quickly identify existing problems and solve them by building the business process in the most appopriate way In this article, we conduct a case study of Eastern Gear, Inc (EG), a manufacturer of custom-made gears, to find out the problems the company is facing, then analyze and propose suitable solutions for the sustainable development of the company (Schroeder, Goldstein, & Rungtusanatham, 2013)

Current and future problems Eastern Gear faces

EG is a company that has traditionally produced custom gear on a small scale, and recently was given the opportunity to start producing larger quantities for each order This is a normal store run by the owner so the increase in sales has caused difficulties in doing business Many issues have been presented in this case as it covers the whole range of activities including goals, capacity, production, inventory control, organization and quality control

First of all, EG do not have an order priority or order size policy for the orders they received This has led to the inconsistency and inefficiency of the information process The company receives and processes large and small orders at the same time and this requires a lot of resources If EG focuses on orders from small organizations, it will be difficult to execute large orders on time and vice versa In terms of organization, these two types of orders are best served

by applying different operating strategies and processes design So, if they keep processing

orders in the current way, the company may face more difficulty in allocating resources, resulting in delivery delays later on The problem becomes more serious when EG agree customers to change or add requirements to the order during the production process This will pose a great risk to the production process as mechanical components once drilled or cut will be difficult to redesign It causes loss of time, raw materials, labor and other resources Sometimes, additions or modifications that are not fully met may result in cancellation The above will directly affect the production time, delivery time, product quality, and customer relationship

The second problem is that Easter Gear is not having a clear orientation for the present and the future At present, the company has not clearly defined the focus for cost optimization, flexibility, channel development or quality This concentration is essential for businesses to improve their products and services Along with that, it looks like the company is not having a strategy or plan for growth and development in the future As a result, they may experience problems in cash flow, capacity, ability to serve large orders, and other issues related to rapid growth

Thirdly, the company is having many issues related to the production and inventory management The fact is that the company is relying on the design from customer without actually having a design team This makes the search and preparation of raw materials more time consuming and the company cannot stockpile large amounts of raw materials Processing time has increased from two to four weeks and there seems to be no control system over production and inventory in place (Schroeder, Goldstein, & Rungtusanatham, 2013) All this makes the orders delay even more and damage the company financially More than twenty percent of orders have been tagged as rush In addition, certain orders are processed in a separate manner on a rush

basis and this will disrupt the smooth production flow of other orders Joe Irvine has also expressed his concern over these bottlenecks due to the ineffectiveness of production control

The next issue is that EG's current organizational structure does not have a clear functional separation More specifically, the Engineer, Sam Bartholomew, involved in the supervision, the Controller, Sam Smith, is responsible purchasing materials while this is a function of production, and Matt William’s job is too limited as the Expediter

Furthermore, the current shop layout leads to abnormal flow of material and excessive travel In fact, this forces workers to move more and the efficiency of work is reduced significantly As mentioned in the description of this case study, regular orders spend 90 percent

of the time waiting in line; only 10 percent of the time is actually spent processing (Schroeder, Goldstein, & Rungtusanatham, 2013)

Finally, a major problem that seriously affects the company's profitability is quality control Percentage up to 6 percent is a major financial blow to the company But more serious is the reason for the order being returned, it is due to a lack of one or several activities, or, in other words, manufacturing defects If the company does not make improvements in this matter, they may even have to compensate customers for damages or delay

Modification in process and technology affect Eastern Gear

EG has adopted procedures to apply batch production, whereby products are produced in separate batches Depending on the type of product, different stages will be carried out throughout the production process At present, the application of this model will have many advantages over the number of small orders According to the 2012 sales report in Appendix 2, the Company received a total of 578 orders in March, with the largest number of 1000 products

In order to meet large-volume orders, the company can apply the production chain with better production efficiency and higher sales

In the manufacturing process, the business needs to focus more on the human resources Training courses on order processing, inventory management, quality management should be done by people, so those who work at these stages must be skilled workers to ensure the effectiveness of work Besides, there are many steps that can apply machinery as well as science

in management methods The application of information technology can be accomplished by using customer, supplier and order management software to improve management quality They can also use warehouse management applications to know the inventory and raw materials available to meet the customers’ requirements This will help shorten the preparation and production time and should certainly increase the profit for the company

A process flow analysis on Eastern Gear

The production process starts from input to output, in other words from raw materials to finished products To get the finished product, the material will be processed by stages with the support of various resources including human beings In the case of the EG company, the layout

of the operation process is depicted as illustrated below:

The Factory Layout

The Flow Process Chart of Eastern Gear

Operations are usually clarified by description through the flow process chart It is known

as a symbolic depiction to illustrate the activities that are carried out throughout the process (Daft, 2012) Each section will be linked by arrows to display instructions Below is the flow chart of the EG company:

The Factory Layout (Recommended)

Through the interpretation of this case, we can estimate that up to 90% of the waiting time is a big waste Managers should carefully review the current layout and make changes to achieve greater efficiency in the production process Proper layout will help save travel time as well as make use of resources The recommended layout is as follows:

More specifically, the layout needs to be improved by streamlining the material flow The most economical and fastest way to do this is to switch between the heat treatment and the drilling center If this is done then the flow will be a lot smoother, it is shown as below:

Action recommendation for Eastern Gear

To improve efficiency, EG needs to re-evaluate its production system The important goals that the company should aim for are flexibility, delivery, quality and cost (Chatterjee, 2011) The bigger the order, the more emphasis should be on quality and cost If this is done well, output quality will improve and costs will decrease The company needs to sort orders in different sizes so that different production methods can be applied Significant orders and quantities need special care The company must have policies on order processing Customers should be promptly advised on the design, model, product composition, schedule and production schedule All the above information should be included in the contract including terms related to

refund and change of order information Express orders should be handled through delivery planning rather than by Fred Dirkson alone These orders will cause troubles to the production process and delaying other orders A premium can be charged to these orders to compensate for the damage the company may incur

Besides, the lack of growth plan can be solved by developing six-month, one-year and two-year plans These plans should include market objectives, financial forecasts, performance reports, and performance indicators Fundamental issues should be addressed and goals should

be clearly defined

The third action involves the production control and inventory management This can be improved in many ways First, the company needs to develop and continually update the products and production schedule When an order is confirmed, management must rely on the information in the contract, as mentioned in the previous section, to control the schedule, delivery date and the amount of material needed, and then consider the capacity and load capacity of the plant With larger order sizes, production schedules should be stored on the computer to ensure the security and storage capacity

Moreover, the company should be reorganized so that the functions are more clearly distinguished Engineer should be separated from Manufacturing to reduce the load on engineers because they are spending a lot of time on production Expediting should be removed and replaced by the production and inventory control A materials management position should be placed under the supervision Manufacturing and be responsible for scheduling, inventory and purchasing This person must always ensure the availability of materials in stock, especially the common materials, used in many products Information about the amount of inventory should

also be kept on personal computers or cloud computing Perhaps a finance department should be established to monitor the cash flow and marketing function should be added sales department The organizational chart of the EG company is as follows:

Finally, it is the application of quality management processes to increase product quality, reduce defects thereby reducing risks in the production process The poor quality and returned products must be stopped immediately Quality controllers should prepare a production information sheet for each order, which will include the time and operations required to complete the product and be attached to the product throughout the manufacturing process An inspector should be assigned to inspect each order before it is shipped This person will check the production information sheet mentioned to make sure that all the operations have been properly

executed

Chatterjee, B (2011) Organization Development: Developing the processes and resources for

high-tech businesses Bloomington, IN: iUniverse, Inc.

Daft, R L (2012) Organization Theory and Design, 11th ed Mason, OH: Cengage Learning Schroeder, R G., Goldstein, S M., & Rungtusanatham, M J (2013) Operations Management

in the Supply Chain: Decisions and Cases, 6th ed New York, NY: McGraw-Hill.