Bayonne packaging case report


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Harvard Business Case - Bayonne Packaging

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Bayonne packaging case report

  1. 1. Amsterdam MBAOperations & Supply Chain ManagementBayonne Packaging, Inc.HBS brief case 4420March 5, 2013Gulcin AskinMichelle DonovanKivanc OzuolmezPeter Tempelman 1
  2. 2. The answers in this report relate to the questions given in the document ‘Case 1: Bayonne Packaging,Inc.’Question 1: Operations Performance of Bayonne Packaging1A. How would you define the Operations Strategy of Bayonne Packaging?The operations strategy of a company is the prioritization of the five key performance measures:cost, quality, speed, dependability and flexibility.The president of Bayonne Packaging, Inc. indicates that the problems of the company are: they haveincurred their first losses since 2001, there are complaints about quality and they are delivering latemore often. The other department managers, except for the absent Finishing department manager,also indicate to the new vice president of operations that they have problems in their departmentsthat relate to the performance measures dependability, quality and speed.Based on the priorities given by the key personnel of Bayonne Packaging we have determined theoperations strategy of Bayonne Packaging to be as follows (key performance measures in descendingorder of importance: 1. Dependability 2. Quality 3. Speed 4. Costs 5. Flexibility1B. How can Bayonne Packaging, Inc.’s Operations & Supply Chain performance be quantified?Per Key Performance Measure we have determined the following ways to quantify the performance.Dependability • Percentage of full (i.e. not partial) deliveries that is on time per time period • Average delay time of an order for the customer per time period • Down time per machine as a result of poor maintenance per time periodQuality • The percentage of goods rejected by Quality Control per time period • The percentage of goods rejected by the customer per time period. • The percentage of goods with missing glue lines or excess glueSpeed • The number of days between the signing of a proof by the customer and the delivery date • The amount of time spent on set up times per order / per period • The number of materials flowing through operations per period • The average critical ratio (should be as close to target ratio as possible) 2
  3. 3. Costs • The cumulative volumes in US dollars / The cumulative numbers of shipped orders • The COGS per month as a percentage of net sales • The profit before taxFlexibility • The number of different orders that can be expedited • Number of different packages Bayonne Packaging can print • The number of different industries and their industry specific requirements that Bayonne Packaging can produce for1C. How is Bayonne Packaging doing on these performance measures?To determine the performance of Bayonne Packaging on the performance measures listed is todetermine Bayonne Packaging, Inc.’s position on the line of operational excellence. It is safe to saythat Bayonne Packaging, Inc. is not operating on the curves of operational excellence that currentlyseem to trouble the company, that is the lines that depict the trade-offs between dependability andspeed, quality and speed, and dependability and quality.We rate the performance of Bayonne Packaging as follows.DependabilityBayonne Packaging is not doing well. In October 2011, 20% of the orders are late, where two yearsago 5% was considered a bad result (p.3). Customers are aware of this and consequently want to‘move up’ their order (p.3).QualityBayonne Packaging, Inc. has problems with its gluing operation. In October 2011 Quality Assurancehas found 6% of the products to be defective. Worse yet, customer rejected 1% of the goods due toglue problems (p.2). Furthermore, some packages with additional parts were shipped incomplete(p.3)SpeedBayonne Packaging, Inc. is not doing well on speed. It is running its operations to full capacity (seequestion 2A – Heidelberg press is the bottleneck – exhibit 2). Small changes in the variability ofcustomer orders can therefore result in increasing queues. This in turn causes the Sales departmentto expedite some orders at the expense of others’ orders (p.7). Expediting orders also causesbreaking up production runs into two parts, which causes extra set up time of the machines.The combination of running at full capacity, variability of customer orders, expediting orders andpartialing orders causes a lower overall speed of delivery to customers.CostAccording to exhibit 1 Bayonne Packaging, Inc. has incurred a Net Profit Before Tax of -7.2% (i.e. itincurred a loss) in October 2011. 3
  4. 4. Its total COGS significantly went up from 83.2% in September 2011 to 90.7% in October 2011. (Yearlyaverages 2010: 74.4%, 2009: 72.1%)For these reasons, Bayonne Packaging, Incl. is not performing well on the cost performance measure.FlexibilityBayonne Packaging, Inc. is doing well on flexibility. It is ‘grabbing into new markets’ (p.4) such aspackaging for candies, corporate gift sets and packages meeting FDA requirements. Flexibility definedas being able to serve different markets is a performance measure Bayonne Packaging, Inc. is doingwell at.1D. What are the main problems in fulfilling the Operations Strategy?The main problems in fulfilling the Operations Strategy are: • A process that is running at full capacity and has no buffer to cope with variability in customer orders. • A lack of understanding how the processes actually function due to the lack of a consistent ERP system, resulting in departments that are forced to operate independently from each other and do not consider themselves as one unit. • The company does not have a method of determining the priority of orders • Information systems that are used are based on incorrect assumptionsQuestion 2: Analysis of the operations system of Bayonne Packaging, Inc.2A. What is the current utilization in the work centers (excluding Finishing)?Number of working hours in October 347The machines ran in total Machine Total Hours Number of Combined Theoretical Capacity per machines running times running times Utilization per machine work centerComposition 255 1 255 347 73.49%Jagenburg 279 1 279 347 80.40%Heidelberg press 348 2 696 694 100.29%Bobst die-cut 272 2 544 694 78.39%Int. Royal - Queen 156 3 468 1041 44.96%Int. Staude 179 4 716 1388 51.59%Int. 3A 145 2 290 694 41.79%The Heidelberg press machine is the slowest, and the bottleneck in the process. Therefore, theprocess capacity utilization is as much as the bottleneck, hence 100.29% 4
  5. 5. Quote To Order Customer Size? Capacity UtilizationCapacity Utilization 51.59% Composition Royal/Queen Staudes 73.49% Department Capacity Utilization 44.96% Design 3A? OK?Capacity Utilization Sheet Capacity Utilization 3A 80.40% Department 41.79% Capacity Utilization Print Finish 100.29% Department Department Capacity Utilization Die Cut 78.39% Department 5
  6. 6. 2B. Capacity in pieces of the Die-cut center in three casesFor the Gantt chart of this question see appendix 1. Order size (pieces) 30,000 Time per sheet 0.0075 Time per piece (1 sheet = 3 piece) 0.0025 Time to process order (30000 piece * Time per piece) 75 minutes Case (i) Set up time 2,5 hrs 150 minutes Total minutes per order 225 minutes 15 hours per day is 900 minutes Total capacity of Die-cut center 4 orders Total capacity of Die-cut center in pieces 120,000 pieces Order size (pieces) 30,000 Time per sheet 0.0075 Time per piece (1 sheet = 3 pieces) 0.0025 gang 2 orders in a batch, number of pieces in batch 60,000 Time to process order (60000 piece * Time per piece) 150 minutes Case (ii) Set up time 2,5 hrs 150 minutes Total minutes per batch 300 minutes 15 hours per day is 900 minutes Total capacity of Die-cut center 3 batches Total capacity of Die-cut center in orders 6 orders Total capacity of Die-cut center in pieces 180,000 pieces All orders are ganged Time per sheet 0.0075 Time per piece (1 sheet = 3 piece) 0.0025 total minutes per day 900 minutes Case (iii) minutes required for one required set up 150 minutes Remaining available minutes for running orders 750 minutes Number of pieces possible per day 300,000 pieces Number of orders possible per day 10 orders 6
  7. 7. 2C. Orders in the Royal / Queens work center Assume that the question asks for actual performance Assumptions and implicit findings Number or partialed orders Royal Queen 40 orders Number of orders on Royal Queen total 77 orders Total set up time Royal Queen in October 231 hours Setup time per order 3 hours 40 orders require 40 set ups (no partials) Total number of set ups 40 + 37 77 setups Time per set up 3 hours Case (i) Total set up time 231 hours Total number of working hours for three machines (347 * 3) 1,041 hours Time left for folding and gluing (1041 - 231) 810 hours Time required for F&G of one piece 0.0023 minutes Number of pieces to be folded and glued 21,130,435 pieces 40 orders require 80 set ups ( 40 orders are partial) Total number of set ups 80 + 37 117 setups Time per set up 3 hours Case (ii) Total set up time 351 hours Total number of working hours for three machines (347 * 3) 1041 hours Time left for folding and gluing (1041 - 351) 690 hours Time required for F&G of one piece 0.0023 minutes Number of pieces to be folded and glued 18,000,000 pieces 7
  8. 8. 2D. Order size to the Royal / Queen and Staude work centers Work center Number of Set up per Total set up Speed per Speed per machines machine time machine work center (minute/piece) (minute/piece) Royal/Queen 3 180 540 0.0023 0.00077 Staudes 4 40 160 0.015 0.00375 difference in setup time 380 minutes in 380 minutes, Staudes center can process 101,333 pieces after both setups; the production breakeven point can be calculated as : x is minutes of both machines in process Staudes Royal/Queen 101333 + x * 1/0.00375 x*1/0.00077 x= 98 minutes Breakeven point in time is 98 minutes after Royal/Queens setup. in 98 minutes, Royal/Queen can process 98/0.00077 pieces. Breakeven point in pieces is : 127.506 piece Conclusion; in the 380 minutes set up time needed to set up the same order on Royal Queen, the Staudes can produce 101.333 pieces. After both machines are operational, it takes 98 minutes to Royal/Queen to catch up. Therefore, orders up until 127.506 pieces should be routed to the Staudes. Note: this result relates to the Royal/Queen and Staude CENTERS (i.e. all machines combined) Number of Pieces produced by Royal/Queen Number of Pieces produced by Staude 500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 20 60 100 140 180 220 260 300 340 380 420 460 500 540 580 620 660 700 740 780 820 860 900Figure 1 : Illustration of the breakeven point of Royal/Queen vs Staude work centers in a work day.See appendix 2 for data source of the graph. 8
  9. 9. 2E. Yield per work center Work Center Pieces out sheets (3 Scheduled Production loss (exhibit 3) pcs./sheet) pieces Sheet 9,488,211 3,185,032 9,555,096 66,885 Print 9,326,912 3,162,737 9,488,211 161,299 Case (i) Die-cut 9,233,643 3,108,971 9,326,913 93,270 Royal Queen 5,588,396 6,209,329 620,933 Total 33,637,162 34,579,549 942,387 Percentage of loss throughout the process 2.80% Case (ii) The cumulative yield for an order which the sheeter starts with 40,000 sheets 40,000 * (1-2.8%) = 38,880 pieces yield2F. Neil Rand’s performance evaluationEvaluating Neil Rand’s performance using the key performance measures dependability, quality,speed, costs and flexibility, it is safe to say that he performs well on these measures:Dependability – ‘he makes sure it happens’ (p.7)Quality – ‘he is a good set up man in fold and glue’ (p.7)Speed - ‘His orders are never late’, ‘he puts it on a machine right away’ (p.7)Flexibility – ‘Neil worked all over the factory’ (p.7)We cannot evaluate his performance on the ‘cost’ performance measure for lack of information.However, when he puts rush orders on machines right away he increase the costs of other ordersdue to additional set ups required.From the position of John Milliken, the new VP of Operations, the performance of Neil Rand could beevaluated as ‘not good’. By handling the rush orders the way he does, he solves one problem, butcreates new problems elsewhere (‘he puts it on a machine right away’ – this may result in two newrush orders since the machines cannot be used for the scheduled orders). This way of prioritizing, inwhich the regular process flow is disturbed, as enabled by Neil Rand, may actually harm the companyin the long run.His presence is obscuring the underlying problems which may therefore not be addressed.Neil Rand is very useful to the company due to his extensive experience. He would be useful to thecompany in the F&G department since he knows how to set up the machines and this departmenthas quality issues (glue). 9
  10. 10. Question 3. What are the root causes of Bayonne Packaging, Inc.’s performance problems?We have determined the root causes of Bayonne Packaging, Inc.’s problems to be as follows.A lack of capacity to deal with variabilityThe process is running at full capacity but there is no buffer to deal with variability in customerorders. The variability of delivery time, order type, order time, has increased.The variability of delivery time, order type and order time has increased without any changes to theprocess.CommunicationsThere is a lack of effective communication between the various departments within BayonnePackaging, Inc. and between Bayonne Packaging, Inc. and its customers.The lack of effective communication between departments causes the department managers taketheir own decisions without consideration of the consequences for other departments.Lack of effective communications about waiting times and a poor track record on meeting deliverydeadlines causes variability and unpredictability in customer orders.QualityThe pressure of meeting delivery deadlines and insufficient maintenance causes quality problems.4. Recommendations to Dave RandWe recommend the following actions to Dave Rand.Short term actions (0 – 3 months) - Increase capacity by allowing for overtime. This takes the strain off the process and allows coping with variability better. - Facilitate the ganging of orders as a means of increasing capacity. - Daily meetings discussing production issues with all departments, changing the nature of these meetings by looking further ahead. - Introduce a system of prioritizing orders (e.g. red flags for rush orders) and weigh the consequences of rush orders for the remaining orders, therewith optimizing (i.e. reducing) the number of rush orders. - Increase / improve maintenance on machines in order to increase quality.Mid-term actions (3 – 9 months) - Manage variability better by managing of demand e.g. introducing price reductions for bulk orders - Increase capacity by widening the bottle neck (e.g. extra shift on the Heidelberg press). - Introduce pre-Work Order Jacket – a report that is sent to other departments when the prior department starts working on and order. This way, the later department knows what orders are on the way in couple of days. 10
  11. 11. Long term actions (9 months and longer) - Due to the expected increase in volume and to solve the current bottleneck it is recommended to increase capacity by investing in additional equipment - Introduce a companywide ERP system in order to schedule production in reliable, achievable way that is adhered to by all departments (including sales). This should result in fewer rush orders, fewer partial orders and less unnecessary set up time. 11
  12. 12. Appendix 1 : Gantt Chart of Die-cut center in three cases (Answer 2B) 12
  13. 13. Appendix 2: Order size for the Royal / Queen and Staude work centers (Answer 2D) Number of Pieces Number of Pieces Time in Process produced by produced by Staude minutes Royal/Queen Staude set up period 0 0 20 0 0 40 0 0 60 0 0 80 0 0 100 0 0 120 0 0 140 0 0 160 0 5333 180 Royal/Queen set up period 0 10667 200 0 16000 220 0 21333 240 0 26667 260 0 32000 280 0 37333 300 0 42667 320 0 48000 340 0 53333 360 0 58667 380 0 64000 400 0 69333 420 0 74667 440 0 80000 460 Staude process period 0 85333 480 0 90667 500 0 96000 520 0 101333 540 26087 106667 560 52174 112000 580 78261 117333 600 104348 122667 620 Breakeven Royal/Queen process period 130435 128000 640 point 156522 133333 660 182609 138667 680 208696 144000 700 234783 149333 720 260870 154667 740 286957 160000 760 313043 165333 780 339130 170667 800 365217 176000 820 391304 181333 840 417391 186667 860 443478 192000 880 469565 197333 900 13