Schroeders Model Essay
Schroeder’s Model indicates the importance of the need for operations objectives with regard to cost, flexibility, delivery and quality. How do these objectives vary in importance for the custom gear business and the large order business? Give reasons for your answer.
Since the plant does not control measures such as sales or market outcomes, we deem such financial measures inappropriate. Instead, we will use the basic measures of plant performance controlled at the plant level. More specifically, cost, quality, delivery, and flexibility will be used as measures of plant performance
Three important aspects of performance must be considered. First, competitive priorities and performance measures vary both within and across industries. Second, a plant cannot attain competitive advantage by concentrating on only one performance dimension. In other words, while a plant must excel on at least one dimension (cost, quality, delivery, or flexibility) , other dimensions must at least exceed some minimum level in order for the plant to be competitive (Ferdows and De Meyer, 1990; Hill, 1993; Wheelwright and Bowen, 1996). Third, plants deliberately choose different manufacturing strategies and intentionally compete on different dimensions.
Considering these three aspects of performance, we will use a strategically weighted industry-standardized measure as an aggregate manifest measure of manufacturing performance (Bates and Schroeder, 1997). More specifically, performance is measured as a strategically weighted average of the following industry-standardized measures:
- Manufacturing cost as a percentage of sales
- Scrap rate (conformance quality)
- Percentage of deliveries customers receive on time
- Number of days from receipt of raw materials to customer receipt (cycle time)
- Length of fixed production schedule (flexibility)
This measure of performance incorporates all the relevant measures of manufacturing performance, but at the same time gives more weight to measures that the plant management considers strategically more important
In the context of the above model the Gear Business and Large order must consider the following
Percentage of Deliveries Customer Received in Time
Since the organization are only able to process 20% of its order in time it may start loosing orders in future .its very much important that organization improve the delivery status may be the followings
- Monitoring and controlling the Number of days from receipt of raw materials to customer receipt (cycle time). start reducing the waiting time for the raw material by keeping inventory of common Material to appropriate scheduling of the order , or improvement in the Workflow to avoid bottlenecks .
- Length of fixed production schedule (flexibility ) scheduling and Monitoring to meet the Rush Orders ,delay orders and Routine orders.
Scrap rate (conformance quality)
The company is currently experiencing about a 6-percent return rate on completed orders due to poor quality. In 75 percent of the cases, the returned orders have failed to undergo one or more operations or the operations have been improperly done. For example, in one returned order, all the gears were missing a hole Rejection Rate are Quite high need to be controlled by improving Skill of the Operators , Close Supervision and fool proofing of the manufacturing Process ( POKA-YOKE ) is the another important objective
The back log affecting the execution of the orders hence delivery of the material get prolonged . due to prioritization of the orders the other orders get delayed hence sooner or latter some of the them are behind the schedule .the cycle will goes on delayed supply might lead individual customer to cancellation of the other orders .
However other things indicate that Sales can be expanded even more in the next few years. According to the market survey, sales will be $5 million in calendar year 1998if the current delivery lead time of five to six weeks is maintained. If total delivery lead time can be reduced to the former three to four weeks, sales could be expanded to $5.5 million instead of$5 million.
It can be further noted that Company trying to improve the situation has recently added an expediter, Matt Williams. Each morning Williams reviews the work in progress in the Shop and selects those orders that appear to be behind schedule. Each order that is Behind receives a red tag, indicating that it should be treated on a rush basis. At the Present time, about 20 percent of the orders have rush tags on them. Williams also Spends his time looking for past-due raw materials and lost orders as well as Explaining late orders to customers.
Delivery time further reduced by keeping the raw material inventory, better lay out and flexible scheduling and keep taking more and more large quantity orders .and might be keeping the inventory of the repeated orders. Reducing the returns by making process fool proof , frequent checking and using trained man power.
At present the company does not have a raw materials inventory. Why and to what extent should this policy be changed? (25 marks)
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The company not keeping inventory of the Raw material since verity of the raw material are quite high as well order quantity is very small .e.g. A,B to k and other contributing the consumption of $ 522000 also average order quantity very low 2673 pcs for the 578 orders company have to manage the stores to keep the inventory it increase the working capital requirement putting extra burden in term of inventory carrying cost.
Secondly company not very much sure the exact requirement of the raw material since repeatability of the orders are not significant.
But company should immediately look into this policy since it affecting the deliveries of the material to the its customer eventually company loosing money as quoted in the statement.
According to the market survey, sales will be $5 million in calendar year 1998if the current delivery lead time of five to six weeks is maintained. If total delivery lead time can be reduced to the former three to four weeks, sales could be expanded to $5.5 million instead of$5 million. Further statement shows that After the order is received, one copy is sent to the production supervisor, Joe Irvine, And the second copy is sent to Sam Smith, the controller. Upon receipt of the Customers order, Smith places a purchase order for the raw materials required. These Materials often take IT one to two weeks to arrive, depending on the supplier and the type of material ordered.
It means that we can directly save that much processing time ultimately lead to better turnover.
Company have to make the policy to how much inventory, it must keep maintaining the minimum amount of inventory to meet the execution of the orders. The reorder level of inventory can be defined based on the consumptions past data, lead time of the procurement, lot size.
Regular monitoring of the Pending orders for the Raw material to be ensured to get the material in time.