The major problem’s Eastern Gear is facing is that they are accepting large orders to help pay their overhead, also, their sales group is not part of the business, there is no link between them and manufacturing. Their order entry is inefficient; the tolerance on products is not firm. The layout of their shop is set up to make mistakes and increased lead time has resulted in the need for an expeditor. Lastly, they are hiring too many employees for the company’s needs.
What action should Rhodes take to solve his problems?
First, Rhodes needs to stop accepting large orders at discounted prices to help cover overhead, doing this will not cover overhead and should only be done if the company is facing bankruptcy. Accepting the large orders causes some of the small orders to wait for processing and in-turn, are late. Also, the sales group is not part of the business, there is no direct link between them and manufacturing. Therefore, no one is paying attention to the order size. This needs to be corrected by putting a direct line of communication between sales and manufacturing.
Second, the order entry system needs to be more efficient. A customer is able to request a change in design after the order has already been placed, it may be necessary to stop production on these orders and wait for the new raw materials or for the new design to be clarified. They do not have a process that charges back the variance on these orders; they need to input a system where if the customer wants a design change, they have to pay for it. Also, the customer’s prints submitted with the order do not always contain the tolerances required during machining. This is a discipline issue within the organization that needs to be eliminated; the customer must sign off on the tolerances before the order begins processing.
Third, Eastern Gear needs to change the layout of the shop. Lead time has recently increased from 2 to 4 weeks, which made it necessary to hire an expeditor, there is a concerning amount of bottlenecks in the production process and inspection of the products is not done until the order is completed. The shop is set up to make production errors and ship unfinished product. The tools need to be central and equipment should not be set up by type but placed in proper sequence so that the product moves sequentially from the beginning of production to the end, and quality checks and inspection should be incorporated in the production process.
Also, Eastern Gear needs to change their order fulfilment approach from made-to-order to made-to-stock. Changing the layout of the shop and order fulfilment approach will help reduce bottlenecks and lead time as well as eliminate the need for an expeditor. Lastly, Eastern Gear has a workforce of 50 people and is managed using a family- type approach. They have hired 10 new employees within the last quarter. The typical order spends 90% of the time waiting for a machine to become available, and only 10% of the time is actually spent processing the order, they should not hire more employees.
How can this case be related to operations strategy and process design concepts?
This case related to operations strategy and process design concepts because having a good operations strategy and process design are key to running a successful manufacturing company. As witnessed in this case, the operations strategy and the process design need adjustments in order to be successful.