First for Forensics (FfF) is a high tech company that manufactures and markets a range of products in the field of forensic science. Their main revenues have traditionally been generated from their core business; namely blood, drug and DNA testing equipment. Their markets are to the forensics services, law enforcement agencies and sports drug testing authorities around the world. However, a growing part of the business is in the sale of consumables, including reagents, calibration solutions and special cleaning fluids needed to operate the equipment along with a wider range of associated consumables including protective rubber gloves, protective eye glasses and finger print kits. These are supplied as branded own label products.
The company manufactures two products for this market namely F1-Basic and F1-Advanced. Both products are designed and manufactured in a factory at Cranfield Science Park near Cranfield University. The company has had unparalleled success with these two products for the last 10 years being the first to bring the technology to market in a portable format. However, the patent has now expired and recently competitors have started to flood the market with lower cost versions. Although customers have been loyal, international sales are under pressure as margins are squeezed. Moreover, the company’s delivery performance has been poor and the company continuously fails to meet customer delivery dates. This is in spite of the fact that, on average, the company’s inventory turns for finished product are around 3.5.
The basic product design for both products has a high level of commonality and they share a high percentage of the same components in their Bill of Materials (BOMs). However, there are a wide range of customer-specified optional extras which increases the product complexity. These optional extras relate to the number of substances that can be detected by each machine.
F1-Advanced machines have an additional functionality in terms of the range of analysis that can be performed. The customer specifies the optional extras at the time of placing an order. The optional functionality is achieved by inserting additional printed circuit boards (PCBs) which are fitted onto the main electronic motherboard (each optional extra selected by a customer requires an additional PCB to be fitted). There are currently a range of 5 test options that can be selected by customers for the F1-Basic. However, the F1-Advanced has a further 12 test options (17 in total) that can be added to reach its full functionality.
Manufacturing shop floor operations
The production facility (shop floor) at FfF has three main areas:
- The first of these is the batch manufacturing area which fabricates the subassemblies required in final assembly. These are produced in batch quantities (based on EBQ calculations). The layout in this area is arranged following the ‘process layout’ where each batch order follows a specific routing around this area until completed. Once the parts and subassemblies are produced they are taken to the warehouse where they are stored until needed by final assembly.
- The second area is the electronic fabrication centre which produces the main electronic mother board and the optional PCBs. All the motherboards and optional PCBs are produced on one machine and because there are a wide range of PCBs, they are produced in long batch runs to offset a 2 to 4 hours change over time. Therefore, there is a high inventory (several months of cover) kept for the complete range of PCBs which are stored in the warehouse prior to final assembly. As the machine used to make the PCB’s costs in the region of 4M Euros each, it is not financially viable to invest in further machines at this point.
- The third and final stage is final assembly where the subassemblies and electronics are assembled into finished products. The final assembly operations consist of two assembly lines, one dedicated to F1-Basic and the other to F1-Advanced. Each assembly line comprises 6 workstations each. Once the product has been assembled it is packaged together with its language-specific technical manual and appropriate country mains power cable. Although the workstations are in close proximity, there appears to be a high level of WIP between some of the stations.
Manufacturing planning is based on a Master Production Schedule that is agreed by Sales and Operations on a monthly basis. The forecast for the total number of sales of machines is reasonably accurate. However, the forecast accuracy for individual order specifications is very poor. In addition, the sales team are on a financial incentive to meet the quarterly sales target, so will offer price discounts to customers towards the end of the quarter if sales are slow. This tends to give a sharp increase in sales in the last week of every quarter and a slump at the beginning of the new quarter.
As orders are received from Sales, a Planner assigns a due date and passes the specification to Manufacturing. As Manufacturing can’t meet the customer lead times, they are producing to the forecast. A recent study undertaken by Cranfield students showed that it took several weeks to get product through the plant but no one is quite sure why it takes so long. In addition, there is an inventory management system used for managing materials in the warehouse and supporting purchasing decisions for the replenishment of raw materials from vendors. However, there seems to be many discrepancies between the data in the system and real life. For example, inventory of materials in the warehouse never matches what’s recorded in the system’s inventory files.
Lead times from suppliers range from 4-16 weeks depending from where they are sourced. Lead time variance is not uncommon. The Purchasing teams have been told not to be short of parts as this disrupts manufacturing, so they plan to maintain high levels of raw materials to cover all eventualities. To keep purchasing costs down, the Procurement department frequently tenders for parts and changes suppliers if they can buy at lower costs.
There is an unacceptably high defect rate for finished products even though there is a thorough Quality control and inspection system in place. To overcome the problem, the company has a dedicated area for reworking product. In this area three people are dedicated to finding the problems and repairing any faults so that product can be put back into stock as quickly as possible.
As inventory levels of raw materials (RM), work-in progress (WIP) and finished goods inventory (FGI) have grown steadily over the past few years a new automated warehouse was built in 2010 to try and solve the inventory problems.
The workforce is a mixture of semi-skilled and skilled workers. Many of the employees have been at the company for years and have good knowledge of the functions they perform.
FfF has one main warehouse which supplies all customers in the UK and Europe, ordering is telephone or internet based, usually direct to the end-user. Outside Europe alternative channels are used. The company currently supplies a range of 243 SKUs (ranging from basic reagents to special calibration solutions, gloves, glasses, etc.) from 14 vendors. One Buyer and one Inventory Manager are employed by the company to negotiate supply, review DC stock levels, and place orders with vendors as required.
The automated warehouse is, according to the Financial Controller, ‘overflowing with consumable inventory’ while the Inventory Manager has a standard policy to hold 10 weeks of stock for all items. All consumables are managed in the same way irrespective of sales volumes or value-usage.
You have been engaged by FfF to act as their consultants. Your high level tasks are to:
- Analyse FfF’s existing manufacturing operations and develop an integrated set of recommendations to enhance customer service levels, reduce overall lead times, whilst reducing operating costs.
- Address the ineffectiveness of the company’s inventory management policy by reducing current stock levels, maintaining service levels to customers and release cash which the company can utilise in manufacturing.
- Produce a consultant-style fact-finding report for FfF to improve their business