Inventory Management, Lean Manufacturing and Project Management for Awesome Cakes

Overview of Lean Manufacturing

Sally Kanina is truly a hands’ off owner of Awesome Cakes. She trusts her manager, William to make the hard decisions that keep the business operating efficiently and effectively. So far things have been going really well and she has been pleased with the profitability of the company. One day Sally decided to do some reading and research, thinking it was time to add some of her magic to the company that she had founded to help take it to the next level of Awesomeness. She read about inventory management, lean, market expansion, you name it she read about it. The problem was that she didn’t read very deeply and thought that she could just go talk to William and get him to make lots of changes in how the company operated. Your job is to help William respond to Sally’s great ideas and surprising interest.

1. Lean Manufacturing (8 marks)
Sally read about this thing called “Lean” and thought it sounded fantastic. She asked William to look into implementing Lean. William was familiar with Lean and didn’t think that Sally really understood what was involved so he needs a brief overview of what Lean involves to help Sally understand that implementing Lean is not a small project. Include in the overview:
a.    A brief definition of Lean.
b.    What kind of organizations are best suited to implement lean? Is it suitable for Awesome Cakes?
c.    Name and describe two important components of lean that need to be implemented for success.

2. Inventory Analysis (28 marks)
As part of her new found interest in Lean, Sally has asked for an investigation into the current inventory management practices of the company. She thinks that Lean is about reducing inventory to zero. William wants to show Sally some of the calculations the Inventory team does and how they use them for decision making. He’s been thinking about having the icing made by another company and shipping it in. He thinks there may be cost savings that result from doing so.
 
a.    Ordering Analysis (12 marks)
William has researched alternative icing suppliers and the data provided below would be valid if Awesome agrees to a one-year contract with the supplier.  William has estimated that their relevant holding costs are 40% per annum, since the icing must be kept refrigerated or frozen.  The production department is confident that daily is around 25 units with a standard deviation of 10 per day.  Uncertainty exists however on the delivery lead time from the suppliers.  Assume a 365-day year.
Supplier Location    Toronto    Regina, SK    St. John’s, NF    Halifax, NS    Montreal, QC
Unit Cost    $49.00    $47.50    $42.00    $44.00    $43.00
Order Process    Automated    Semi-Automated    Manual    Manual    Manual
Order Costs    $20.00    $45.00    $175.00    $150.00    $250.00
Primary Method of Transport    Truck    Rail    Ship & Rail    Truck & Rail    Truck & Rail
Normal Lead Time (days)    4    3    20    16    7
Lead Time Variation (days)    -1 to +3    -1 to +2    -3 to +15    -4 to +12    -2 to +4

Ordering Analysis

For each alternative, calculate the following: (9 marks)
a.    Economic Order Quantity        b.    Reorder Point
c.    Average Inventory Level    d.    Inventory turns per year    e.    Total Annual Cost
Note: Do not round calculated values.  For formatting purposes, display two decimals.

Include your formulas used - in Microsoft Excel, Press CTRL + ` (grave accent).  Activate the printing of the “row and column headings” in page setup.
Which alternative would you recommend William choose?  Why? (3 marks)

b.    ABC Classification & Application (16 marks)
William believes that he can reduce the costs of managing the manufacturing equipment maintenance stock. He would like to do an ABC analysis of the inventory to start looking into doing cycle counting.  For each item, recommend: (12 marks)
•    An ABC Classification (A/B/C)
•    An appropriate inventory system (Periodic or Continuous)
•    A cycle counting frequency (monthly / quarterly / semi-annual)

Item #    Item Description    Unit of Measure    Unit Cost    Annual Volume
C-44890    Controller Back Plate    PCS    $5.00    52,500
F-67438    Power Adapter    PCS    $6.00    51,000
F-37951    Receiver Box    PCS    $38.00    50,500
C-44790    Controller Face Plate    PCS    $8.00    53,500
C-42855    Input Port    PCS    $0.95    74,500
C-94365    LCD Screen (5" X 3")    PCS    $27.00    61,500
A-57429    Power Extender Cable    PCS    $7.50    47,500
C-28572    Circular Control knob (1")    PCS    $0.60    52,500
C-87765    Memory chip    PCS    $29.00    56,000
S-36275    Insulated wire (12V)    FEET    $0.15    145,000
S-86473    1/2" phillips screw    PCS    $0.03    375,000
S-37991    Plastic tie (locking)    PCS    $0.02    150,000
C-28451    Touch Button - arrow    PCS    $0.10    225,000
A-53279    Remote (w/lithium battery)    PCS    $41.00    1,500
C-76554    Micro Antenna    PCS    $11.00    37,500

3. Project Management (20 marks)
As a result of Sally’s renewed interest in the company, William thinks he sees an opportunity to get her to approve the purchase and installation of a new enterprise resource planning (ERP) system. With record high demand, the company is growing so fast that their legacy system can barely keep up with the volume of transactions and increased user activity.  Recently, the legacy system has been randomly crashing, preventing users from accessing the system for hours at a time.He believes that such a system will give some of the efficiency and reporting that he knows Sally likely read about. Using project management technique, start the preliminary planning for William by using the following information. (Assume that today’s date is January 31st, 2020.)

William knew that Sally would have to approve such a major expenditure before the project could start, but first a proposal & budget would have to be prepared.  Once approval was received, temporary employees could be hired and trained so that key employees could be freed from their regular responsibilities. William knows that after Sally’s approval, it will take several weeks to determine the detailed specifications. Modifying the software can begin after the detailed specifications have been identified.  Once the temporary employees hired and trained, process flow analysis (past & future) could begin.  Based on information discovered in the process flow analysis, the setup of system parameters could be completed.  After system parameters have been setup and the software modifications have been completed, system testing and adjustments could be performed.

 Upon completion of the system testing and adjustments, the legacy data conversion and preparing the test database (with a small amount of data) for eventual training could be done simultaneously.  With the test database complete, training documentation could be prepared with accurate “screen shots” of how to properly use the system.  End user training could commence upon completion of the training documentation.  Once all of the above activities are complete, the new software system could “go live”.

William developed an initial budget for the project based on the normal costs associated with each of the project’s individual activities.  William’s estimated cost for each activity is shown below, along with the activity’s estimated completion time.

 Activity Description    Normal Completion Time (weeks)    Normal Costs 
(in $000s)    Immediate Predecessor(s)
1    Prepare Proposal    3    10    
2    Sally’s Approval    2    15    
3    Detailed Specifications    8    85    
4    Modify Software    28    450    
5    Hire & Train Temps    10    25    
6    Process Flows Analysis    24    1600    
7    Setup System Parameters    5    128    
8    Testing & Adjustments    6    168    
9    Legacy Data Conversion    3    80    
10    Prepare “test” Database     2    16    
11    Training Documentation    4    75    
12    End-User training    4    100    
13    Go live    -    -    

b.    Work Breakdown Structure (4 marks)
Prepare a Work Breakdown Structure for the project. You should use all of the tasks the case has described as well as adding at least 10 of your own. It is NOT expected that the WBS be in MS Project, a Microsoft Word document is sufficient. The WBS should not exceed 1 page. Use either an indented or tree format.  The additional tasks are for this question only.

c.    Network Diagram (4 marks)
Prepare a Network Diagram (before crashing) of the activities mentioned in the case. Use the task number to identify the activities. The Network Diagram should be easy to read, go from left to right in general and top to bottom, and fit on ONE page (landscape is recommended).   You may draw this diagram by hand if you want to however it is the only exception that is acceptable to the requirement that your assignment be presented professionally. I should be able to clearly read your diagram and it must follow all the conventions discussed in class.

d.    Path Identification (3 marks)
Identify the paths and the length (in weeks) of each path.  Specifically identify the critical path(s).

e.    Project Duration & Cost (2 marks)
What is the expected project duration and expected project cost?

f.     Project Triangle (2 marks)
Knowing how unpredictable Sally can be, William knew that she may decide to give more money to the project if she saw that things were going well. In order to be ready for such a possibility, he would like you to prepare a brief summary of how such a potential “budget increase” of a few hundred thousand dollars could impact the other aspects of the ERP project. Assume the ERP project has recently begun and is progressing at the normal schedule pace. There is no need to draw a triangle to answer this question.