1. Introduction This report aims to identify and analyze the underlying problems with Eastern Gear, Inc. Currently, there are too many shortcomings in its system, rendering it inefficient right from the beginning. In the first part of this report, the problems face by Eastern Gear, Inc. are identified and elaborated. Subsequently, possible solutions to these problems are analyzed and dissected, identifying their respective advantages and disadvantages. At the end of the report, relevant suggestions and recommendation are presented, together with its feasibility. 2. Problems faced by Eastern Gear, Inc. 2.1. Make to order (MTO) The business strategy used by Eastern Gear, Inc. is Make-to-order. In a nutshell, this meant that products are built according to customer-dictated blueprints. The beginning construction of a product only after the design is confirmed represents longer downtime between order and readiness of ordered goods as compared to an organization which operate in a more conventional manner of selling template, mass produced products which are readily available at point of purchase. Adding on to the fact that customers usually do not pay in full during initial placement of order, this may cause cash flow retardation. Furthermore, customers with heavy considerations with regards to the time factor may be put off by the waiting time. 2.2. Order process As mentioned above, some customers see time as a key deciding factor when making a purchase. Orders are not finalized as customer tends to change their orders after confirmation. On the other hand, rush orders were accepted base on the Organization’s director without having any discussion with his counterpart in determining if there were sufficient resources for the orders. This will result in contribute to the already considerable delay caused by the organization’s make-to-order strategy, amplifying the disadvantage of cash flow retardation and loss of potential customers as pointed out above. 2.3. Raw material Eastern Gear, Inc.’s core competency lies in custom-made gear. Hence, raw materials are ever present in its production operations. The leap time of raw materials often takes one to two weeks to arrive. The input of raw material must therefore be consistent and dependable because any disruption of production due to shortage of raw material can cause significant financial damage. This may unbalance the demand pattern in a negative manner, which in turn may cause a fluctuation of level of efficiency. Below, Table 1 shows the types of materials and the amount of usage that Eastern Gear Inc. had used in 2011.

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TABLE 1 2.4. Large- Quantity, small size orders Another problem faced by Eastern Gear Inc. is that they tend to focus on “small-quantity, large size” and oversee “large-quantity, small size” orders. “Small quantity, large size” orders would tend to occupy the machine in full capacity. As a result, deliveries were late for “large-quantity, small size”. There was no system flow for its production. Below, table 3.1 shows the distribution of order size and the total sales in a calendar year. The total order was 578 with total sales of $312,185.

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NUMBER OF ORDER 1 1 2 2 4 10 18 22 22 27 32 42 47 53 64 69 80 82 578 TABLE 3.1.

ORDER SIZE 400 1000 200 700 100 50 30 15 40 25 4 20 8 2 10 3 1 5 TOTAL

TOTAL $ VALUE OF ORDERS $9,652 20,000 14,068 35,600 12,500 18,693 21,600 13,172 32,000 23,682 4,800 31,555 15,987 4,250 26,871 8,163 3,200 16,392 312,185

However in Table 3.2, order size which was less than 20 is highlighted. It shows that nearly 85% of orders were smaller order which has a total sale of $124,390. This takes up one third of the total sales. This indicates that by focusing on “small-quantity, large size” orders may prove to be financially inefficient for Eastern Gear, Inc. eventually in long run; their profits would be badly affected.

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NUMBER OF ORDER 1 1 2 2 4 10 18 22 22 27 32 42 47 53 64 69 80 82 578 TABLE 3.2.

ORDER SIZE 400 1000 200 700 100 50 30 15 40 25 4 20 8 2 10 3 1 5 TOTAL

TOTAL $ VALUE OF ORDERS $9,652 20,000 14,068 35,600 12,500 18,693 21,600 13,172 32,000 23,682 4,800 31,555 15,987 4,250 26,871 8,163 3,200 16,392 $312,185

2.5. Cycle time become longer The current process for production of gears had increased. In the past it took about two weeks to process after receiving of raw materials. For now, it has increased to four weeks. This has doubled the production time compare to the past. The cycle time of production become longer was due to a few larger orders for 100 gears or more are accepted recently by the president. 2.6. Machine capacity issue Another problem faced is machine capacity issue. One of the concerns is the bottlenecks that appear in the production process. It has been appear inconsistently for a period of times. The bottleneck can be appearing in one machine centre this week and on the next week it is in another. Due to this, it makes the orders in difficulty to out in shorter timing.

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2.7. Layout issue Currently Eastern Gear utilizes a standard job shop layout as shown in Exhibit 1.

Receiving dock Milling machines
Receiving and raw material storage

Heat Treating

Finishing and grinding center

Shipping and finished goods storage

Tool crib

Exhibit 1 room Lunch

Drilling

A typical order process flow should be taking the following path. Receiving raw material -> Milling work center -> Drilling work center -> Grinding work center -> Heat-treating (if required by customer) -> Shipping / Finished goods storage From the order process flow, we can see that the layout of the machine is not good enough because the Drilling work center didn’t station next after Milling work center which is drilling is the next process after milling is done. 2.8. No QC control There are no proper QC personalities to check on the complete product. Upon the batch of gears is completed, the gears are inspected by the next available worker before shipped to customer. It end up causes the rejected product rate is high. 2.9. Waiting time too long Another reason causes the production time longer is because the waiting time for machine to become available is too long. With the large orders that received recently, a work center needed more times to complete the process. As the machine capacity is not big enough, it causes the process time become longer. As result, it takes 90% of the total time to wait for the next machine to become available for the next process.

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Shipping dock

2.10. Large and small order process together Normally, upon receiving the order from customer, regardless the order is big or small; all the orders will process together. And most of the time the large order will occupy the machine in full capacity. As result, small orders have to put it on hold to wait for the large order finish. There is no special work flow for different order sizes in the company. 2.11. Sales expected to grow From the exhibit 4 shown below, we can tell there is profit made. And the sales are up by 100% in year 2011.

Exhibit 2 2009 560 63 136 70 172 441 70 75 586 (26) 2010 1,500 273 587 216 398 1,474 130 110 1,714 (214) 2011 3,100 522 1,063 412 422 2,419 263 297 2,979 121 First Quarter of 2012 1,063 214 327 140 150 831 80 93 1,004 59

Sales Manufacturing costs Materials Labor Overhead Depreciation Total manufacturing costs Sales expenses G & A expense Total costs Profit before tax

* All figures in thousands of dollars A recent market survey has indicated that the sales can be expanded even more for the next few years. And for year 2012, the sales can be expanded half a million more if current delivery lead time of 5-6 weeks can reduce to 4 weeks. 2.12. One headcount as expediter Even though engage a full time staff to do the expediting, but there is no improvement. At the same time, staff spent more of the time in looking for past due materials and explaining the late order to the customer.

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2.13. High percentage of expediting "Red Tag" Lack of proper system control and long lead time for raw materials tend to increase chances of production delayed which cause more resources and system setup are required in order to continue with the order reprocessing. The influences are also extending the production time for standard orders. 2.14. Organization Chart This case study over Eastern Gear is showing a mess with the top management responsibility and scope of authority. For example, the President, Roger Rhodes, acted as sales person in getting deals, while Engineer, Sam Bartholomew, has to even supervise the foreman and spend time in talking to individual workers, on top of in charge of procurement and equipment maintenance.

2.15. High return rate due to defect No indication as "work instruction" in all work stations to control the process flows and no proper inspection to control the quality after products finish, due to they are checking by the available worker. 2.16. No system for rush order Rush orders are accepted simply based on the director preference without going through a proper discussion with the operation side in determining whether there are sufficient resources for the order.

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3. Solutions 3.1. Made to order (MTO) The advantage of this particular strategy is that it offers customer flexibility via customization and specialization. By offering a product which caters uniquely to each customer’s dynamic demand allows Eastern Gear Inc. to stand out within the industry, thus giving it an edge. Additionally, utilizing the make-to-order strategy allows elimination, if not, avoidance of having to store unnecessary stock in its inventory. By not tying down funds due to over-purchasing, Eastern Gear, Inc. is able to reallocate funds to activities which may benefit the organization in other ways such as marketing or research and development. Not piling up stock in the inventory also represents a significantly lower risk of loss of value of goods due to depreciation. 3.2. Investing in purchasing more machines to solve problem: 2.5. Cycle time become longer 2.6. Machine capacity issue 2.9. Waiting time too long 2.10. Large and small order process together 2.11. Sales expected to grow (solve a part) As more large orders was received recently, company is suggest to increase the capacity of machine by purchase few more machine in order to able to produce the large orders of gears in a shorter time period. The machine suggest to purchase are milling machine & drilling machine as these 2 machines are highly used in the whole production process. By purchasing extra machine, it enables to solve the problem of bottleneck issue appearing inconsistently in several machine center. As a result, whenever there are bottlenecks appear in any machine, there is another machine that can continue the production process. Also, with the increase in machine capacity, the process will be able to accelerate. Once the process time is shorten, the waiting time for next available machine will be reduced too. In short the total process time will be reduced to a more efficiency stage. Company are suggesting breaking those large orders to small order. So can complete half and send to customer first instead of delaying the delivery time. With the extra machine, company are able to have one machine operate for big orders and on the same time, have another machine to operate for those small orders. So those small order customers can receive the products in a shorter time. As having more machine help to reduce the process time, the sales for the next few years are expected to have better growth as the lead time to delivering to customer has reduced and customers are more willing to giving the orders to the company.

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3.3. New Layout to solve problem: 2.7. Layout issue 2.13. High percentage of expediting "Red Tag" (solve a part) The current job shop layout needs to be rearranging it so that the flow of process will become smooth. The new layout should be as below shown. Receiving dock Milling machines
Receiving and raw material storage

Drilling

Finishing and grinding center

Shipping and finished goods storage

Tool crib Exhibit 3

Lunch room

Heat Treating

With the new layout, the process will become smoother and it will help to speed up the whole process time. As a result, orders will be able to meet the requirement date and expediting percentage will reduce. 3.4. Set up Quality Control Department to solve problem: 2.8. No QC control 2.15. High return rate due to defect In order to reduce the product rejected rate. A new process has to be set up. The company need to have a proper team of QC personality to check on those completed batch of gears before it shipped out to customer. Company are suggesting implementing the seven tools of quality control methods to improve the quality control in order to reduce the reject. With the QC department set up, it can oversee the production activities, maintain high quality standard, as well as for quality improvement. Also, the production should implement the work instructions with list of task at all work stations for all personnel to follow.

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Shipping dock

3.5. One headcount as expediter The expediting expected by the company is not working, should send the Matt Williams to the proper training, such as scheduling course and inventory course. Furthermore, checking on lost order and explaining late orders should fall on the responsibility of Sales Manager, who is James Lord, instead of getting additional resource to covering the duty. 3.6. Raw material inventory To keep inventory for those high turnover raw materials to reduce the long lead time of materials. From the table 2, there were certain materials which usages were fairly high using Pareto Analysis, Eastern Gear, Inc. could gather such data and forecast the demand. The advantage of Pareto analysis could enable Eastern Gear, Inc. to be ever ready in its supply. Type of Material E H J All Others D I A G K F C B Total 2011 Usage $(000) 110 75 60 53 43 40 36 32 30 18 15 10 522 Percentage Per Usage 21.10% 14.36% 11.40% 10.15% 8.20% 7.66% 6.80% 6.41% 5.74% 3.40% 2.88% 1.90% Cumulative Percentage 21.10% 35.46% 46.86% 57.01% 65.21% 72.87% 79.67% 86.08% 91.82% 95.22% 98.10% 100%

TABLE 2 From table 2, Eastern Gear, Inc. is suggest to keep inventory for raw material E, H & J as these 3 types of raw material have the highest usage among the all. As the company keep inventory for those high turnover raw material, the lead time of whole process will reduce and eventually it also reduce the delivery lead time. With a shorter delivery time, customers will be more willing to making orders from Eastern Gear, Inc. As a result, the sales for future is expected to be even higher.

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3.7. New Organization Chart The company should set up a few departments as below to place the right person in the right place to do the right things. Procurement department - Responsible for purchasing activities for a company. Maintenance department - Responsible for the safety equipment and maintain the equipment in high performance. Production department - Responsible in exploit the company resources to fully utilize the production capacity.

3.8. Rush order process To overcome this problem faced by Easter Gear, Inc., they could have clear policy informing customer that in the events if they would like to change their order after finalized, a fee would incur. The amount would gradually increase subject to the number of days after order had finalized. Besides that, sales person should be well trained in managing client expectation over rush order and to communicate to customer on the extra charges imposed. From this solution, Easter Gear, Inc. should have a better order system. 4. Conclusion We have identified and analysed the shortcomings of Eastern Gear, Inc. and provided all possible solutions to enhance their productivity. With these solutions projected, Eastern Gear, Inc. will be able to achieve better sales target. The quality and cost will be under control. Meanwhile, delivery will be on time and the meeting customer’s expectation.

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5. References

http://smallbusiness.chron.com/advantages-disadvantages-build-order-strategy-18276.h tml http://www.mdcegypt.com/pages/purchasing/material%20management/introduction%2 0material%20management.asp

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