Carmen Caggiano

MBA 642- Dr. Lynn Fish

Assignment #2- H.C. Starck, Inc. Case

09/25/2012

1. Why are the lead times so long? 2.5 points

There are many reasons to explain why the lead times at H.C. Starck, Inc. were so long. A variety of explanations can be made, in which all were mentioned by various members of the H.C. Starck, Inc. team or through inferences made by management.

To begin, H.C. Starck, Inc. experienced lead times that were longer than expected because there was a belief that the manufacturing time was taking far too long, although no hard data was provided to support this. Also, Lee Sallade, who was the director of Operations for H.C. Starck, Inc., believed that although focusing on lead time was important, focusing on it solely would be a significant error in all aspects. He felt that in addition to controlling lead time that overall cycle time needed to be accounted for, as well, which may have also led to the lead times lasting for such an extended period of time. Lee emphasized that cycle time and inventory were very important to the company, but both were very difficult to control since H.C. Starck, Inc. held such a significant amount of tantalum inventory. Lastly, Lee felt that managing data was crucial to success, and he was concerned that many of the operational decisions of the company were based on myths or “hear say” and that, “rigorous data collection and analysis could help to break out of this mode of operation.”

Another explanation as to why lead time may have been so long for H.C. Starck, Inc. stem from the fact that the company had Ta reduction and powder manufacturing operations in Japan, Thailand and Germany. However, the Newton, MA location in the United States was the only plant that possessed the melting and mill capabilities needed in order to fulfill customer orders. This meant that any orders that needed to be melted or passed through the mills needed to be sent from the locations overseas to the Newton, MA location, which in turn, would create bottlenecks for production and longer lead times for the customer.

The metallurgical products (MP) division of HCST was comprised of two basic functional areas, which included rolling and fabrication. Lead time could have been reduced in this specific area of the firm if the rolling and fabrication processes could occur in one area of the plant, as opposed to having them be performed as two separate entities. Also, as Arthur Bronstein mentioned, who was the Director of Metallurgical Products for HCST, “The average piece of tantalum going through the large rolling mill for breakdown rolling is 570 lbs., and it takes 55 minutes to process it. For finish rolling, the average piece is 450 lbs., and it takes two hours to complete. The changeover between breakdown and finish takes a full eight-hour shift.” Lead time could be significantly reduced if HCST was able to cut its breakdown rolling pieces in half, as well as the finish rolling pieces, because this would allow less time for changeover and more production to occur.

Finally, lead times took so long at HCST because of production variability, and the fact that the SAP scheduling utility was rarely, if ever used. The degree of customization that HCST needed to deal with when they handled customer orders varied from extremely customizable to extremely generic. In turn, the time that would need to be spent on the highly customizable products would result in longer lead times for the customers to handle. In addition to that, as Jim McMahon, Supervisor of Production Control mentioned in the case, most of the schedule misses and mistakes were due to equipment failures. In addition to raw material ordering, Jim needed to manually perform shop floor scheduling. Jim was confident in his production orders and felt that his experience would provide enough reasoning for excluding the usage of the SAP scheduling utility. In retrospect, the recipes that were being generated manually were a large problem, but Jim could not admit that the usage of the SAP utility may be more accurate than his manual expertise. Standard costs were calculated incorrectly, and for some products, these costs were lower than for the raw material used to make them (something which is logistically inaccurate and impossible). In order to combat this, the engineering department was asked to combat this, but was doing so at an extremely slow rate. Because of this, the engineering department was unable to focus on their main task at hand, which was to produce the tubing needed for customer orders, which would then result in elongated lead times.

2. How might Starck reduce or affect the lead times? 2.5 points

There are many different ways that Starck could reduce of affect the lead times they were faced with. To begin, Starck would need to drastically decrease the degree of customization they had previously allowed when customers were placing orders. Granted, some customization is needed in order to fulfill the needs of the customer, but there were no precedents set which would reveal the degree to which customization could occur before it was deemed too costly or timely. Also, the inclusion of the SAP scheduling utility is a must in order for HCST to reduce or affect their lead times. The manual raw material ordering, shop floor scheduling and calculations of standard costs either took too much time or were inaccurate as a result of human error. Computer systems are an imperfect science and will always contain minor glitches, but are much more reliable and accurate as compared to human calculations.

Also, Starck would need to find a way to more accurately forecast their sales variability, as well as production variability. This would result in additional problems and longer lead times that Starck did not need, and could have been easily combated if the inclusion of the ERP system (R/3) was implemented in the first place.

Lastly, Starck could reduce of affect their lead times if they were able to trim down their inventory holding costs they incurred as a result of the anneal ovens. HCST discovered that parts do take approximately eight hours to anneal, but many parts can be in the oven simultaneously, as opposed to one at a time. This resulted in errors for both allocation of overhead and product costs, as well as in the scheduling system. From a strictly financial view, these errors led to large cost allocation variances that could not be adjusted until the end of the fiscal year, developing large overhead costs that loomed over HCST for the following year.

3. a.) What are the costs from reducing the lead times? 2.5 points

There are multiple costs or drawbacks that can result from HCST reducing the lead times they previously encountered. In relation to employee resistance, Total Quality Management techniques, such as reducing lead times, require a change in mindset, attitude and methods for performing duties on the job. When management does not effectively communicate the team approach of TQM, workers may become fearful or skeptical, which leads to employee resistance. When workers resist the program, it can lower employee morale and productivity for the business. TQM utilizes small incremental improvements to move the business forward. It can take years for a company to enjoy the benefits of the program, but it will ultimately lead the firm in the right direction.

Lack of employee participation is another cost than can occur from attempting to reduce lead times. Once workers understand their participation and involvement in Total Quality Management is essential to its success, morale and productivity will improve. However, this takes time, effort, training and an intense commitment to the task at hand; all of which may deter an employee from wanting to participate in such a program. TQM on the whole is a very effective and beneficial strategy for a firm to implement, but the results will not be immediate.

Lastly, initial introduction costs, such as training for employees and disrupting current production processes can result when trying to reduce lead times. Although the overall reduction of lead times can improve a firm, the production that may become interrupted or halted, as well as the expensive training that may be needed are all costs that a firm may encounter.

b.) What are the benefits from reducing the lead times? 2.5 points

There are many benefits that HCST can encounter from reducing lead times. Reducing lead times will allow HCST to not only improve on-time delivery, but they will also be able to increase customer satisfaction and customer retention rates. In addition to that, H.C. Starck, Inc. will be able to justify charging premium prices for their rolling and fabrication-based products. Reducing lead time allows H.C. Starck, Inc. to reduce their finished goods inventory (thus resulting in lower inventory holding costs) and increases their flexibility, so HCST can change their schedules or tasks relatively quickly. Lastly, reducing lead time will allow HCST to reduce their work in process (WIP) inventory, identify bottlenecks more easily and greatly reduce their re-work costs. Reducing lead times goes hand-in-hand with each of the following benefits, which would allow HCST to not only improve itself as a company, but its relationship with its customers.