Riordan Manufacturing: Supply Chain Design
OPS/571
November 9, 2015

Riordan Manufacturing: Supply Chain Design:
Riordan Industries is a Fortune 1000 company founded by Dr. Riordan in 1991. Riordan is a global plastics manufacturer that employs 550 people. The company has projected annual earnings of $46 million and continues to be the industry leader for the electrical fan; accomplished by several factors outlined. The first is the benefits of the production strategy outlined by the flow diagram and performance evaluations. The second benefit is their supplier relationship that impacts the supply chain including location, performance, and improvement strategies by those suppliers. The third benefit is Riordan’s lean production principles that maximize the efficiency of the electric fan's supply chain process.
Riordan’s has a strong commitment to their future and focuses on this in their mission statement. The company must focus on maintaining reasonable profitability, which will help assure the necessary financial capital is available for continued growth ("Riordan Manufacturing," 2015). To meet this, they will need to continue to forecast from both the business perspective and sales. This management team has developed the aggregate production plan, master schedule, and materials requirement plans with emphasis on the inventory requirements of the fans components, finished goods, and the appropriate inventory system.
Riordan Manufacturing Strategy Riordan’s production planning strategy is a combination of chase and level. Forecasts are made based on a three-year average. Also, there are annual negotiations with customers when they provide their forecast to Riordan and negotiate price depending on the quantity they are projecting for the year. This allows Riordan to plan accordingly with supplies and labor for the year following the chase strategy planning for enough inventories to cover the demand. Yearly averages are not consistent so demand may rise, depending on the orders that come in. This is one of the downfalls of their annual reviews (SCM, 2015). Negotiations only cover an average Riordan also takes custom electric fan orders, and by doing so they may have an increasing need for supplies and labor depending on new orders that come in through the year. Below in Figure 1 an illustration of how the electric fan supply chain flows (Bing images, 2015)

Figure 1 Electric Fan Supply Chain Flow
There are eleven main inputs into receiving to manufacture the electric fan. This location is a joint venture between small consortiums of Chinese nationals. Riordan provided the capital, injection molding machinery, and expertise while the Chinese partners supply the labor, interfacing with the local vendors, governments, and regulatory agencies and provide capital. The process flow diagram above shows a close relationship with the plastic polymer supplier and the electric fan supplier. Both are local to Hangzhou China near Riordan’s manufacturing location. (eCampus, 2015).
Riordan does have a safety stock of plastic polymer for their plastic molding, but the electric motors they do not carry safety stock. Riordan relies on the supplier to hold excess stock for them. This leads to issues at times when the demand changes, this is seen by their 93% on time delivery and may be a problem in the future. To improve on-time delivery Riordan may want to hold safety stock of popular electric motors in the future to prevent lines down situations.
Metrics Evaluation Performance
On time delivery and defects are two metrics the company uses for evaluation of the electric supply chain. Time delivery is critical to meeting the customer’s request date (CRD). This is a metric all customers rate their suppliers on because delivery has to be on time to meet sales objectives. A defect in the fan is another metric that is critical for any supplier, the fan blades cannot hit the housing, the buttons have to work, and the motor has to be functional. These two metrics are how the customers will grade Riordan’s performance. In-line inspections and final outgoing test and inspections will be critical to prevent defective fans from shipping to the customers.
Supplier Relationship and Effects
To capitalize on the efficacy and productivity of the process (electric fan supply chain), lean production principles have been applied. The manufacturing location in Hangzhou uses local companies to supply the inputs to manufacture the electric fans. Riordan does not need to hold large quantities of stock because they work closely with their suppliers to ensure they have the right quantity on hand to keep the production line running. With the suppliers being close by they can quickly obtain supplies in case of an increase in demand. Riordan manufacturing uses Six Sigma, and quality is above ISO 9000 because of its leading-edge research and development of its manufacturing facility (Virtual Organizations Portal, 2015)
Riordan primarily forecasts using a quantitative process. Riordan takes the last three years of sales and averages it to estimate the next year forecast. This works well for an estimate is what is needed on a yearly basis, but the orders are not consistent for customers as they fluctuate weekly. Also, Riordan also accepts orders for custom fans. With the combination of custom fans and orders fluctuating qualitative forecasting has to be applied. In doing so, some safety stock is created of every fan to ensure demand can be met. Using the sales data provided for 2005 in the website, actual shipment quantity were determined by dividing the total sales invoice by the per unit price. The diagram below (Figure 2) illustrates a small increase in January, followed by a quick drop in February, then with a stable shipment quantity per month.

Figure 2 Total Fan Shipments
Looking at the invoices for 2005 a little closer (Figure 3), it is clearly visible that the cooling fans have approximately twice the demand as the desk fans. The data also shows that they follow a seasonal trend.

Figure 3 Grouped Total Fan Shipments
Looking at the quantity at hand of each fan type (Figure 4), it appears that Riordan holds approximately one month of inventory of the cooling fans and about two months of inventory for desk, personal, and window fans. Sum of Qty. on Hand 9/30/2005 | Description | Total | Cooling Fan 120mm | 7,200 | Cooling Fan 140mm | 7,200 | Cooling Fan 250mm | 7,200 | Cooling Fan 360mm | 7,200 | Cooling Fan 80mm | 7,200 | Cooling Fan 92mm | 7,200 | Desk Fan 100mm | 7,200 | Desk Fan 180mm | 7,200 | Desk Fan 300mm | 7,200 | Desk Fan 400mm | 7,200 | Personal Fan 25mm | 7,200 | Window Fan | 7,200 | Grand Total | 86,400 |

Figure 4 Quantities on Hand
Since three years of data was not provided, quantitatively use the shipment data from 2005 and qualitative add a ten percent increase. This increase can be justified by population increase and the average temperature increase caused by global warming. 2005 invoices totaled 819,792 fans, increasing next year’s forecast to 901,771 fans. Figure 5 below is the planned forecast by fan type and by projected month.
Figure 5 Next Year’s Forecast Using a linear regression model (Figure 6); will smooth out the monthly fluctuations giving a steady production rate. Using the raw data and the graph below the average run rate per month of the cooling fan would be approximately 51,348 and the combination of the desk, personal, window fan would have a run rage of 23,800 per month. This allows manufacturing to plan accordingly with material and labor.

Figure 6 Linear Regression Forecast
Aggregate Production Plan, Master Schedule, and Materials Requirement
The Aggregate Production Plan is a combination of the sales forecasts, workforce, and inventory and production levels. As seen above the sales forecast is consistent month to month. Therefore, their workforce, inventory and production levels will also be constant. Riordan has the extra capacity to handle the ten percent increase. Planning will need to adjust their ordering of supplies by ten percent along with a ten percent increase in labor (eCampus, 2015).
The master production schedule (MPS) will break down what exact fan model to make on a daily basis to make the projected forecast. Depending on manufacturing capabilities (plastic molding), might make one fan for a couple days and then switch to a different type of fan. A fixed-order quantity system is used as seen by the amount of inventory they hold of each fan, Riordan currently keeps approximately one month of cooling fans and two months of desk fans in inventory, these quantities will need to be increased by ten percent.
The materials requirement plan (MRP) is based on the MPS for fan production at Riordan’s Chinese facility. The MPS is for the finished product, the fans, and predicates the MRP. A well-reviewed production schedule based on input from all departments will balance conflicting objectives, efficiently use resources, and maintain inventory levels low (Soares & Vieira, 2009).
Conclusion
Riordan Manufacturing provides a great example for organization structure for the scenario. As one can see, this company leverages a combination of chase and level manufacturing strategy in its organization, which works well for how the company operates. Riordan also uses lean techniques to manage their inventory to lower levels by keeping in constant contact with suppliers to ensure a sufficient flow of inventory to prevent production challenges. By using a quantitative process to forecast overall sales using past performance as an indicator, Riordan can understand necessary materials for production although the fluctuation of sales does vary week to week due to market changes. Based on this quantitative reasoning, extrapolation of a sales forecast, aggregate production plan validates the process used by Riordan.

Reference https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/docs/Operations/RioProcOverChina.pdf). http://www.bing.com/images/search?q=riordan+manufacturing+supply+chain&id=F249E1691B 089CD33004B391D9CBC3C6E530FD9E&FORM=IQFRBA
Jacobs & Chase (2015). Operations and Supply Chain Management (13th ed). McGraw-Hill
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