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Answered: - Eastern gear Inc., in Philadelphia, Pa., is a manufacturer


Eastern gear Inc., in Philadelphia, Pa., is a manufacturer of custom made gears ranging in weight from a few ounces to over 50 pounds. The gears are made of different metals depending on the customer?s requirements. Over the past year 40 different types of steel and brass alloys have been used as raw materials.


Manufacturing Process

 


 

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Eastern Gear, Inc.

 

Eastern gear Inc., in Philadelphia, Pa., is a manufacturer of custom made gears

 

ranging in weight from a few ounces to over 50 pounds. The gears are made of

 

different metals depending on the customer?s requirements. Over the past year 40

 

different types of steel and brass alloys have been used as raw materials. See

 

Exhibit 1 for details.

 

Eastern gear sells its products primarily to engineering research and development

 

laboratories or very small manufacturers. As a result the number of gears in most

 

orders is small; rarely is exactly the same gear ordered more than once. The

 

distribution of order sizes for March 1998 is shown in Exhibit 2.

 

Recently the president of Eastern Gear decided to accept a few larger orders for 100

 

gears or more. Although lower prices were accepted on these orders, they helped

 

pay the overhead. It was found that the large orders caused many of the small orders

 

to wait for a long time before being processed. As a result some deliveries of small

 

orders were late.

 

Exhibit 1 - Raw Materials

 

Type of material

 

A

 

B

 

C

 

D

 

E

 

F

 

G

 

H

 

I

 

J

 

K

 

All others

 


 

1987 usage $(000)

 

36

 

10

 

15

 

43

 

110

 

18

 

32

 

75

 

40

 

60

 

30

 

53

 


 

Total

 


 

$522

 


 

Order Entry

 

When a customer wishes to order a gear, the order is taken by James Lord, sales

 

manager and marketing vice president. The customer specifies the type of gear

 

desired by submitting a blue print or sketch. The quantity of gears required and the

 

type of material are also specified by the customer. On occasion the customers

 

engineer will call up after the order has been placed and request a change in the

 

design. In these cases, it may be necessary to stop production and wait for new raw

 


 

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materials or for the design to be clarified. The customers prints submitted with the

 

order do not always contain the tolerances or finishes required during machining. As

 

a result the customer is contacted directly when the information is needed.

 

After the order is received, one copy is sent to the production supervisor, Joe Irvine,

 

and the second copy is sent to Sam Smith, the controller. Upon receipt of the

 

customers order, Mr Smith places a purchase order for the raw materials required.

 

These materials often take from 1 to 2 weeks to arrive, depending on the supplier

 

and the type of material ordered.

 

After receiving the customer order, the supervisor reviews the order and places it on

 

file until the raw material arrives. The customer order is then routed through the shop

 

along with the materials. In the past the production process for most gears has taken

 

about 2 weeks after receipt of raw materials. Recently this production time has

 

increased to 4 weeks.

 

Joe Irvine expressed concern about the bottlenecks which appear in the production

 

process. One week the bottleneck may be in one machine centre, and the next week

 

it is in another. These bottlenecks make it difficult to get the orders out on time.

 

Exhibit 2 - Sales, March 1998

 

Order Size

 

1

 

2

 

3

 

4

 

5

 

8

 

10

 

15

 

20

 

25

 

30

 

40

 

50

 

100

 

200

 

400

 

700

 

1000

 


 

Number of Orders

 

80

 

53

 

69

 

32

 

82

 

47

 

64

 

22

 

42

 

27

 

18

 

22

 

10

 

4

 

2

 

1

 

2

 

1

 


 

Total $ Value of Orders

 

3,200

 

4,250

 

8,163

 

4,800

 

16,392

 

15,987

 

26,871

 

13,172

 

31,555

 

23,682

 

21,600

 

32,000

 

18,693

 

12,500

 

14,068

 

9,652

 

35,600

 

20,000

 


 

578

 


 

$312,185

 


 

Physical Layout and Materials Flow

 

Eastern Gear utilizes a standard job-shop layout, as shown in Exhibit 3. Each work

 

centre has a common set of machines or processes. The materials flow from one

 

work centre to another, depending on the operations needed for a particular order.

 

A typical order will take the following path. First, the raw material, a gear blank, is

 

sent to the milling work centre. Here the teeth are cut into the edge of the gear

 

according to the customers specifications. Next the gear blanks are sent to the

 

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drilling works centre, where one or more holes may be drilled in the gear. The gear is

 

then sent to a grinding centre, where a finish is put on the gear teeth and the surface

 

of the gear. Next, the gear may be sent to heat treating if this operation is required by

 

the customer. After the batch of gears is completed, they are inspected by the next

 

available worker and shipped to the customer.

 

Exhibit 3 - Layout

 

Receiving Dock

 

Milling Machines

 


 

Heat Treating

 


 

Finishing and Grinding Centre

 


 

Tool Crib

 


 

Receiving and Raw

 

Materials Storage

 


 

Shipping &

 

Finished Goods

 

Storage

 


 

Lunch Room

 


 

Shipping

 

Dock

 


 

Drilling

 


 

In Exhibit 3, note how the machines are grouped by similar type on the shop floor.

 

For example all drills are located together in one work centre, and all milling

 

machines are in another work centre. While this layout facilitates development of

 

worker skills and training, it results in a jumbled flow of products through the shop.

 

There is constant interference of the orders being processed in the shop. The typical

 

order spends 90 percent of its time waiting in line for a machine to become available.

 

Only 10 percent of the time is actually spent processing the order on a machine. As a

 

result it takes a relatively long time (4 weeks) for an order to make its way through

 

the shop.

 

Large and small orders are processed together. No special work flow is utilised for

 

different order sizes. As a matter of fact large orders are helping to keep the shop at

 

full capacity.

 


 

Company Background

 

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Business has been booming at Eastern Gear. For the first two years the company

 

lost money, but over the last several months a small profit has been made. Sales are

 

up by 100 percent in the last quarter. See Exhibit 4 for more details.

 

Although sales are rapidly increasing, a recent market survey has indicated that

 

sales can be expanded even more in the next few years. According to the market

 

survey, sales will be $5 million in calendar year 1988 if the current delivery lead time

 

of 5 to 6 weeks is maintained. If total delivery lead time can be reduced to the former

 

3 to 4 weeks, sales could be expanded to $5.5 million instead of $5million.

 

Because of increased delivery lead times, the company has recently added an

 

expediter, Matt Williams. Each morning Matt reviews the work in progress in the shop

 

and selects those orders which appear to be behind schedule. Each order which is

 

behind receives a red tag, indicating that it should be treated on a rush basis. At the

 

present time about 20 percent of the orders have rush tags on them. Mr Williams also

 

spends his time looking for past-due raw materials and lost orders as well as

 

explaining late orders to customers.

 

Exhibit 4 - Financial Data

 

1985

 

Sales

 

560

 

Manufacturing

 

Costs

 

Materials

 

63

 

Labour

 

136

 

Overhead

 

70

 

Depreciation

 

172

 

Total

 

441

 

Manufacturing

 

Costs

 

Sales

 

70

 

Expenses

 

G&A

 

75

 

Expenses

 

Total Costs

 

586

 

Profit Before

 

(26)

 

tax

 


 

1986

 

1500

 


 

1987

 

3100

 


 

1988

 

1063

 


 

273

 

587

 

216

 

398

 

1474

 


 

522

 

1063

 

412

 

422

 

2419

 


 

214

 

327

 

140

 

150

 

831

 


 

130

 


 

263

 


 

80

 


 

110

 


 

297

 


 

93

 


 

1714

 

(214)

 


 

2979

 

121

 


 

1004

 

59

 


 

The organization chart for the company is shown in Exhibit 5. Roger Rhodes is the

 

president and founder of Eastern Gear. Mr Rhodes handles contacts with some of

 

the large customers, arranges the financing needed by the company and sits in on

 

the weekly production meeting. During these meetings, scheduling problems,

 

employee problems, and other production problems are discussed.

 

The company engineer is Sam Bartholomew. His responsibilities include design of

 

the company?s products, procurement and maintenance of equipment, and

 

overseeing of the supervisor, Joe Irvine. Mr Bartholomew who attends the weekly

 

production meetings, and he spends about ten hours a week on the factory floor

 

talking with individual workers.

 

The company is currently experiencing about a six percent return rate on completed

 

orders due to poor quality. In 75 percent of the cases the returned orders have failed

 


 

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to under go one or more operations or the operations have been improperly done.

 

For example in one returned order, all the gears were missing a hole.

 

Occasionally, the company will receive rush orders from its customers. In this case

 

the order is referred directly to Roger Rhodes for approval. If the order is accepted,

 

the raw materials are rush-ordered and received the next day. After receipt of the

 

raw materials, the order is rushed through production in 4 days. This is

 

accomplished by Fred Dirkson, a trusted employee, who hand-carries the rush orders

 

through all operations. About 10 percent of the orders are handled on a rush basis.

 

The work force consists of 50 employees who are highly skilled or semiskilled. The

 

milling machine operators, for example, are highly skilled and require at least 2 years

 

of vocational-technical training plus several months of on-the-job training. Within the

 

last quarter, 10 new employees have been added to the work force. The employees

 

are not unionized and good labour relations exist. The work force is managed using

 

a family-type approach.

 

Exhibit - 5

 

Organization chart

 


 

President

 

Roger Rhodes

 


 

Sales Manager

 

James Lord

 


 

Engineer

 

Sam Bartholomew

 


 

Expeditor

 

Matt Williams

 


 

Controller

 

Sam Smith

 


 

Foreman

 

Joe Irvine

 


 

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Analysis of the Case

 

What are the major problems facing Eastern Gear, based on the

 

information presented in the case? Describe the major problems. (200?400

 

words)

 

Present an analysis of the major problems that you identified. Discuss

 

possible solutions to the problems and their pros and cons. (200?400

 

words)

 


 

Recommendations

 

Make your recommendations to Easter Gear based on your analysis.

 

Justify (sell) your recommendations to Eastern Gear by discussing their

 

costs and benefits. (200?400 words)

 

Appendices

 

Include any additional supporting documentation here. If you did any

 

analysis in Excel, copy and paste your output as one of the Appendices.

 

what are the related characteristics of this manufacturing process type?

 


 

Analysis of the Case

 

What are the major problems facing Eastern Gear, based on the information

 

presented in the case? Describe the major problems. (200?400 words)

 

Eastern Gear, Inc. has faced a wide range of problems during its operations, the list of

 

difficulties found in the case are:

 

a. Lay out of the plant

 

b. Raw material delays

 

c. Waiting time is high (90%)

 

d. Lack of work flow

 

e. New employees are not trained (10)

 

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f. Change design layout

 

g. Limiting materials

 

h. Limiting order size

 

i. Lack of objectives

 

j. Inventory control

 

k.

 

of production due to a decision to take on larger orders. Some major deficiencies

 

outlined in this case are (In no particular order):

 

Lack of objectives in levels of operation ? Operations activities require a

 

clear set of goals and objectives. Without these objectives, employees do not

 

know what to focus on (cost, quality, delivery, etc).

 

Policies ? It is clear there are inadequate work instructions or order

 

prioritization methods in place. Order entry methods and lack of

 

communication (capacity flow/order adjustments) are two of the primary items

 

of focus.

 

Planning ? Taking larger orders has caused several smaller orders to become

 

delinquent. This has caused major concerns for decreased customer

 

satisfaction. In addition, the firm does not have a plan for potential increases

 

in sales and growth. Operations could be affected by capacity and cash flow

 

issues caused by the potential for rapid growth.

 

Inventory Controls and production ? Keeping little to no inventory in stock to

 

meet order demand. Hiring an expediter to manage the twenty percent or so of

 

red ticket (rush) orders is not the answer to the problem. Expediting in itself

 

should be the exception, not the rule. Due to the increase in orders, a wave of

 

increasing intensity falls upon the production lines which causes extended

 

lead times due to material shortages and bottlenecks. The company seems to

 

be lacking production and inventory control systems.

 

Quality ? ROI is insufficient currently for this company (only at approximately

 

six percent), mostly due to returned orders. The case study notes part are

 

returned due to missing secondary operations.

 

Organization Structure ? In Exhibit 5 it is clear there are no separations for

 

each function of the operations network. For example, the Engineer is

 

involved in too many additional activities which may cause his primary

 

function as product designer to suffer.

 

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Raw Material ? Raw material buffers are important to have in stock due to

 

possible fluctuations in material costs, lead times to get the material in house

 

for production, and quality. In some instances, long term agreements can be

 

beneficial for all parties considered.

 

Process Layout ? The current layout is not efficient. Travel time between

 

processes need to be streamlined to curtail irregular material flow.

 

Present an analysis of the major problems that you identified. Discuss possible

 

solutions to the problems and their pros and cons. (200?400 words)

 

The priority for this small company should be to establish policy, practices,

 

systems for scheduling, inventory management and quality controls.

 

Processes should be in place to maximize efficiency throughout the entire

 

operations system. This is where policy and procedure have a place in the firm (small

 

and large firms alike). Without a clear set of policies (work instructions, approval

 

matrix, objectives, goals, quality controls, etc.) employees will not know what is

 

expected of them and therefore, the business unit will not be efficient. The President

 

should head up the development of a one to five year plan to include financial

 

projections, plans for capacity and growth, marketing objectives, etc.

 

From the top down, one of the major issues seen within this case study is the

 

President?s decision to approve larger orders without regard for the current schedules

 

in production. This greatly applifies the existing manufacturing issues. These new,

 

larger orders affect the lead time of current scheduled deliveries. This would not be

 

an issue if the manufacturing layout were geared to the line flow process layout and

 

not a ?job shop? type of environment.

 

Quality should also be one of the first items to be addressed. The case study points

 

out that approximately 75 percent of returns are related to missing operations (work

 

instructions and a process sheet should be followed and steps checked off to correct

 

this issue). Quality controls should be implemented at each stage of production to

 

reduce the amount of product discrepancies.

 

Starting with existing orders, to avoid production delays, an inventory and

 

production control system should be established and kept current. This will minimize

 

lead times due to scheduling errors in production when new orders are taken. Before

 


 

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a new order is accepted, the system will take into consideration the factory load prior

 

to order acceptance. Rush orders should be processed through this scheduling system

 

as well.

 

Carrying a small amount of inventory (raw material) would decrease lead time to

 

delivery. In Exhibit 1, it would be in the company?s best interest to carry at least the

 

material which is used the most within the year. In exhibit 1, it would be Material E,

 

H and J (approximately 47 percent of the total used over 2011) and perhaps adding

 

items A, D, G, I and K as well, for this would increase the coverage ratio to 82

 

percent as indicated by the ABC principle.

 

The layout of the manufacturing floor is in desperate need of re-design. One

 

possible way to improve the flow is to switch the Heat treating and Drilling stations to

 

minimize travel time between processes. Another possibility is to establish a

 

manufacturing cell with a line flow layout to handle the larger orders as necessary.

 

Recommendations

 

Make your recommendations to Eastern Gear based on your analysis. Justify (sell)

 

your recommendations to Eastern Gear by discussing their costs and benefits.

 

(200?400 words)

 

The following are recommendations based on analysis of internal and external

 

opportunities for improving work flow, streamlining processes, bridging silos within

 

the organization, creating a clear set of objectives (quality, lead time, production,

 

ROI and scheduling).

 

These suggestions should reduce lead time back to 3-4 weeks/5 days on ?rush? orders,

 

quality should improve by policy and process by implementing controls to reduce

 

returns from the current 6 percent to approximately 1.5 percent of sales. Sales should

 

increase to approximately $5+ million and profitability and cash flows increased.

 

Develop a one to five year business plan ? Setting goals and objectives for the

 

firm is priority. Finance, marketing, quality and production objectives should

 

be set in advance and achievements celebrated/rewarded.

 

Establish policy and procedures and flow down to each department ? Policy

 

will ensure consistency across the operations platform and the processes

 


 

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which stem from policy will be executed and enforced so that each employee is

 

aware of expectations and follow through with company procedures.

 

Inventory management system ? Carry a percentage of the top materials

 

driving to ensure a decrease in lead time and delivery to customer.

 

Implement a line flow process layout to deal with larger orders ? Line flow

 

process layout is the best choice for larger orders and increased capacity over

 

time due to growth.

 

Production scheduling system ? A scheduling system will decrease the

 

production rifts in lead time and bottlenecks caused by processing new larger

 

orders.

 

Appendices

 

Include any additional supporting documentation here. If you did any analysis in

 

Excel, copy and paste your output as one of the Appendices.

 


 

References

 

Schroeder, R. G., Goldstein, S. M., & Rungtusanatham, M. J. (2013). Case Study Eastern Gear, Inc. In Operations management in the supply chain: Decisions and

 

cases (pp. 450-452).

 


 

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