Riordan Manufacturing: Supply Chain Design Paper

Riordan Manufacturing, a leading global manufacturer of plastic containers, parts, and fan parts, is wholly owned by Riordan Industries, Inc. Riordan’s fan manufacturing plant was purchased in 1992 when it was located in Michigan. In 2000, the company moved its fan manufacturing operation to China where it now resides.

Riordan schedules manufacturing of fan parts based on forecasted production needs using an averaged three year sales history. Riordan’s make-to-stock system benefits customers who need products quickly with orders filled from inventory when received. Riordan employs a robust shipping department including a variety of reliable shipping solutions from the plant in China to worldwide customers. Riordan Manufacturing’s electric fan production plant is continually analyzing its strategies. Process flows, performance metrics, supplier relationships and supply chain efficiencies, lean production principles, and sales forecasting are essential to the success of Riordan. The company uses reports and plans for material acquisition, production, and scheduling in its manufacturing facilities.

Riordan’s Manufacturing Strategy

Riordan’s manufacturing strategy is a stable workforce for two reasons; first, “it schedules production of fans to meet the forecasted sales” and the forecast is calculated by “taking the average of sales for the last three years and extrapolating it into the next year” (Riordan Mgf. Operations – Supply Chain (Hangzhou, China), 2014). Second, according to the Riordan’s Employee Turnover Report 2009-2012, the actual percentage of involuntary separations has decreased from 3.4% in 2009 to 2.0% in 2012. This marginal decrease in involuntary turnovers indicates Riordan is maintaining a stable workforce. Riordan benefits from this strategy because “this strategy provides workforce continuity and avoids many of the emotional and tangible costs of hiring and firing associated with the chase strategy” (Chase & Jacobs, 2011).

Process Flow Diagrams

Diagram 1. Electric Fan Supply Chain Flow

Diagram 2. Process Flow Diagram for the Electric Fan Supply Chain: United States R & D Facility to Chinese Plant

Performance Metrics

Two metrics utilized to evaluate the performance of the supply chain are the cash conversion cycle (CCC) and direct material received on time. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted to cash through customer sales (Cash Conversion Cycle (CCC) Definition | Investopedia, 2014). The direct materials received on time for the delivery of the plants plastic polymers was selected because of its impact to Riordan’s product delivery to customers. Diagram 1 indicates Riordan’s efficient supply chain operation which identifies logistical steps and potential bottlenecks in the process. Riordan also uses Post Project Review to identify positive and negative trends in their processes. Riordan uses data from manufacturing operations to identify system inefficiencies to implement change and increase effectiveness.

Supplier Relationship and the Effects on the Supply Chain

The two major inputs needed to manufacture the Riordan electric fan are electric fan motors and high-density polyethylene plastic pellets (HDPE). The electric motors are completely assembled units purchased by buyers in the China Plant’s purchasing department from a local Chinese company, Yin Motor Company located in Zhejiang, China. The buyers also purchase the Plant’s requirements for plastic polymers locally (Riordan Mgf. Operations – Supply Chain (Hangzhou, China), 2014). No other information regarding the suppliers of the HDPE pellet could be found on the Riordan Manufacturing website. Riordan has identified three potential supplier concerns that could hinder the supply chain. First, a fax sent from Robert Lord to Mark Neitzel indicated that they have “been trying to get alternative sources since the beginning, but our partners here have some business or family relationship with Yin and while they say they are looking for another supplier, nothing is really happening” (Fax Sent From Robert Lord To Mark Neitzel, 2014).

Second, an article that accompanying the fax indicated 400 laborers at the Yin Motor Company are on strike. This strike could possibly affect the financial stability of the Yin Motor Company. Third, “while this company attempts to maintain adequate quantities of electric motors in stock to meet all its order requirements, its on-time deliveries over the past year have averaged only 93%” (Riordan Mgf. Operations – Supply Chain (Hangzhou, China), 2014). To address these concerns, Riordan should negotiate with its Chinese partners to obtain rights to directly work with suppliers. It can do this by insuring its Chinese partners they will maintain the relationship between the Chinese plant and the Yin Motor Company. Riordan then can work directly with the Yin Motor Company to improve their labor situation and increase their on-time deliveries. This strategy will increase Riordan’s supply chain strength.

Lean Production Principles

To maximize the efficiency and effectiveness at Riordan, a make-to-stock process is used. Filling customer orders as received from finished goods inventory and maintaining a small inventory on hand reduces gaps in seasonal fluctuations at Riordan. Forging a strong alliance with Chinese supply chain partners will increase quality and volume of the products.

Riordan’s Forecasting Technique

Considering the global demand for Riordan’s electric fans, a strategic medium-term sales forecast for the next four quarters (12 months) is used. This facilitates aggregate planning and production scheduling in anticipation of customer demand and product positioning at decoupling points along its global supply chain. Although Riordan uses 3-year average sales data to forecast, only 2005 (one-year) sales invoices were available. A linear regression with trend decomposition technique was used. This is based on the intended time horizon (12 months) and 12 months of sales data. Figure 1 plots the average electric fan sales by quarter for 2005. The figure revealed both linear and seasonal trends and justifies the decision to provide a medium-term forecast, as this allows capturing seasonal effects which are useful in identifying major turning points. The seasonal factor for each quarter was calculated using 2005 sales data.

Figure 1. Average Units of Electric Fans Sold by Quarter of 2005

Sales Forecast
Electric fan sales are driven by dependent demand of the products, and sale of appliances are influenced by housing market strength. According To Riordan’s economic forecast, the data and forecasts related to mortgage rates and housing starts is positive in the near term, suggesting that the demand for electric fans will continue to be strong (Riordan’s Economy Outlook, 2006). Therefore, a 10% increase in sales forecast for 2006 is reasonable. However, our forecast indicates a decrease in sales for 2006.

Table 1. 2006 Sales Forecast for Electric Fans
2005

Average Units Sold Based on Actual Data
Deseasonalized Linear Regression Average Sales Figures
Seasonal Factor Based on Actual Data
Modified Seasonal Factor
Seasonalized Forecasted Average Sales Figures
Q1, 2005
69360
68669
1.015281925
1.010065707

Q2, 2005
67488
68434
0.987879852
0.986182226

Q3, 2005
68016
68198
0.995608642
0.99732545

Q4, 2005
68400
67963
1.00122958
1.006427008

Forecasted for 2006
Q1, 2006

67728

1.010065707
68410
Q2, 2006

67493

0.986182226
66560
Q3, 2006

67258

0.99732545
67078
Q4, 2006

67022

1.006427008
67453
Total

269501

269501
(Except for the Seasonal Factor, all data represents units of product sold)

Figure 2. Sales Forecast for Electric Fans for 2006

(Data for 2005 is based on Average Units Sold Based on Actual Data and data for 2006 is based on Seasonalized Forecasted Average Sales Figures)

Aggregate Production Plan, Master Schedule, and Materials Requirement plans Riordan’s Aggregate Production Plan is based on the company’s sales forecast, its production levels, workforce, and inventory. Because Riordan employs at stable workforce strategy, the company will enjoy a continual workforce compatible with its production plan. The quarter-end 9/30/2005 inventory level is used to forecast the additional production necessary to meet 2006 sales goals. According to Riordan, a ten percent increase in forecasted sales of electric fans is not overwhelming and will not affect its existing production strategies. The inventory on hand at 9/30/2005 is 86,400 fans, or 126% of the projected first quarter 2006 production levels. Because Riordan has employed this cushion, it will easily maintain a viable aggregate production plan with minor adjustments to its 2005 plan.

The master production schedule (MPS) at Riordan determines what parts will be needed on a weekly basis to meet the quarterly projected needs. Because Riordan uses a make-to-stock system, they are easily able to satisfy customer demand without production delays. A fixed-order quantity inventory method is used with an automated system to order parts when inventory levels drop to a determined level. A flexible time fence is utilized, as capacity remains unremarkable, and the majority of Riordan’s suppliers are reliable and do not cause significant delivery delays. 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’s fan manufacturing organization has a supply chain process which could be enhanced with strengthened supplier relationships and improved supply chain management. Assessing their lean production and performance metrics could benefit Riordan. Attributes that benefit the company and its customers include a strict quality control system, solutions that are innovative, and a business attitude that is responsive to dynamic customer needs. Competitive pricing and reliable product delivery times are qualities that Riordan’s customers expect and why Riordan retains loyal customers.

References:

Cash Conversion Cycle (CCC) Definition | Investopedia. (2014, January 9). Retrieved from Investopedia – Educating the world about finance: http://www.investopedia.com/terms/c/cashconversioncycle.asp Chase, R. B., & Jacobs, F. R. (2011). Operations and Supply Chain Management, 13e. Boston: McGraw-Hill Irwin. Fax Sent From Robert Lord To Mark Neitzel. (2014, January 10). Retrieved from Riordan Mfg.: Home: https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/docs/Operations/RioChinaFax001a.pdf https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/docs/HR/RiordanEmpTurnoverSur2012.pdf. (2014, January 9). Retrieved from Riordan Mfg.: Home: https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/docs/HR/RiordanEmpTurnoverSur2012.pdf Riordan Mgf. Operations – Supply Chain (Hangzhou, China). (2014, January 9). Retrieved from Riordan Mfg.: Home: https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/Ops/SupplyChain.asp?hangzhou Soares, M & Vieira, G. A new multi-objective optimization method for master production scheduling based on genetic algorithm. (June 2009). International Journal of Advanced Manufacturing Technology, 41(5/6). Retrieved January 4, 2014 from EBSCOhost database.