Question: Harvey Industries Case Study: Critically analyse the situation at Harvey Industries with a view to supporting a recommendation for an improved inventory management and assembly planning solution.

15 Oct 2022,1:23 AM

 

Inventory and Operations Management (IOM) - Harvey Industries Case Study

Harvey Industries, a Wisconsin company, specializes in the assembly of high-pressure washer systems and in the sale of repair parts for these systems. The products range from small portable high-pressure washers to large industrial installations for snow removal from vehicles stored outdoors during the winter months. Typical uses for high-pressure water cleaning include: Automobiles Airplanes, Building maintenance Barns, Engines Ice cream plants, Lift trucks, Machinery, and Swimming pools.

 

Industrial customers include General Motors, Ford, Chrysler, Delta Airlines, United Parcel Service, and Shell Oil Company. Although the industrial applications are a significant part of its sales, Harvey Industries is primarily an assembler of equipment for coin operated self-service car wash systems. The assembly process’s short-term planning is conducted on random received order basis in which the sales team might ask the production department for taking new urgent orders with very short notice. Thus, the assembly team works under unstable and fluctuated environment. The employment level hereby consists of 28 skilled full-time workers, with a productivity rate of 50 unit/worker/month. The production related costs are shown in Table 1.

 

Table 1. Production related costs

 

Aspect	Cost
Regular	5
Overtime	7.5
Layoff	400
Hiring	300
Inventory	1
Back order	6
Part-time	NA
Subcontract	NA

 

The typical car wash is of concrete block construction with an equipment room in the centre, flanked on either side by a number of bays. The cars are driven into the bays where the owner can wash and wax the car, utilizing high-pressure hot water and liquid wax. A dollar bill changer is available to provide change for the use of the equipment and the purchase of various products from dispensers. The products include towels, tyre cleaner, and upholstery cleaner.

 

In recent years Harvey Industries has been in financial difficulty. The company has lost money for three of the last four years, with the last year’s loss being $17,174 on sales of $1,238,674. Inventory

 

levels have been steadily increasing to their present levels of $124,324. The company employs 23 people with the management team consisting of the following key employees: president, sales manager, manufacturing manager, controller, and purchasing manager.

 

Current Inventory Control System

The current inventory control “system” consists of orders for stock replenishment being made by the stockroom foreman, the purchasing manager, or the manufacturing manager whenever one of them notices that the inventory is low. An order for replenishment of inventory is also placed whenever someone (either a customer or an employee in the assembly area) wants an item and it is not in stock.

 

Some inventory is needed for the assembly of the high-pressure equipment for the car wash and industrial applications. The material needs to support the assembly schedule are generally known well in advance of the build schedule. The majority of inventory transactions are for repair parts and for supplies used by the car washes, such as paper towels, detergent, and wax concentrate. It costs the purchasing team 40 USD to place an order and 25% of the part’s purchasing cost to store it in the warehouse. For instance, the company uses 2400 high pressure gun hook per quarter that are sourced from two vendors: Vendor X that sells the part for 14 USD if your order size is between 1 and 199 parts and offers 1.014% discount per part if you order 200-499 parts, and 1.029% discount per part if you order 500 or more; Vendor Y sells the part for 14.1 USD if you order 1-149, 1.0144% discount per part if you order 150-349 parts and 1.0292% discount per part if you order 350 or more. However, lead time is normally distributed for both vendors with a mean of three weeks subject to a standard deviation of two weeks.

 

The stockroom is well organized, with parts stored in locations according to each vendor. The number of vendors is relatively limited, with each vendor generally supplying many different parts. For example, the repair parts from Allen Bradley, a manufacturer of electrical motors, are stocked in the same location. These repair parts will be used to provide service for the many electrical motors that are part of the high-pressure pump and motor assembly used by all of the car washes. Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom—a stockroom foreman who reports to the manufacturing manager and an assistant to the foreman. One of these two employees will handle customer orders. Many customers stop by and order the parts and supplies they need. Telephone orders are also received and are shipped by United Parcel Service the same day.

 

The assembly area has some inventory stored on the shop floor. This inventory consists of various high and low-value items that are used every day, such as engine parts, nuts, screws, raw plastic, and washers. These purchased items are randomly presented in store throughout the year.

 

Unfortunately, oftentimes the assembly area is out of one of these basic items and this causes a significant amount of downtime for the assembly lines. Paperwork is kept to a minimum. A sales slip listing the part numbers and quantities sold to a customer is generally made out for each sale. If the assembly department needs items that are not stocked on the assembly floor, someone from that department will enter the stockroom and withdraw the necessary material. There is no paperwork made out for the items needed on the assembly floor.

 

Recently, the store team conducted an analysis of critical parts quantity fluctuations. This indicated parts in the store with no sale in the previous year. Also, the analysis revealed that some products whose assembled quantity was higher than the sold one, leaving a large amount of inventory in store. The team also noticed that the inventory level for some parts was too high compared to their monthly sales as safety stock. Finally, the inventory level for a critical part was found dropping down to 0. It is worthy to mention that the inventory level is not planned on according to the sales planning.

 

There were 973 different part numbers purchased for stock last year and those purchases amounted to $314,673. An analysis of inventory records shows that $220,684 was spent on just 179 of the part numbers. Fortunately for Harvey Industries, most of the items they purchase are stocked by either the manufacturer or by a wholesaler. When it is discovered that the company is out of stock on an item, it generally takes only two or three days to replenish the stock.

 

Due to the company’s recent losses, its auditing firm became concerned about the company’s ability to continue in business. Its inventory turnover is lower compare to its competitors. Recently the company sold off excess vacant land adjoining its manufacturing facility to generate cash to meet its financial obligations.

 

Task

The company has approached you as a consultant to prepare a report with recommendations on how to improve its inventory management and assembly process planning that were raised as the root cause. The total word count for this group report is STRICTLY limited to 1500 (± 10%). As the audience would be a business, the report must be concisely written. The main body of the report should cover the following questions:

 

Q1. Critically analyse the situation at Harvey Industries with a view to supporting a recommendation for an improved inventory management and assembly planning solution. (15 marks)

 

Q2. What would you recommend to Harvey Industries to elevate its inventory management efficiency? This might include aspects such as, but not limited to, inventory control, procedures and software, cycle stock and safety stock, service level, lead time, and operation/maintenance costs. Support your solution with a diagram to show identified effects/causes and the proposed solutions. Your recommendations should clearly demonstrate how they would work in practice. (20 marks)

 

Q3. Discuss the advantages/disadvantages of recommending (1) enhanced forecasting; and (2) a higher inventory level. (10 marks)

 

Q4. How would guide the production manager to have a more robust assembly short-term planning and control process that would help in overcoming longer lead time and reduce the possible turbulence in the assembly process? (15 marks)

 

Q5 to Q7 are calculation-based questions. In answering these questions, write down all the equations and identify input parameters used for calculation and where appropriate please include carefully labelled figures and tables. Ensure each equation, figure and table is numbered, has a meaningful heading and that all axes are clearly labelled. Note that there is no word count questions 5-7.

 

Q5. The purchasing manager is seeking to keep single sourcing for the high-pressure gun hook.

1. Which of the two vendors would you recommend him to keep and in what order size? Justify your (10 marks)
2. At what point (ROP) the purchasing team should reorder, targeting a service level of 95%? (5 marks)

 

Q6. The case company plans to rebalance the assembly line for one of the units towards higher productivity. Figure 1 shows the precedence diagram for its assembly tasks (times are in minutes).

 

The aggregate planner specifies a production target of 40 units per full day; however, the assembly line would work for only 9.333333 hours per day.

Figure 1. Precedence diagram for the considered unit.

 

 

Your role hereby is to recommend the optimal number of workstations and associated tasks for each workstation towards efficient utilization of resources. You may primarily use the most following rule and, if needed, use the greatest positional weight as a tiebreaker. (10 marks)

 

Q7. The production team has received orders (in units) for the next six months for two sizes of car wash systems as show in Table 2.

 

Table 2. Orders related to Sizes 1 & 2 of a unit for the next six months.

 

	Feb	Mar	Apr	May	June	July
Size 1	1,000	900	600	700	1,100	1,100
Size 2	500	500	300	500	400	600

 

1. Would you advise the aggregate planner to develop one plan, instead of two, for these two sizes of units? If so, when this might be possible? Clarify your answer verbally without (5 marks)
2. Towards a better usage of the skilled workers, the production manager aims to have a stable maximum output The team has exhausted all inventory on hand by the end of January; but, the production manager would prefer to have 300 unit on hand at the end of July. Develop a unified (i.e., just one) level production plan for the two sizes of that unit, that shows the total plan costs, based on the forecast presented in Table 2. It should be noted that a maximum space of 200 units/month as back orders is available. (10 Marks)