Reducing costs and supply chain risk at Riordan Manufacturing

Business Problem -- Riordan Manufacturing Production Plan

Riordan's production and supply-chain distribution processes are currently subject to several variables that unnecessarily increase costs. There are also risks in relation to its ability to meet customer demand that have not been reasonably mitigated, at least not as much as they could be through common sense changes to their production and supply processes. Riordan seems to be relying on projections and decisions made by customers in areas where its customers do not face the same consequences for misjudgment; naturally, Riordan should be responsible for those analyses instead of customers.

It also seems that Riordan is stocking materials that need not necessarily be stocked; conversely, Riordan seems to be relying on supply chain variables outside of its ability to control for materials or part components that could be stocked to eliminate the risks of losses associated with variables outside of Riordan's control in relation to those materials or part components. Finally, that particular problem may be inflating Riordan's shipping costs above what it would be but for the issue of relying on variables outside of Riordan's ability to control.

Strategic Capacity Planning and Lean Production in Process Design

Electric Motors

Currently, Riordan is dependent on the reliability of the Chinese company producing the electric fan motors. If their on-time deliveries average only 93%, that means that Riordan is potentially risking as much as 7% of their annual revenue as a result. If there is no other way to ensure that production and fulfillment on the finished product distribution end is never jeopardized by motor shortages, Riordan must always stock the electric motors and maintain sufficient inventory to continue production without being affected adversely by any such shortages on the component part supply side.

Projecting Future Consumer Demand

Riordan's production schedules are currently determined by its customers' estimates of future demand based on their forecasted sales as computed by extrapolating the average of their sales for the previous three years. However, there are too many extraneous potential variables with respect to the sales reports of Riordan's customers. It is very likely that the much more relevant and predictive variable for the sales of Riordan's fans by its wholesale customers to retail customers is simply the weather forecast.

Sales of fans, coolers, and air-conditioners undoubtedly go up during periods of excessive heat and low barometric pressure: the hotter and longer the summer climate, the greater the sales of fans are likely to be, largely irrespective of any other variables particular to specific sellers. Riordan should implement meteorological analysis to establish minimum production requirements and, perhaps, also adjust it price by adding a surcharge where customers order less stock than Riordan anticipates will be necessary based on meteorological forecasting.

Material and Component Part Stocking Policies and Procedures

Currently, Riordan appears to maintain warehouse policies and procedures that are precisely opposite those that would be optimally beneficial. Specifically, Riordan stocks the polymer material despite the fact that the material is obtained locally and poses no risk of unavailability or delivery problems. Conversely, it, does not stock the electric motors even though their availability is both crucial to Riordan's production and supply chain and also subject to predictable shortages of as much as 7%. Naturally, the solution would be to stock the electric motors instead of the polymer based on their respective availability.

Conclusion

Riordan seems to have several specific production and supply chain problems that unnecessarily pose a risk to its revenue. It cannot allow unreliability on the part of its component part suppliers to jeopardize its production cycle. Instead of stocking raw material that is readily available, Riordan should stock component parts that are subject to disruption in their supply. Riordan should rely more on variables that are directly and simply related to retail sales instead of on variables that are both less directly related to sales and more complex to analyze; it should also promote that approach among its customers. To the extent they buy in to that concept, Riordan may also be able to reduce shipping costs by moving up its annual fan production cycle.

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