Holmgren Engineering - Case Study Example

Holmgren Engineering Executive Summary The aim of operations management is to create a competitive advantage to the company. It must manage the production of quality goods in an efficient manner in order to be cost effective. It must reduce development times so that new products can be brought to the market quickly. It must simplify operations in order to achieve economies of scale and guarantee high quality products. In order to realise the goals, operations management employs three generic strategies, namely, product, process and lay-out strategies. This paper examines a business case about Holmgren Engineering. The company manufactures water storage products with pressure heating systems. The product range of the firms comprises of five models that has low variation in design such as the storage capacity and dimensions. The company employs a current process of batching production orders in a layout that is jumbled and disarranged. The production engineering head has made a proposal to the top management to change the process into a one-piece flow approach, redesign the facilities layout into a U-shaped assembly line, and transform the orientation into a make-to-order process. The benefits of the proposed changes will make the company achieve its goal of cost advantage, process simplification and inventory management. Also, the implementation of the changes will free up space in the shop floor which would create an opportunity for the company to extend the product line or expand the capacity of the production. Introduction Holmgren Engineering is a manufacturing company with core competencies in developing, manufacturing, and selling of water storage systems that include main pressure heating system. The products are marketed and sold under Hetvatten Plus trademark. The product range includes five models with different storage capacities, dimensions and dwelling type usage. Holmgren Engineering has evolved from a humble heating engineering firm, started by its founder Benny Holmgren, into a full service manufacturing company under the umbrella of Karlsson Invest conglomerate. The current CEO is John Svensson. Peter Wiklund is the production engineering head who made proposals and recommendations for changes in the current operations process. This report will initially examine the current operations process used by Holmgren Engineering. The key features of the current process will be discussed and evaluated according to their advantages and disadvantages. It will then examine the key changes of the proposal made by Wiklund. His proposal is the re-engineering of the process which would create a U-shaped production layout employing a one-piece flow orientation. Introduction of make-to-order approach was recommended by Wiklund alongside the new process. The costs on new investments and benefits that the company will gain from the proposal will be analysed. Several factors are identified that would be carefully managed in order to successfully implement the changes and will be discussed in the latter part of the report. Conclusions and recommendations in the last part will summarise the report in a nutshell. Discussion/Analysis of Case Questions 1. Examine the current operations process used by Holmgren Engineering. Explain the key features of this way of making products. The current process of producing boilers in Holmgren Engineering is called batch process. Batching is the approach of producing goods in groups or lots of similar products made on the same equipment. Batching method is efficient for medium volume products with medium variability. The method utilises specialised equipment and skilled people. Holmgren Engineering's products, which have small deviation in designs of five models and medium amount of demand, more fit the requirements of the batching process. The operations process involves four principal sub-assemblies of copper body, top tank, galvanised casing and the electrical unit. These sub-assemblies are produced in various tasks, systems and equipments. They all come together at the assembly stage for the full and complete product. Currently, the order quantity per batch is five units. The batch size moves through the different processes. The batch process in the facility involves completion of different tasks required for the assembly before the order quantity is moved to the next stage. The facility makes five products for a certain time, and then switches to another batch, thus giving higher utilisation. Operations are often more efficient with batch sizes. Batch processes reduce set-up time and costs. It also minimizes disruptions of work. However, if demand is smaller, the big batches are held in stocks for a long time. Typically, this type of process are make-to-stock (MTS), which make the product according to plans and schedule, and then keep it in stock until needed. Operators work on several areas or walk about in order to address areas that need attention. Production delays happen especially when preceding stage is longer and hold up products. Furthermore, the current layout of the plant in the batch process does not follow a standard process flow. It creates a jumbled flow which makes scheduling difficult and only a batch process is workable in the current layout. 2. Explain the key changes that enable the proposed method of production (one piece flow) to work The proposed method of production is considered as assembly line process. Assembly line process is a method of producing products along a process oriented flow. People on the line did a simple, specialised job repeatedly in order to guarantee high throughput of products. The key changes of the assembly line process involve redesigning the process flow into a U-shaped layout, utilising a one-piece flow instead of the batch size of five units and introducing make-to-order approach in production plans. The new layout arranges the physical equipments, resources and facilities in order to make the operations run as smoothly and efficiently as possible. Since the process flow will be standardised in the assembly line, it can utilise rollers for easy transport of single boilers and would make a continuous production flow feasible unit per unit simultaneously. The sub-assembly components will be made outside the main line and will be added to the part on the main line. Operators will be assigned specific tasks and would repeatedly do the job for the day in order to improve productivity. The U-shaped layout would grant operators to maintain eye contact and have a better view of the process. The proposed method of production would initiate and set into motion the make-to-order (MTO) production approach. This approach is dependent on the customer orders and forecasted demands of the market. MTO will eliminate the current MTS approach. Also, the proposed approach will employ the Just-In-Time process for raw material suppliers and component materials. 3. Evaluate the benefits of these proposed changes and highlight the principal gains to be made. Part of this analysis should be a summary of the investment needed for the change and the cost reductions expected. You may make reasonable assumptions about costs where specific data is not provided. Several benefits will be realised when employing the assembly line process with one-piece flow approach and make-to-order orientation. The principal gains of the Holmgren Engineering upon implementation of changes in operations would be reduction of manpower costs, lower inventory costs, and lower unit cost of the product. Reduction of labour content will be achieved due to smaller working area. Set-up times will be eliminated due to acquisition of additional equipments. Elimination of tool changes will reduce the tooling cost by SKr 36,000. Raw material inventory will be controlled at a steady level. Work-in-process inventory will be reduced by SKr 36,000. The make-to-order approach will reduce the finish goods inventory from SKr 10,500,000 or 1750 units to SKr 1,800,000 or 300 units. The floor space utilised will be reduced by 50% thus providing opportunities for new production line. The distance travelled by a product will be reduced from 112 meters to 65 meters. On the other hand, this process change proposed will entail high capital cost and expenditures for specialised equipments. Investment in twelve additional equipments will total up to SKr 147,600. Additional costs in installation and training of personnel will also be considered as well as the costs for the two-man lifting operations on rollers. 4. What factors would need to be carefully managed to ensure a successful implementation of these proposals Holmgren would need to manage and complete several requirements before the implementation of the one-piece flow production. The company must remove changeover time on punches, estimate the need for the two-man lifting operations, and develop a U-shaped manufacturing layout. Physical arrangements of equipments such as tooling and materials must be positioned near the relevant operations. They must balance the line capacity, encourage team-working, and establish new standard work methods. A different management style, performance targeting and a new payment system will encourage teamwork. The production engineering must also consider the reduction or elimination of delay in spray painting, elimination of final water test, and control dust emissions from the rockwool insulation operation. Conclusions To sum it up, the current operations process of producing water storage products does not optimise the capacity of the facility as well as not minimise the overall cost of producing goods. The functional goal of operations management is maximising the throughput and minimising the expenditures of manufacturing in order to create a competitive advantage for the Holmgren Engineering. The company needs to improve their production process in order to be cost effective. The benefits of the proposed changes of creating a U-shaped layout, introducing a make-to-order approach and implementing a one-piece flow assembly line clearly outweigh the costs of executing the changes. Recommendations This paper recommends the implementation of the proposed changes. The savings on the floor space would create an opportunity for expansion. The reduction of costs will make the company cost effective. The redesign of the layout into a U-shaped, one-piece flow assembly line and the execution of make-to-order approach is feasible, applicable and greatly advantageous to the company. References Hill, T. (2005). Operations Management (2nd ed.). Palgrave Macmillan. Waters, D. (2002). Operations Management: Producing Goods and Services. New Jersey: Prentice Hall. Read More