Whats facing Sunwinds managing director Lars Olov Larsson are the following problems: - How to tackle the capacity and quality problems? - Should the company implement JIT delivery? - How to work with Volvo to implement JI
Sunwind AB Just-in-Time Process
Case Study
I. Sunwind AB Background
In the end of 1985, Sunwind AB was one of the six companies of Swedish Perstorp Component AB, which produced wood, wood fibre and plastic moulded components for the automotive and engineering industries. Sunwind, with headquarter at Save, manufactured a line of interior trim primarily for Volvo. It was the only supplier of the floor lid for Volvo's 700 series station wagon, which represented about 21% of the Volvo's total 700 series production in 1985 and would be 37% in 1986.
In the fiscal year 1985, Sunwind's sales revenue was 102 millions of Perstorp Component AB's total revenue of 521 millions SKR. Its two manufacturing sites in Save and Hogsater would have a capacity issue to meet Volvo's demand for 700 series wagon floor lids under current manufacturing process. What's facing Sunwind's managing director Lars Olov Larsson are the following problems:
- How to tackle the capacity and quality problems?
- Should the company implement JIT delivery?
- How to work with Volvo to implement JIT delivery if that's the right thing to do?
II. Sunwind AB Problem
Sunwind AB grew revenue about 77% from 1984 to 1985 but only increased EBITDA (earnings before interest, taxes, depreciation and amortization) by 17%. EBITDA as a percent of revenue dropped in the same period from 5.8% in 1984 to 3.9% in 1985. More troubling is the fall from 10.9% EBITDA in 1983 of just over 9 million skr.
Income Statements (Summary) (Skr 000)
9/1/84 to 8/31/85
9/1/83 to 8/31/84
9/1/82 to 8/31/83
Sales
02,092
57,693
84,783
Less: Manufacturing, selling and administrative expenses
98,136
54,321
75,696
Operating earnings before depreciation
3,956
3,372
9,087
Less: Depreciation
2,125
,266
,806
Interest Expense
,347
785
,327
484
,321
5,954
Plus: Interest and nonoperating income
290
362
762
Net earnings before tax and allocations
774
,683
6,716
There are undoubtedly many contributors to the drop off in profitability such as rise in materials costs and other common business challenges, but a significant portion of the business expense increases seem tied to inefficiencies at Sunwind as the company attempts to grow revenue on a new product such as Volvo's 700 series floor lids. Such increases without sufficient planning lead to extra material costs, expedite fees from suppliers, cost of poor quality, and other inefficiencies. One specific cost detailed in the case history is the cost of material on hand. At the end of 1985 fiscal year, Sunwind carried inventory valued at approximately 4.32 million skr. The challenge is to describe how a JIT manufacturing relationship between Sunwind and Volvo will increase profitability at Sunwind while also answering the challenge from Volvo for price reductions and better service from their supply base.
III. Assumptions
There are a number of given pieces of information to build an understanding of what current state at Sunwind is. Below is a table showing data about both the Säve and Högsäter facilities:
Sunwind
Högsäter
Säve
Factory size
0,000 square meters
,800 square meters
Employees
50
75
Distance from Torslanda
30 km
8 km
Utilized facility capacity
75%
Not stated. assumed 100% from information
Production workers on the floor lid line
26
Additionally, when looking closely at the Säve site's layout and production throughput in each operation, one can quickly see why Sunwind experienced difficulties meeting Volvo's requirements late in 1985. The below table computes daily capacity load and available capacity in one of the peak months-October,1985:
Labor Content requirement per unit (run time only)
Rear
Front
left/right side
x2 for left and right
Total ...
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30 km
8 km
Utilized facility capacity
75%
Not stated. assumed 100% from information
Production workers on the floor lid line
26
Additionally, when looking closely at the Säve site's layout and production throughput in each operation, one can quickly see why Sunwind experienced difficulties meeting Volvo's requirements late in 1985. The below table computes daily capacity load and available capacity in one of the peak months-October,1985:
Labor Content requirement per unit (run time only)
Rear
Front
left/right side
x2 for left and right
Total labor/unit
Daily Load
Daily Capacity
% of capacity used
# of staff
Steel Hinge Parts
0.8
0.55
.35
357.8
Assembly of Hinges
0.65
.35
2
530.0
Cutting battens
4
3.35
887.8
Step 1 shape plywood
.6
0.85
0.35
0.7
3.15
834.8
440
58.0%
3
Step 2 painting
0.3
0.6
2.6
689.0
953.6
35.3%
4
Steps 3 and 4 battens, rivets, studs
.9
4.95
0
0
6.85
815.3
976.8
85.8%
2
Step 5 mount hinges
.35
.5
0
0
2.85
755.3
465.2
51.5%
3
Step 6 glue carpet
2
2
4.5
9
3
3445.0
465.2
235.1%
3
Step 7,8 attach hardware; L/R finall assy
9.5
2.5
0
0
22
5830.0
5372.4
08.5%
1
Totals
5144.8
2673.2
19.5%
26
Total needed in Oct 1985
5300
Total needed per work day
265
While it is true the average number of floor lids produced by Sunwind was 650 per week, that doesn't account for the fact that workers have seven weeks of vacation and only 45 weeks are available per each full time equivalent, and it doesn't account for the spikes in demand experienced late in the year with no corresponding head count increases. Based on the table above, the Säve site was overloaded by October 1985 and was probably already experiencing difficulties by August of that year. As can be seen from the above table, the work load would have been above Sunwind's capacity to build even assuming there was zero non value added activity such as tool setup times, rework of material, and down time waiting for materials. The table has no computed setup times.
IV. Lead time analysis using current method and JIT
One of the largest hurdles to moving from a batch oriented shop floor to just in time is the setup times required at various operations. Long setup times amortized over small lot sizes will drag down labor efficiencies. This often leads manufacturing managers to manage the situation by building large runs of material. Unfortunately, there is a direct material and capacity cost for doing this, and there are hidden costs when quality issues surface and large amounts of material must be either sorted, reworked, scrapped or a combination of all three. Due to the costs of maintaining inventories, it is imperative companies such as Sunwind look at ways to reduce the amount of material held in stock.
The takt (theoretical cycle time) time from start to finish for building a particular assembly consecutively is about 54 minutes (assuming none are done in parallel). However, looking at only the integration/assembly steps one can see it would be possible to assemble to order an entire set of floor lid subassemblies in just under 30 minutes.
Start time
Steps 3/4 (minutes)
Start time
Steps 5 (minutes)
Start time
Steps 6 (minutes)
Start time
Steps 7/8 (minutes)
Finish Time
Rear
8:00 AM
.9
8:02 AM
.4
8:04 AM
2.0
8:06 AM
9.5
8:16 AM
Front
8:02 AM
5.0
8:07 AM
.5
8:09 AM
2.0
8:11 AM
2.5
8:24 AM
Left
--
--
--
--
8:00 AM
9.0
--
--
8:09 AM
Right
--
--
--
--
8:00 AM
9.0
--
--
8:09 AM
This means if an entire assembly can come off the end of the line every 30 minutes, the site should be capable of producing about 488 complete assemblies per day. This assumes no sit time or cure times after gluing, but it demonstrates the ability of Säve to produce in one day more than the daily requirements for Volvo's production needs.
V. Recommendations
It is our recommendation that a complete overhaul of operations between Säve and Högsäter be implemented to capitalize on the close proximity of the Sunwind Säve and Volvo Torslanda plants. The changes recommended can be broken into four areas:
. Maximize finished assembly throughput at Säve
2 Build proactive supplier and internal quality systems
3 Partner more closely with Volvo materials group to reduce inventories and improve quality
4 Develop and continue lean manufacturing practices at both Sunwind sites
Maximize finished assembly throughput at Säve
Based on capacity analysis of current head count at the Säve facility and projected throughput needs for 1986 and beyond, we are suggesting all make to stock parts production be moved from Säve to Högsäter since Högsäter has approximately 2,500 square meters of unutilized space. As can be seen from the table below, even assuming the hinge, batten, and plywood manufacturing is done at Högsäter, Säver will still have to hire approximately three additional people or increase overtime to meet Volvo's production numbers:
Proposed Labor Content requirement per unit (run time only)
Rear
Front
left/right side
x2 for left and right
Total labor/unit
Daily Load
Daily Capacity
% of capacity used
# of staff
Steps 3 and 4 battens, rivets, studs
.9
4.95
0
0
6.85
986.5
2442
81.3%
5
Step 5 mount hinges
.35
.5
0
0
2.85
826.5
976.8
84.6%
2
Step 6 glue carpet
2
2
4.5
9
3
3770.0
3907.2
96.5%
8
Step 7,8 attach hardware; L/R finall assy
9.5
2.5
0
0
22
6380.0
6837.6
93.3%
4
Totals
2963.0
4163.6
91.5%
29
Total needed in January 1986
5800
Total needed per work day
290
The movement of the parts production processes should also be put through a make vs. buy analysis to see if some components such as hinges would be less expensive if outsourced to another supplier. Regardless, all components currently being batched should be sourced rather than made whether that sourcing occurs from another Sunwind site or external vendor. In this way, Säve can set up production lines to provide quick turn assembly processes and react swiftly to Volvo's sales demand. In performing this change, it will be important to set appropriate buffer stock for all raw materials including the shaped plywood pieces and hinges so that sufficient supply of the components are available for production between material deliveries. One week of inventory may be too much. Considering the proximity of the two Sunwind facilities, it would not be unreasonable to expect deliveries of components two or three times a week.
Build proactive supplier and internal quality systems
The cost of poor quality both from materials supplied by vendors and from internal processes is often overlooked. We are recommending a strong quality system which involves training production workers on the line to perform in line inspections of material in process based on a statistically significant sampling. A clear and accountable system of tracking quality issues causes and corrective actions needs to be set up. When quality issues are detected internally, they can be analyzed for root cause and teams internally can devise process improvements to reduce or eliminate recurring quality problems such as glue seeping.
Looking outward to supplied parts, we are also recommending commodity teams be set up including a quality representative and purchasing representative to proactively meet with suppliers and review quality concerns on a regular basis. This includes quarterly meetings to review supplier score cards and also instant communication of supplier corrective action notices when quality issues with incoming material are detected. In this way, Sunwind can collaboratively work with strategic suppliers to reduce product defects with the goal of achieving 100% incoming material meets quality standards specified by Sunwind and Volvo.
Partner more closely with Volvo materials group to reduce inventories and improve quality
Most important to the success of an implementation of JIT, Sunwind representatives must demonstrate the benefits of this program to Volvo materials management. Paramount in this dialogue are two recommendations. First, with the movement of Säve's production to just in time final assembly of floor lids, it will be possible for Sunwind to obtain from Volvo real time information about sequential build schedules on the assembly line and then have Sunwind respond by building within one business day all of the requirements for Volvo and deliver to Volvo's facility. Second, by partnering with Volvo's purchasing systems, packaging development, and quality groups, Sunwind can promote the idea of reducing inventory and processes on Volvo's production floor which is a direct cost savings to Volvo.
Sunwind would need to gain consensus from Volvo's materials teams to increase the finite planning window of Volvo's build schedule so that Sunwind can get visibility at least two or three days ahead of time about Volvo's explicitly sequenced needs for floor lid assemblies based on color and carpet type. If this is sent via print out or computer message, Sunwind can set their schedule for the final two steps of the process including the gluing of carpet to the plywood assemblies.
Further, Sunwind needs to pursue changing the packaging and container requirements so that Sunwind is able to package entire floor lid kits sequentially in stacks of eight onto wheeled line side containers which can then be transported from Sunwind to Volvo in a matter of minutes right onto their assembly line rather than sending components that later have to be stored, picked, and potentially rejected due to color mismatches by Volvo production staff. The frequency of these vendor managed "bread man" deliveries can be determined by both companies, but it seems appropriate to suggest deliveries two to three times during each work day.
Develop and continue lean manufacturing practices at both Sunwind sites
Lean manufacturing principles must be applied to extract all of the efficiency possible from Säve operations. This includes mapping material flow within the factory and relocating the physical work stations in an optimal linear flow from receiving area, through value stream, and finally to final inspection and shipping.
Another important aspect of JIT and improved efficiency of Sunwind operations will be to set inventory buffer levels at appropriate amounts so that there is sufficient material available to achieve the business goals but not so much that Sunwind has excessive risk for quality issues or material costs. A couple of appropriate areas for buffering inventory are after plywood is shaped and painted at Högsäter and just prior to carpet application. Additionally, Volvo and Sunwind can work out an acceptable level of risk to determine how much inventory will be buffered between the two companies. In the beginning, Sunwind can ship floor lids three or four days ahead of Volvo's scheduled builds. As both companies gain confidence in their supply chain and effective delivery performance, the inventory could be reduced between the two companies down to one or two days of supply. If Sunwind maintains a total inventory of one week supply between raw, WIP, and finished goods, even if Säve's revenue stayed the same in 1986, it would cut Sunwind's material cost by over 50%.
The areas for improving efficiency are almost endless, but two others that deserve mention for application immediately are reducing setup times and increasing vendor managed inventory programs with Sunwind suppliers.
First, just as Volvo is moving in the direction of supplier reduction and higher expectation of supplier service, so Sunwind materials group must further integrate suppliers by transmitting forecast in weekly buckets as far out as possible in the planning horizon and put the responsibility upon the suppliers to actively manage the deliveries based on the demand schedule communicated.
Second, Sunwind must not merely accept current cycle times and setup times but should engage in improvement events to study current processes and identify potential opportunities to shrink the time to switch out from one tooling program to another. This lowers the cost to change over from one product to another which makes it more cost beneficial to build in smaller batches to satisfy true demand rather than building up larger inventories of piece parts.
The strategic focus should be on using this Save JIT program to demonstrate greater value to Volvo while at the same time improving profitability of Sunwind. This pilot program will encourage Volvo that Sunwind is a reliable partner as that company moves forward in construction of their new manufacturing facility near Hogsater.
