National Cranberry Cooperative Case

EXECUTIVE SUMMARY In the current scenario, the major bottlenecks in the system are the drying units for wet berries and the berry separation lines. While the drying units’ capacity can be increased by purchasing additional units, the throughput of the system will still be limited by the limitation of the separation lines. If the average rate of inflow of berries is 1500bbl/hr, then with the effective separation capacity of 1200bbl/hr, the plant will incur a backlog of 300bbl/hr. If the shift start times stay as it is, and the processing divisions start four hours after the receiving division, the truckers toward the end of the day will have to wait, since the cumulative backlog caused by processing will exhaust the bin storage capacity. The wait times for the truckers can be reduced by converting some of the dry bins to wet bins. However, this measure will not completely eliminate the trucker wait times. The best solution is to acquire one additional drying unit and advancing the processing shift from 11AM to 8AM. The backlog per hour of 300bbl/hr (due to the separation unit), will be manageable by the available storage capacity in the bins, even without converting the bins. The truckers will not have to wait to offload the berries. The accumulated backlog of berries can be processed in approximately 3. 75 hours after the end of scheduled 12 working hours. With the new expected ratio of wet to dry berries (7:3), not adding an additional drying unit will require the plant to work 9 extra hours to eliminate the backlog. The cost benefit of adding the additional drying unit and advancing the shift start time are higher than the cost benefit of other options considered. THE COMPANY The Receiving Plant I (RPI) of National Cranberry Cooperative (NCC) processes both wet and dry cranberries in a highly mechanized process involving 400 workers during peak season. The processed berries are sold in bulk and bags. PROBLEM STATEMENT NCC is currently wrestling with both runaway overtime costs as well as long waiting time for delivery trucks. PROCESS FLOW The process flow diagram is attached as Exhibit A ANALYSIS From Figure E in the case Delivery begins at 7 AM Processing begins at 11 AM Average Truck per day20/ hour Average load per truck75 bbl Average load per hour1500 bbl Expected split between dry and wet typesDry -30% Wet- 70% Cranberries Delivered Wet768600 Dry1065420 Color 134460 Color 2401080 Color 31398480 Total Pounds1834020 Total No. of trucks243 Time Interval729 Average Truck per day243/12 = 20 per hour Plant capacity and demand ReceivingDryWetTotal Average Receiving per hour (bbls)45010501500 Accumulated berries during 4 hour period (bbls)180042006000 Maximum bin storage capacity (bbls)400032007200 Excess/ Shortage (bbls)2200-10001200 Destone/ Dechaff/Dry Maximum Destoning capacity per hour(bbls)450004500 Excess/ Short over average receiving rate per hour(bbls) for destoning 405004050 Maximum Deschaffing capacity per hour(bbls)150030004500 Excess/ Short over average receiving rate per hour(bbls) for deschaffing 105019503000 Maximum Drying Capacity per hour(bbls)0600600 Excess/Shortage over average receiving rate per hour(bbls) for drying (=600-1050)0-450-450 Quality GradingCombined for Dry & Wet Average Separator line capacity per hour(bbls) (3Ãâ€"400)1200 Average receiving by separator line (600 wet + 450 dry)1050 Average receivings when there are no bottlenecks in the system1500 Excess/ Short over average receiving rate per hour(bbls)-300 1. While the receiving starts at 7. 00 am, the processing starts at 11. 00 am (from Figure E in the case). Accumulated wet berries till the plant starts (1100) is 4200 bbl, about 1000 more than the capacity of wet storage bin. This is the first bottleneck in the system which would cause morning queues of the delivery trucks. This shortage could be eliminated by converting some of the dry bins to wet bins. However, as will be seen, the downstream bottlenecks will still cause the converted bin capacity to be wanting. 2. There are two limitations on throughput for Receiving Plant 1. For wet cranberries, throughput is limited by the Dryer capacity to 600 bbl/hr. In terms of total throughput of RP1, the limitation is on separating capacity at 1200 bbl/hr. At the drying unit, the total processing rate of wet berries falls short of the arrival rate (1050 bbl/hr) by 450 bbl/hr. The solution is to either increase the overtime hours, purchase additional dryers or a combination of both. Option I: No dryers are purchased and overtimes are added: Total received per day (12 hrs)Accumulation till 7. 00 pm if processing start at 11. 00 amProcessing in a day (12 hrs)Additional hours reqd #Additional overtime cost* per peak Peak Season (09/20 – 10/9) wet12x1050=126004200+8*450=7800600Ãâ€"12= 72009 hours for processing USD 9*36*6*20= 38880 dry12x450=54001800 + 8*0=1800600Ãâ€"12= 72000 hours # (shortfall in wet berry processing capacity/processing speed) (12600-7200)/600= 9 hours * staff need to be hired in shipping(15 workers for one additional hour), dechaffing (one worker), milling(15) and shipping units (20) ** overtime charges @ USD 6. 00 per worker per hour Thus dry berries are processed in full while there is considerable backlog in wet berries which will necessitate 9 hours of overtime but still would not able to avoid truckers’ queues. If the some of the dry bins are converted to wet bins to maximize the wet capacity to about 5400 bbl, it will reduce the wait times for the truckers, but not completely eliminate it. As a result the receiving department will have to work over their scheduled 12 hour shift. Option II: One dryer is purchased and overtimes are added: Considering that the separator capacity is 1200 bbl/hour, we can at present add only one dryer line which will enhance the drying capacity to 800 bbl / hr. Let us consider a scenario where wet is processed at 800bbl/hr and dry at 400 per hour Total received per day (12 hrs)Accumulation till 7. 0 pm if processing starts at 11. 00 amAccumulation till 7. 00 pm if processing starts at 8. 00 amProcessing in a day (12 hrs)Additional hours reqd #Additional overtime cost* per peak season (09/20 – 10/9) wet12x1050=126004200+8*350=70001050+8*250=3050800Ãâ€"12= 96003. 75$ 810*20 days= $ 16200 dry12x450=54001800+8*50=2200450+8*50= 650400Ãâ€"12= 48000. 00 # (sh ortfall in processing capacity/processing speed) (12600-7200)/600= 9 hours * staff need to be hired in shipping(15 workers for one additional hour), deschaffing (one worker), milling(15) and shipping units (20) ** overtime charges @ USD 6. 0 per worker per hour Thus dry berries are processed in full while there is considerable backlog in wet berries which will necessitate 3. 75 hours of overtime. If we continue to start the processing shift at 11 am we wouldn’t be able to avoid truckers’ queues because of shortage in bin capacity. However, we start the shift at 8. 00 am, this can be avoided to a large extent Option III: No dryers are purchased and overtimes are added: Let us consider another scenario in which wet is processed at 1000bbl/hr (i. e. two additional dryers) and dry at 200 per hour Total received per day (12 hrs)Accumulation till 7. 0 pm if processing starts at 11. 00 amAccumulation till 7. 00 pm if processing starts at 8. 00 amProcessing in a day (12 hrs)Ad ditional hours reqd #Additional overtime cost* per peak season (09/20 – 10/9) wet12x1050=126004200+8*50=46001050+8*50=14501000Ãâ€"12= 120003. 0$ 648*20= $12960 dry12x450=54001800+8*250=3800450+8*250= 2450200Ãâ€"12= 24000. 0 # (shortfall in processing capacity/processing speed) (12600-7200)/600= 9 hours * staff need to be hired in shipping(15 workers for one additional hour), deschaffing (one worker), milling(15) and shipping units (20) ** overtime charges @ USD 6. 0 per worker per hour EVALUATION OF LIGHT METER SYSTEM In 1980, 75 cent premium was paid per bbl on about 450,000 bbls of berries of which about 225,000 turned out to be not of high quality. This cost the company $168,750. We presume that this is also the cost incurred by the company every year. Since the cost of installation is $20,000 plus hiring of a full time skilled operator. Cost of operator = $6. 50/hourx2000 hours per year=$13,000 per year Savings to the company excluding onetime cost of $20,000 = $155750 RECOMMENDATIONS 1. The company needs to purchase one additional dryer @ cost of 40,000 else it would have to spend $38880/ year in additional overtime. Considering the capital cost and the overtime spent ($16200), the additional expenditure can thus be recouped in less than two years. The last option of two dryers would lead to only marginal savings in additional overtime ($3240/year) over the option of buying one dryer. 2. The processing of berries of berries should start at 8. 00 am instead of current 11. 00 am to prevent shortage of bin capacity. . The limitation in separation capacity is serious and measures need to be taken to overcome it. For this, either the capacity of the system needs to be added or the quality of berries needs to be improved so that the separation system can work at its peak capacity of 450bbl/hour/line. However, without further indications on the cost of additional separation units it is not possible to conduct cost-benefit analysis. 4. In view of the substantial cost saving s, the company should buy the light meter system.