Amsterdam MBA Operations & Supply Chain Management

Bayonne Packaging, Inc.

HBS brief case 4420

March 5, 2013 Gulcin Askin Michelle Donovan Kivanc Ozuolmez Peter Tempelman

The answers in this report relate to the questions given in the document Case 1: Bayonne Packaging, Inc. Question 1: Operations Performance of Bayonne Packaging 1A. How would you define the Operations Strategy of Bayonne Packaging? The operations strategy of a company is the prioritization of the five key performance measures: cost, quality, speed, dependability and flexibility. The president of Bayonne Packaging, Inc. indicates that the problems of the company are: they have incurred their first losses since 2001, there are complaints about quality and they are delivering late more often. The other department managers, except for the absent Finishing department manager, also indicate to the new vice president of operations that they have problems in their departments that relate to the performance measures dependability, quality and speed. Based on the priorities given by the key personnel of Bayonne Packaging we have determined the operations strategy of Bayonne Packaging to be as follows (key performance measures in descending order of importance: 1. Dependability 2. Quality 3. Speed 4. Costs 5. Flexibility 1B. How can Bayonne Packaging, Inc.s Operations & Supply Chain performance be quantified? Per Key Performance Measure we have determined the following ways to quantify the performance. Dependability Percentage of full (i.e. not partial) deliveries that is on time per time period Average delay time of an order for the customer per time period Down time per machine as a result of poor maintenance per time period Quality The percentage of goods rejected by Quality Control per time period The percentage of goods rejected by the customer per time period. The percentage of goods with missing glue lines or excess glue Speed

The number of days between the signing of a proof by the customer and the delivery date The amount of time spent on set up times per order / per period The number of materials flowing through operations per period The average critical ratio (should be as close to target ratio as possible)

Costs

The cumulative volumes in US dollars / The cumulative numbers of shipped orders The COGS per month as a percentage of net sales The profit before tax

Flexibility The number of different orders that can be expedited Number of different packages Bayonne Packaging can print The number of different industries and their industry specific requirements that Bayonne Packaging can produce for 1C. How is Bayonne Packaging doing on these performance measures? To determine the performance of Bayonne Packaging on the performance measures listed is to determine Bayonne Packaging, Inc.s position on the line of operational excellence. It is safe to say that Bayonne Packaging, Inc. is not operating on the curves of operational excellence that currently seem to trouble the company, that is the lines that depict the trade-offs between dependability and speed, quality and speed, and dependability and quality. We rate the performance of Bayonne Packaging as follows. Dependability Bayonne Packaging is not doing well. In October 2011, 20% of the orders are late, where two years ago 5% was considered a bad result (p.3). Customers are aware of this and consequently want to move up their order (p.3). Quality Bayonne Packaging, Inc. has problems with its gluing operation. In October 2011 Quality Assurance has found 6% of the products to be defective. Worse yet, customer rejected 1% of the goods due to glue problems (p.2). Furthermore, some packages with additional parts were shipped incomplete (p.3) Speed Bayonne Packaging, Inc. is not doing well on speed. It is running its operations to full capacity (see question 2A Heidelberg press is the bottleneck exhibit 2). Small changes in the variability of customer orders can therefore result in increasing queues. This in turn causes the Sales department to expedite some orders at the expense of others orders (p.7). Expediting orders also causes breaking up production runs into two parts, which causes extra set up time of the machines. The combination of running at full capacity, variability of customer orders, expediting orders and partialing orders causes a lower overall speed of delivery to customers. Cost According to exhibit 1 Bayonne Packaging, Inc. has incurred a Net Profit Before Tax of -7.2% (i.e. it incurred a loss) in October 2011.

Its total COGS significantly went up from 83.2% in September 2011 to 90.7% in October 2011. (Yearly averages 2010: 74.4%, 2009: 72.1%) For these reasons, Bayonne Packaging, Incl. is not performing well on the cost performance measure. Flexibility Bayonne Packaging, Inc. is doing well on flexibility. It is grabbing into new markets (p.4) such as packaging for candies, corporate gift sets and packages meeting FDA requirements. Flexibility defined as being able to serve different markets is a performance measure Bayonne Packaging, Inc. is doing well at. 1D. What are the main problems in fulfilling the Operations Strategy? The main problems in fulfilling the Operations Strategy are: A process that is running at full capacity and has no buffer to cope with variability in customer orders. A lack of understanding how the processes actually function due to the lack of a consistent ERP system, resulting in departments that are forced to operate independently from each other and do not consider themselves as one unit. The company does not have a method of determining the priority of orders Information systems that are used are based on incorrect assumptions Question 2: Analysis of the operations system of Bayonne Packaging, Inc. 2A. What is the current utilization in the work centers (excluding Finishing)? Number of working hours in October 347

The machines ran in total Machine Total Hours Number of Combined Theoretical Capacity per machines running times running times Utilization per machine work center Composition Jagenburg Heidelberg press Bobst die-cut Int. Royal - Queen Int. Staude Int. 3A 255 279 348 272 156 179 145 1 1 2 2 3 4 2 255 279 696 544 468 716 290 347 347 694 694 1041 1388 694 73.49% 80.40% 100.29% 78.39% 44.96% 51.59% 41.79%

The Heidelberg press machine is the slowest, and the bottleneck in the process. Therefore, the process capacity utilization is as much as the bottleneck, hence 100.29%

Quote To Customer

Order Size? Capacity Utilization 51.59%

Capacity Utilization 73.49%

Composition Department

Royal/Queen Capacity Utilization 44.96%

Staudes

Design OK?

3A?

Capacity Utilization 80.40%

Sheet Department

3A

Capacity Utilization 41.79%

Capacity Utilization 100.29%

Print Department

Finish Department

Capacity Utilization 78.39%

Die Cut Department

2B. Capacity in pieces of the Die-cut center in three cases For the Gantt chart of this question see appendix 1. Order size (pieces) Time per sheet Time per piece (1 sheet = 3 piece) Time to process order (30000 piece * Time per piece) Set up time 2,5 hrs Total minutes per order 15 hours per day is Total capacity of Die-cut center Total capacity of Die-cut center in pieces 30,000 0.0075 0.0025 75 150 225 900 4 120,000 minutes minutes minutes minutes orders pieces

Case (i)

Order size (pieces) Time per sheet Time per piece (1 sheet = 3 pieces) gang 2 orders in a batch, number of pieces in batch Time to process order (60000 piece * Time per piece) Set up time 2,5 hrs Total minutes per batch 15 hours per day is Total capacity of Die-cut center Total capacity of Die-cut center in orders Total capacity of Die-cut center in pieces

30,000 0.0075 0.0025 60,000 150 150 300 900 3 6 180,000 minutes minutes minutes minutes batches orders pieces

Case (ii)

All orders are ganged Time per sheet Time per piece (1 sheet = 3 piece) total minutes per day minutes required for one required set up Remaining available minutes for running orders Number of pieces possible per day Number of orders possible per day

0.0075 0.0025 900 150 750 300,000 10 minutes minutes minutes pieces orders

Case (iii)

2C. Orders in the Royal / Queens work center Assumptions and implicit findings Assume that the question asks for actual performance Number or partialed orders Royal Queen Number of orders on Royal Queen total Total set up time Royal Queen in October Setup time per order

40 77 231 3

orders orders hours hours

40 orders require 40 set ups (no partials) Total number of set ups 40 + 37 Time per set up Total set up time Total number of working hours for three machines (347 * 3) Time left for folding and gluing (1041 - 231) Time required for F&G of one piece Number of pieces to be folded and glued 40 orders require 80 set ups ( 40 orders are partial) Total number of set ups 80 + 37 Time per set up Total set up time Total number of working hours for three machines (347 * 3) Time left for folding and gluing (1041 - 351) Time required for F&G of one piece Number of pieces to be folded and glued

77 3 231 1,041 810 0.0023 21,130,435

setups hours hours hours hours minutes pieces

Case (i)

117 3 351 1041 690 0.0023 18,000,000

setups hours hours hours hours minutes pieces

Case (ii)

2D. Order size to the Royal / Queen and Staude work centers Work center Number of Set up per Total set up machines machine time

Speed per Speed per machine work center (minute/piece) (minute/piece) 0.00077 0.00375

Royal/Queen 3 180 Staudes 4 40 difference in setup time in 380 minutes, Staudes center can process

540 0.0023 160 0.015 380 minutes 101,333 pieces

after both setups; the production breakeven point can be calculated as : x is minutes of both machines in process Staudes Royal/Queen 101333 + x * 1/0.00375 x*1/0.00077 x= 98 minutes Breakeven point in time is 98 minutes after Royal/Queen's setup. in 98 minutes, Royal/Queen can process 98/0.00077 pieces. Breakeven point in pieces is : 127.506 piece Conclusion; in the 380 minutes set up time needed to set up the same order on Royal Queen, the Staudes can produce 101.333 pieces. After both machines are operational, it takes 98 minutes to Royal/Queen to catch up. Therefore, orders up until 127.506 pieces should be routed to the Staudes.

Note: this result relates to the Royal/Queen and Staude CENTERS (i.e. all machines combined)

Number of Pieces produced by Royal/Queen 500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0

Number of Pieces produced by Staude

20 60 100 140 180 220 260 300 340 380 420 460 500 540 580 620 660 700 740 780 820 860 900

Figure 1 : Illustration of the breakeven point of Royal/Queen vs Staude work centers in a work day. See appendix 2 for data source of the graph.

2E. Yield per work center Work Center Sheet Print Die-cut Royal Queen Total Pieces out (exhibit 3) 9,488,211 9,326,912 9,233,643 5,588,396 33,637,162 sheets (3 pcs./sheet) 3,185,032 3,162,737 3,108,971 Scheduled pieces 9,555,096 9,488,211 9,326,913 6,209,329 34,579,549 Production loss 66,885 161,299 93,270 620,933 942,387 2.80%

Case (i) Case (ii)

Percentage of loss throughout the process

The cumulative yield for an order which the sheeter starts with 40,000 sheets 40,000 * (1-2.8%) = 38,880 pieces yield

2F. Neil Rands performance evaluation Evaluating Neil Rands performance using the key performance measures dependability, quality, speed, costs and flexibility, it is safe to say that he performs well on these measures: Dependability he makes sure it happens (p.7) Quality he is a good set up man in fold and glue (p.7) Speed - His orders are never late, he puts it on a machine right away (p.7) Flexibility Neil worked all over the factory (p.7) We cannot evaluate his performance on the cost performance measure for lack of information. However, when he puts rush orders on machines right away he increase the costs of other orders due to additional set ups required. From the position of John Milliken, the new VP of Operations, the performance of Neil Rand could be evaluated as not good. By handling the rush orders the way he does, he solves one problem, but creates new problems elsewhere (he puts it on a machine right away this may result in two new rush orders since the machines cannot be used for the scheduled orders). This way of prioritizing, in which the regular process flow is disturbed, as enabled by Neil Rand, may actually harm the company in the long run. His presence is obscuring the underlying problems which may therefore not be addressed. Neil Rand is very useful to the company due to his extensive experience. He would be useful to the company in the F&G department since he knows how to set up the machines and this department has quality issues (glue).

Question 3. What are the root causes of Bayonne Packaging, Inc.s performance problems? We have determined the root causes of Bayonne Packaging, Inc.s problems to be as follows. A lack of capacity to deal with variability The process is running at full capacity but there is no buffer to deal with variability in customer orders. The variability of delivery time, order type, order time, has increased. The variability of delivery time, order type and order time has increased without any changes to the process. Communications There is a lack of effective communication between the various departments within Bayonne Packaging, Inc. and between Bayonne Packaging, Inc. and its customers. The lack of effective communication between departments causes the department managers take their own decisions without consideration of the consequences for other departments. Lack of effective communications about waiting times and a poor track record on meeting delivery deadlines causes variability and unpredictability in customer orders. Quality The pressure of meeting delivery deadlines and insufficient maintenance causes quality problems. 4. Recommendations to Dave Rand We recommend the following actions to Dave Rand. Short term actions (0 3 months) - Increase capacity by allowing for overtime. This takes the strain off the process and allows coping with variability better. - Facilitate the ganging of orders as a means of increasing capacity. - Daily meetings discussing production issues with all departments, changing the nature of these meetings by looking further ahead. - Introduce a system of prioritizing orders (e.g. red flags for rush orders) and weigh the consequences of rush orders for the remaining orders, therewith optimizing (i.e. reducing) the number of rush orders. - Increase / improve maintenance on machines in order to increase quality.

Mid-term actions (3 9 months) - Manage variability better by managing of demand e.g. introducing price reductions for bulk orders - Increase capacity by widening the bottle neck (e.g. extra shift on the Heidelberg press). - Introduce pre-Work Order Jacket a report that is sent to other departments when the prior department starts working on and order. This way, the later department knows what orders are on the way in couple of days.

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Long term actions (9 months and longer) - Due to the expected increase in volume and to solve the current bottleneck it is recommended to increase capacity by investing in additional equipment - Introduce a companywide ERP system in order to schedule production in reliable, achievable way that is adhered to by all departments (including sales). This should result in fewer rush orders, fewer partial orders and less unnecessary set up time.

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Appendix 1 : Gantt Chart of Die-cut center in three cases (Answer 2B)

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Appendix 2: Order size for the Royal / Queen and Staude work centers (Answer 2D) Number of Pieces Number of Pieces Time in Process produced by produced by Staude minutes Royal/Queen
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 26087 52174 78261 0 0 0 0 0 0 0 0 5333 10667 16000 21333 26667 32000 37333 42667 48000 53333 58667 64000 69333 74667 80000 85333 90667 96000 101333 106667 112000 117333 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 420 440 460 480 500 520 540 560 580 600

Staude set up period

156522 182609 208696 234783 260870 286957 313043 339130 365217 391304 417391 443478 469565

133333 138667 144000 149333 154667 160000 165333 170667 176000 181333 186667 192000 197333

660 680 700 720 740 760 780 800 820 840 860 880 900

Royal/Queen process period

104348 130435

122667 128000

620 640

Staude process period

Royal/Queen set up period

Breakeven point

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