National Cranberry Cooperative, 1996 Case Analysis Group 2

National Cranberry Cooperative, 1996 Case Analysis

SMU MBA Part Time Program

Questions: 1. What are the performance problems facing receiving plant No. 1 (RP1)? Describe the performance problems, not the underlying causes, and discuss which are more important by roughly estimating their impact on profits. RP1 has two major problems affecting its performance: a. The RP1 plant that was originally equipped to process more dry cranberries, now faces an increasing supply of water-harvested (wet) cranberries (which is estimated to now make up 70% of the total cranberries processed for the year). This is seen from great disparity in holding capacity for the dry berries (up to 6000 bbls) compared to 3200 bbls of wet berries prior to the processing of these raw materials.

National Cranberry Cooperative, 1996 Case Analysis Group 2

b. The wrong identification of the bottleneck (which is an operation that will limit output in the production sequence) in RP1s process flow as the Dumping section instead of the Drying section. This resulted in $200,000 invested in a Kiwanee Dumper without any visible result in reduction of processing time for the wet berries and only served to accentuate the shortfall in drying capacity. These problems resulted in a long waiting time for the trucks and drivers as the drying section was unable to process the load of wet cranberries coming from the unloading section. The quick build-up of wet cranberries to the maximum capacity of 3,200 affected the subsequent unloading of the trucks and the owners of the farm were unhappy as they had to pay for the cost of the waiting trucks and driver (see Exhibit A for a typical loss amount). This also created high overtime cost for RPI as its workers had to work longer hours during peak periods to process the wet cranberries after the last truck has unloaded. A minor issue also noticed was the manual cranberry color grading system which that was 50% inaccurate in assessing high grade cranberries (No. 3), causing a loss of approximately $337,500 per year as RPI would have over paid for 50% of 450,000 barrels assessed at Grade No 3 when these were of lower quality. We believe the bottleneck issue should be resolved expeditiously to boost RP1s process capacity by increasing its dryer assets. This will also prepare the plant to take on higher capacities of wet berries supply in the long run (seen as increasing based on the trend for the last ten years). We will do a cost benefit analysis of putting in additional dryers and en-engineering the shifts in answer 7. 2. Draw a Process Flow Diagram of the cranberry process beginning with Receiving and ending with the Bailey Mills. Please see Figure A. 3. Compute the Capacity in barrels per hour of each process step. Please see Figure A. 4. Consider a peak harvest day (16,800 barrels of berries unloaded with 70% of them wet harvested). Assume that trucks arrive uniformly over a period of 12 hours. Identify the Bottleneck of the process by calculating/estimating the implied utilization of each process step. Peak Harvest day scenario: Cranberry supplies: 16,800 bbls, Span time = 12 hours (arriving uniformly) Supply Capacity: 1400 bbls/hr Wet berries: 70% x 16,800 bbls = 11,760 bbls, Dry berries: 30% x 16,800 bbls = 5,040 bbls Wet berries supply capacity: 980 bbls/hr, Dry berries supply capacity: 420 bbls/hr Drying section is the bottleneck of the process as it has the highest implied utilization. The maximum drying capacity and therefore RP1s plant capacity is 600 bbls/hr.
PROCESS Receiving and Testing For Dry Cranberries Temp Holdings Destoning Available Capacity 3000bbls/hr 6000bbls 4500bbls/hr Requested by Supply 1400bbls/hr Implied Utilization 46.67%

420bbls/hr

9.33%

National Cranberry Cooperative, 1996 Case Analysis Group 2

Dechaffing For Wet Cranberries Temp Holdings Dechaffing Drying Separation

1500bbls/hr 3200bbls 3000bbls/hr 600bbls/hr 1200bbls/hr

420bbls/hr

28.00%

980bbls/hr 980bbls/hr 1400bbls/hr

32.66% 163.33% 116.67%

5. When would processing be completed on such a peak harvest day? Assuming the trucks arrive uniformly over a twelve hour period, the plant is expected to process the cranberries as soon as the first truck unloads the cranberries at 7:00 AM. Dry Berries Processing Time There will be waiting time for the trucks as the temp holding and process capacity for dry cranberries far exceeds the dry berries supply of 420 bbl/hr and allows for the processing to take place without much hitches even though the holding capacity for the dry berries is impacted by the volume of wet berries processed. Wet Berries Processing Time The total processing time is 19 hours and 36 minutes and is expected to be completed by 2:36 AM the next morning.. See Figure B for more details. 6. When would the last truck unload and how long would it have waited? The truck will start to wait when the temporary holding bins for wet cranberries are full starting from 15:25 PM. The last truck will leave by 21:16 PM. Total waiting time will be 5 hours and 51 minutes. See Figure B for more details. 7. If you were Hugh Schaeffer, what changes would you make to improve performance of the process? Estimate the magnitude (in $) of the costs and benefits of each of your proposed changes. I would first install the light meter system for cranberry color grading at $40,000 so that RPI does not need to overpay $337,500 per year for lower grade cranberries. There is no additional cost as the chief berry receiver can be trained to use the system. The improvement on the bottleneck at the Drying section can be resolved through buying additional dryers and/or arranging for additional shifts. These are the scenarios per peak day considered against a typical 20 hour shift (7AM 2:36AM to clear the unloading bins): a. Purchase of two dryers at $120,000, with one shift of workers b. Purchase of two dryers at $120,000, with two shifts of workers c. Purchase of one dryer at $60,000 with two shifts of workers Comparison of Cost Per Scenario for A Peak Day (Details of costing at Exhibit B) Projected recoup on No of Hours Projected cost investment through savings (in Scenarios worked per day Per day years) NA (A) 0 Dryer and 2 Shift 20 $9,322

National Cranberry Cooperative, 1996 Case Analysis Group 2

(B) 2 Dryers and 1 Shift (C) 2 Dryers and 2 Shifts (D) 1 Dryer and 2 Shifts

12 12 16

$6,968 $6,708 $8,385

3.03 2.19 3.05

With the purchase of 2 dryers at $120,000, the total capacity to process wet cranberries increases to 1000 bbls/hr which is above 980bbls/hr of supply for a typical peak day. Hence there is no build up in the temporary holding bins. Trucks need not wait to empty their load and the processing time will follow the supply span time of 12 hours plus another two hours; therefore if the work starts from 7AM, it is expected to finish by 9 PM. However, I am considering breaking the shifts into two shifts of 8 hours and 4 hours respectively to save $260 per peak day in overtime costs. With the purchase of 1 dryer at $60,000, the processing time is estimated at 16 hours. This increases the dryer capacity to 800bbls/hr. As shown in Figure D, the bottleneck still exists during peak harvest days where 180bbls/hr will be added to the holding bins until the supply span time of 12 hours is reached. It will take about 3 hours to dry the balance of wet cranberries in the hold when the last truck has deposited its load. Two shifts of workers were considered to reduce the cost arising from deploying workers on additional shift. I would recommend the purchase of 2 additional dryers as well as re-scheduling the 52 workers to two shifts as that gives the quickest turnaround time to recoup the investment of $120,000 over 2.19 years.

FIGURE A. NCC PROCESS FLOW DIAGRAM AND CAPACITY Receiving and Testing: Weighing, Sampling, Color Grading

Kiwinee Dumpers (75bbls/truck), No. of trucks = 5 trucks, average time = 7.5 mins/truck Max dumping capacity = 3000 bbls/hr

Feed Conveyors
Temp. Hold Bin 17-24 (Dry/Wet) 250bbls/bin Temp. Hold Bin 25-27 4 (Wet) 400 bbls/bin

Temp. Hold Bin 1-16 (Dry) 250bbls/bin

National Cranberry Cooperative, 1996 Case Analysis Group 2

Temp. Hold Bin Maximum Capacity: Dry = 6000 bbls (incl. bin 17-24) Wet = 3200 bbls (incl. bin 17-27)

Destoning Section 3x1500 bbls/hr = 4500bbls/hr

Dechafing Section 2x1500 bbls/hr = 3000bbls/hr

Dechafing Section 1500 bbls/hr

Drying Section 3x200 bbls/hr = 600bbls/hr

Take-away Conveyors Waste flume FIGURE B. WET CRANBERRIES PROCESSING TIME STARTS FROM 7 AM

5000

4560
4000

Trucks start to wait 3200

3000

Last truck to unload

-600 bbls/hr
2000

National Cranberry Cooperative, 1996 Case Analysis Group 2

380 bbls/hr

FIGURE C. WET CRANBERRIES PROCESSING TIME STARTS FROM 11 AM

7000 6000 5000 4000 3000 2000 1000 0 -1000 Storage Capacity Barrels in queue

National Cranberry Cooperative, 1996 Case Analysis Group 2

FIGURE D. WET CRANBERRIES PROCESSING TIME WITH ADDITIONAL 1 DRYER

2500

No temporary holding bin build up and trucks waiting

2000

1500

1000

500

0 7:00 -500

8:00

9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00

National Cranberry Cooperative, 1996 Case Analysis Group 2

EXHIBIT A. Calculations on trucks waiting cost and bin conversion cost 1. Truck waiting time cost calculation (using 16,800 bbls supply arriving uniformly every hour). Average per truck = 75 bbls, Total number of truck = 16,800/75 = 224 trucks. Trucks start to wait from 15:25 (after 8.5 hours), which mean any trucks coming after 15:25 PM will have to wait 5 hours and 51 minutes (6 hours). No. of trucks after 15:25 PM = (12-8.5)/12 x 224 trucks = 65.33 or 65 trucks. Average truck lease per hour = $100, hence the total cost incurred by trucks due to waiting = 65 x 6 hours x $100/hr = $ 39,000 2. Temporary holding bins conversion cost calculation In order for the trucks to save cost ($39,000) due to waiting time, there should be no backlog on the process by increasing the number of the wet temporary holding bins. The number of bins which have to be converted to avoid trucks from waiting = (45603200)/250bbls/bin = 5.44 = 6 bins. Total cost to convert 6 bins = 6 x $10,000 = $60,000. The total cost to convert the bins are higher than the trucks waiting cost, hence there is no cost benefit in converting the temporary holding bins. EXHIBIT B. Calculations on season average cost per hour Assumptions: - Using peak harvest day scenario of 16,800 bbls supply, the processing plant will start from 7AM and finish by 3AM the next day. - Length of low and peak harvest weeks = 12 and 3 weeks respectively (1 week = 7 days) - Average salary during peak harvest (there is no information on the amount of overtime incurred hence the overtime cost will not be included). - Assume 27 workers per day used for low harvest weeks and 53 workers per day used for peak harvest weeks. - For low harvest week, the average salary = $13/hr - For peak harvest weeks, the combination of off-seasonal and seasonal workers was not clearly defined. Therefore we will use average salary between off-seasonal and seasonal workers = ($8 + $13)/2 = $10.5/hr - For works after 11 PM, the combination of off-seasonal and seasonal workers was not clearly defined. Therefore we will use average salary between off-seasonal and seasonal workers = ($8 + $13)/2 = $10.5/hr From 7AM to 11 PM (Normal Shifts) Average cost per hour for a worker during harvest weeks = 12 weeks x 7 days/week x 27 workers/day x $13/hr + 3 weeks x 7 days/week x 53 workers/day x $10.5/hr = $29,484/hr + $11,686.50/hr = $41,170.50/hr After 11 PM (using 9 workers only with an average salary of $10.5/hr) Average cost per hour for a worker during harvest weeks = 15 weeks x 7 days/week x 9 workers/day x $10.5/hr = $9922.50/hr

National Cranberry Cooperative, 1996 Case Analysis Group 2

EXHIBIT C. Calculations on RP1 Plant processing flow time (for the last 980bbls batch) Assumptions: - The last batch will go thru Dechafing section, Drying section and Separator section Time spent in the RP1 plant process = 980/3000/60 mins + 980/1000/60mins + 980/1200/60mins = 127.4 mins (around 2 hours) General assumptions for the case analysis: 1. The Flow Time of the National Cranberry process (starting after the holding bins) is negligible 2. The amount of inventory other than in the bins is negligible 3. During a high-volume period the dryer operator can start as soon as it receive the supplies