VGSOM IIT KHARAGPUR

National Cranberry Cooperative

Case Analysis
Abhishek Awasthi 11BM60071 Section A 1/30/2012

National Cranberry Cooperative is facing problem of overtime and waiting time by its growers while unloading cranberries to Receiving Point 1.

PROCESS DIAGRAM NATIONAL CRANBERRIES CO-OPERATIVE

Receiving

Weighing

Sampling

Colour Sampling

Dumping

Dry

Dry/Wet

Dry

Milling

Drying

Dechaffing

Destoning

1 Bagging Freezer
Finish Processing

Bulk Bin
Bulk Truck

Another Plant

Waste, 5%

Assumptions: We have assumed that: We have not considered per hour operating cost of plant Overtime for both regular and part time worker has been taken to be $ 12 per hour. In calculating the payback time, the same cost saving will occur every day. It is given in case that wet berries will make 70 % of total berries and that normal running hours for plant is 11 (12-1) hours. There is a cost associated with trucks waiting to be unloaded and it is $100 per hour. Throughput: Normal Day: 10000 bbls. Per day Peak Day: 22000 bbls. Per day

Case 1: 10000 bbl/day Berries WB DB Total Time WB Feed DB Feed Minimum processing rate for WB is at dryer, which is Inventory build up rate for WB WB holding bins capacity 10,000 7,000 3,000 11 636 273 bbls./day bbls./day bbls./day hours bbls./hr bbls./hr

600 bbls./hr 36 bbls./hr 3,200 bbls. Which means in normal days trucks don't need to wait, hence no waiting cost 88 hours

No. of hours required to fill the bins

Total accumulation of WB after 11 hours 400 bbls. Overtime 0.7 hours Now, assuming this is not a peak season, we have considered only 27 workers. Since plant is working suboptimal level during overtime , only two-third of the work force will be working on wet berries drying process. =2/3 work force = 20*(2/3) = 12 Savings per day = 12 * 12= 144 Savings for season = 144* 90 = 12960 If we add another dryer, to save overtime cost, cost will be = 40000 Analysis Considering the cost of depreciation and cost of investment in dryer(8-10%) it will not be economical to buy another dryer.

Case 2: 22000 bbls./day Berries WB DB Total Time WB Feed DB Feed Minimum processing rate for WB is at dryer, which is Inventory build up rate for WB WB holding bins capacity No. of hours required to fill the bins 22,000 15,400 6,600 11 1,400 600 600 800 3,200 4 bbls./day bbls./day bbls./day hours bbls./hr bbls./hr bbls./hr bbls./hr bbls. hours

This means after 4 hours there will be a long queue of trucks to unload berries. Total accumulation of WB after 11 hours Daily Overtime Assumming 15 days peak time i.e. 15 days overtime Overtime rate per hour Number of employees working overtime Daily cost of overtime Total cost of overtime WB waiting in truck Average truck capacity Number of trucks waiting Time to clear truck queue Total time spent in waiting by trucks Cost of truck hiring per hour Total waiting cost of trucks Total additional cost 12 18 3,168 47,520 5,600 75 75 9 697 100 69,689 117,209 $ men $ $ bbls. bbls. Trucks hours hours $ $ $ 8,800 bbls. 14.7 hours

Adding 1 Dryer: Berries WB DB Total Time WB Feed DB Feed Minimum processing rate for WB is at dryer, which is Inventory build up rate for WB WB holding bins capacity No. of hours required to fill the bins Total accumulation of WB after 11 hours Daily Overtime Overtime rate per hour Number of employees working overtime Daily cost of overtime Total cost of overtime WB waiting in truck Average truck capacity Number of trucks waiting Time to clear truck queue Total time spent in waiting by trucks Cost of truck hiring per hour Total waiting cost of trucks Total additional cost 22,000 15,400 6,600 11 1,400 600 800 600 3,200 5 6,600 8.3 12 18 1,782 26,730 3,400 75 45 4 193 100 19,267 45,997 bbls./day bbls./day bbls./day hours bbls./hr bbls./hr bbls./hr bbls./hr bbls. hours bbls. hours $ men $ $ bbls. bbls. Trucks hours hours $ $ $

Cost of additional dryer = 60,000 $ Total saving in cost = 117,209-45,997 = 71,212 $ Hence cost saved by adding 1 dryer is 71,212 $ by investing 60,000 i.e. ROI of 119 %.

Adding 2 dryers: Berries WB DB Total Time WB Feed DB Feed Minimum processing rate for WB is at dryer, which is Inventory build up rate for WB WB holding bins capacity No. of hours required to fill the bins Total accumulation of WB after 11 hours Daily Overtime Overtime rate per hour Number of employees working overtime Daily cost of overtime Total cost of overtime WB waiting in truck Average truck capacity Number of trucks waiting Time to clear truck queue Total time spent in waiting by trucks Cost of truck hiring per hour Total waiting cost of trucks Total additional cost 22,000 15,400 6,600 11 1,400 600 1,000 400 3,200 8 4,400 4.4 12 18 950 14,256 1,200 75 16 1 19 100 1,920 16,176 bbls./day bbls./day bbls./day hours bbls./hr bbls./hr bbls./hr bbls./hr bbls. hours bbls. hours $ men $ $ bbls. bbls. Trucks hours hours $ $ $

Cost of additional 2 dryers = 60,000*2=120,000 $ Total saving in overtime = 47,520 14,256 = 33,264 Total saving in cost = 117,209-16,176 = 101,033 $ Hence cost saved by adding 2 dryers is 101,033 $ by investing120,000 $ i.e. ROI of 84 %.

Adding 1 Dryer and converting 4 holding bins Berries WB DB Total Time WB Feed DB Feed Minimum processing rate for WB is at dryer, which is Inventory build up rate for WB WB holding bins capacity No. of hours required to fill the bins Total accumulation of WB after 11 hours Daily Overtime Overtime rate per hour Number of employees working overtime Daily cost of overtime Total cost of overtime WB waiting in truck Average truck capacity Number of trucks waiting Time to clear truck queue Total time spent in waiting by trucks Cost of truck hiring per hour Total waiting cost of trucks Total additional cost 22,000 15,400 6,600 11 1,400 600 800 600 4,200 7 6,600 8.3 12 18 1,782 26,730 2,400 75 32 3 96 100 9,600 36,330 bbls./day bbls./day bbls./day hours bbls./hr bbls./hr bbls./hr bbls./hr bbls. hours bbls. hours $ men $ $ bbls. bbls. Trucks hours hours $ $ $

Cost of adding 1 dryer and converting 4 holding bins= 60,000 + 10,000*4= 100,000 $ Total saving in cost = 117,209-36,330 = 80,879 $ ROI = 67 %

Best Option: By going through and evaluating all the options, best option to be adopted is to add 2 dryers where we can save 33,264 $ in overtime and reduce waiting money loss of growers by 67,769 $.

Note: Complete analysis is done using MS Excel and it can be found at : http://bit.ly/NCC-Simulation-Awasthi