The Big D Company of Dallas, Texas, was a family owned, conservatively managed company.

For over forty years the company enjoyed slow, steady growth in reaching its current

employment level of just over 200. All expansions were financed entirely out of earnings. As

the company grew, its operating procedures were periodically re-examined and modified to

cope with the complex problems that accompany growth. The company developed,

manufactured, and sold metering and flow control devices used in the chemical industry.

Recently, as a result of declining profits, management was considering the advisability of

installing a more formal system for controlling its cost of materials.

The company's product line contained about forty items, ranging in size from gauges and

simple fittings to large flow meters weighing up to 150 pounds. Most of these were made in

a number of different models and sizes, so that the total number of separate products was

about 300. About half were standard models whose design had not changed greatly in the

last ten years; others were subject to considerable technological change; a few involved

special features for different customers, sometimes being made of special alloys to resist

corrosive action of certain chemicals. Some of the more complex items were supplied with

or without certain fittings and refinements. The company's position in the industry

depended on its ability to keep ahead of its competitors in design, quality of product,

customer service, and priceroughly in that order.

It was the responsibility of the supply manager to obtain the castings, materials, and parts

indicated. Castings were purchased in the exact quantity required for the manufacturing

order. For the most part, the same was true as to bar stock, plate, and similar materials. On

the highly standard material sizes, more than enough for one order might be purchased, and

in most cases full lengths would be ordered, rather than the exact fraction required. On odd

sizes of expensive alloys, the exact amount would be purchased even down to the inch.

Standard nuts, bolts, studs, pipe fittings, and similar items were usually bought in standard

commercial lot quantities, but even here the quantities did not greatly exceed immediate

requirements, and frequently even these items were bought by the piece. Molded plastics

and special fittings or stampings were sometimes bought in excess of immediate needs,

especially when costs of small lot procurement were prohibitive. With all this, the supplier

manager did try find out the job details such as job dimension, standard procedure to do the

job, and the job conditions, such as poor illumination, high temperature, hazardous

environments, availability of jigs, fixture or tools, etc, however the supply manager did not

alter the quantities shown on the make-and-buy sheet without discussion with the

superintendent.

When materials began to come in, they were checked off the make-and-buy sheet

and taken to the storeroom, to the production floor, or, if they were finished parts, to

assembly. Little attempt was made to schedule work to the shop, and the machine shop

foreman was free to work on any manufacturing orders on which materials had been

received. It was up to him to keep his staff and machines busy and to meet the estimated

completion dates. As parts were completed, they moved on to assembly, where they were

placed in the tote box with other parts accumulated against that order. When all parts were

completed, assembly could take place. Finished units were placed in stock in the shipping

room or were shipped out immediately against orders.

Completion of the lot was not posted to the sales and production record until the

entire lot was finished. Inasmuch as some units were often assembled well in advance of the

completion of the entire lot, the sales and production record frequently indicated earliest

delivery as some time in the future when, in fact, completed units were in storage on the

shipping room shelves. In this way sales had been lost to competitors who quoted earlier

deliveries. Other sales had been lost because in setting estimated completion dates the

superintendent usually allowed himself more time than was necessary for ordering,

machining, and assembly.

The company had no formal inventory control system, meaning that assessment of

time required to carry out work such as cycle counts, stock taking etc was never properly

carried out. No record was kept of raw materials, purchased parts, or manufactured parts on

hand. An informal tabulation of finished goods, the sales and production record, was

maintained for each item. This showed the balance on hand, the amount currently being

manufactured, orders received, customers' names, and dates of shipments made. It also

showed the minimum stock balance and the standard manufacturing quantity. These had

been determined at a top management level, taking into consideration past sales of the

item, the time required for a production run, manufacturing economies, potential

obsolescence, storage space available, and the financial resources of the company. In the

last year, the minimum stock balance and the manufacturing quantity on most items had been revised upward because of a substantial increase in volume, delivery delays, and more

frequent manufacturing runs. The company felt that about three to four runs per year was

about right for each item. A typical manufacturing run required about nine to twelve weeks,

most of which was consumed in obtaining castings. Actual processing in the plant required

two to four weeks. Recently, it was found that jobs were frequently sold before completion

and a second lot started before the first lot was finished. Currently, about fifty to sixty shop

orders were initiated each month.

As customer orders were received, they were posted to the sales and production record.

When such orders reduced the balance on hand and in process to the predetermined

minimum, a notice of depletions was prepared, showing the balance on hand and the

standard manufacturing quantity. This notice was sent to the plant superintendent.

Big D did not have a formal production planning and inventory control activity. The plant

superintendent, in determining the exact quantity to manufacture, was guided by the

previously set quantities but consulted informally with the engineer, development, sales,

and finance departments before each run. He then made out a make-and-buy sheet showing

for the item in question the various parts required, the shop print numbers, the materials

from which the parts were made, the quantity of each part required per completed unit, and

the estimated completion date.

The make-and-buy sheet was forwarded to the assembly foreman, who checked off for each

part the quantity of that part which had been accumulated from overruns on previous

orders. No records were kept on such accumulated parts. The parts were stored in bins in

the assembly department, and those counted out against the make-and-buy sheet were

separated in a tote box against the time when that order would be assembled.

The make-and-buy sheet was returned to the plant superintendent, who edited it to

determine whether certain parts should be made or ordered in larger quantity than required

for that particular order. Where parts were interchangeable, he might also consolidate them

with other orders. The plant superintendent was familiar with the manufacturing process

and set-ups involved, knew the price breaks on materials, and had a general knowledge of

probable future demand. Before forwarding the make-and-buy sheet to the supply manager,

the superintendent entered an estimated completion date, which in turn was posted to the

sales and production record. The plant superintendent's secretary performed the traffic function because she was very

much liked and received some kind of training. Three young employees who were more or

less under the control of the superintendent performed receiving and warehousing.

Normally, when an incoming shipment arrived, the foreman would oversee its receipt.

Supply reported to the plant superintendent.

Certain executives felt that the company should establish a more systematic control over

raw material, manufactured and finished parts, and finished goods inventories. They pointed

to the orders lost, the waste of buying and producing in small quantities, delays in

production and assembly occasioned by absence of materials and parts, and losses by

misplacement, breakage, and pilferage. They want a system that will show them time that is

required to do a specific task at a defined level of performance, from roughly knowledge as

well as practical experience. These concerned officials also felt that Big D might be able to

make significant savings through a systematic control of surplus and salvage. Two of the

officials expressed concern over the amount of money spent on transportation. No survey

had been made to evaluate potential savings in these areas since no records were kept.

Inventory losses could not be measured. Pilferage was probably negligible, because the only

items having real intrinsic value (thermometers and similar components) were kept in a

locked cabinet by the assembly foreman. Transportation costs were estimated to be 12

percent of the cost of purchased material.

Those who opposed changing the inventory control procedure pointed out the risks of

obsolescence in any inventory accumulation, and, more importantly, the amount of funds

that might be tied up in inventory and the space that would be necessary if substantial

stocks of materials, parts, or finished assemblies were to be built up. They resisted the

introduction of changes in the areas of production planning and control, receiving,

warehousing, and traffic. They also pointed out that other uses of company buildings,

equipment, research, and development would yield greater returns.

5. Do you think that Big D could benefit from the establishment of a supply

chain management department? If so, what functions should it include? (5 marks)

7. Was the superintendent's secretary the right person to perform the role of traffic

function because she was very much liked and received training? Kindly discuss

and give clear argument for your answer, practical examples are allowed. (5 marks)

9. Discuss if the supplier manager tried to follow estimation procedure based on

the case study, if so, what was the outcome or what where those procedures. (5

marks)