Question
1. Identify what the core/critical issues are at PMX.
2. What are some short term and long term recommendations for improving PMX’s operations, supply chain, customer relations.
Polar Refrigeration Corporation ("PRC")- Glass Door Line, 2005 Case Study Case Background HistorylEnvironment: As part of a cost reduction plan initiated in 2002, Polar Refrigeration Corporation ("PRC") made the strategic decision to transition several domestic manufacturing operations to Monterrey, Mexico. Polar successfully transplanted two other production lines to Monterrey in 1989, both of which were located near the site of the new facility. In 2004, construction of two new plants was completed and the first product line was transferred from Waxahachie, TX, to Mexico (PMX) The first product line transferred to PMX was the Glass Door (GD") refrigeration line. Pictures of this product and the plant can be seen in attached exhibits. Shortly after moving the line to Monterrey, PRC was awarded a $12M contract for delivery of GD products from a large customer, and needed to react Product Information:The GD line (as seen in Figure 1) is a high mix, low volume product line. The variations consist of two-door to six-door units (available in both standard and narrow width configuration), several different options for color, cooling units, thermometers, etc. During the initial implementation of the line, between 12 and 15 units were produced per day, however the capacity of the production line was expected to be 40 units per day in order to meet the customer demand Challenges/Problems: As efforts continued to bring the production line to full capacity, unexpected problems began to arise and hinder productivity. Due to the highly customized nature of the product and low volume production levels, output was extremely volatile. At current state, the GD production line is regularly missing its production output goals by 15-45% and lead time for deliveries has increased nearly 50% over the last few months. A large contributing factor to the increased lead time is the fact that a growing number of parts require repair or rework Matters are further complicated by challenges in the supply chain. PMX's most critical supplier, USRM - a U.S. firm responsible for producing a large amount of PMX's raw material, including one key customized component is struggling to supply PMX with the customized raw material at the rate needed to meet PMX's customer demands. Currently, PMX has a sole-source agreement with USRM and has yet to identify a potential replacement locally. U.S. suppliers still being used are having consistent quality and delivery issues due to increased shipping time. In addition, the vendors supplying parts locally in Mexico are already building to the full capacity planning levels, leaving high amounts of inventory throughout the shop As production levels increase, the financial performance of the facility has steadily declined. PMX's customer has noticed a steady decrease in delivery performance and has warned that they may begin to re-evaluate the business relationship if the situation continues to degrade. PMX's top management has ample resources available to implement change, however are very reluctant to allocate resources without being absolutely assured of a worthwhile outcome 1. Identify what the core/critical issues are at PMX. 2. What are some short term and long term recommendations for improving PMX's operations, supply chain, customer relations? 1. Identify what the core/critical issues are at PMX. 2. What are some short term and long term recommendations for improving PMX's operations, supply chain, customer relations
Explanation / Answer
The Core/Critical issues at PMX are as follows:
1. LA lot of Customization/ variability: There is too much variability in the products i.e. glass door. The products are available in 2-6 doors, colours, cooling units etc. This is taking a toll on the production as more customization means lesser standardization and thus lesser production capability.
2. Limited Suppliers: The problem is also worsened by the limited choice of suppliers as PMX is dependent on one supplier and due to high customization, the supplier is unable to fulfil the requirements.
3. Repair and Rework: Care is also not given in doing the things right the first time. This is forcing to repair and rework, taking not only time but also resources and extra cost.
Recommendations for improving PMX’s operations, supply chain, customer relations.
Operations
Supply Chain
Customer Relations
Short-term Recommendations:
Try to source the required raw materials form open market
Long-term Recommendations:
Operations
Supply Chain
Customer Relations
Short-term Recommendations:
- Buy some time and fulfil the order already placed
- Try to reduce customization
Try to source the required raw materials form open market
- Assure then the customer that the situation is temporary
Long-term Recommendations:
- Reduce Variability in the product line
- Try to make product base up to a certain stage and then go for customization
- Eliminate the Non-value-added time
- Diversify the supplier Base
- Create long term relationship with the supplier or crate a strategic relationship
- Rework the supply chain to lower total cost of ownership and reduce the variety
- May go for customer segmentation in terms of standardized and customized products
- Invest in the future capacity as per customer paying capacity
