Operations Design Analysis: National Cranberry

Operations Design Analysis: National Cranberry

posted in: W & M Mason MBA | 0

By: Gavin P. Smith with teammates Christy Kollmar, Stephen Land, Fernando Tarafa and Mei-Shu Chang

NATIONAL CRANBERRY COOPERATIVE, 1996

I.      EXECUTIVE SUMMARY

Problems faced at the National Cranberry Cooperative (NCC) were not properly addressed in the new capital expenditures made in 1995.  The previous $200,000 investment in a new dumper did not solve the problem because NCC did not recognize the existence of a bottleneck in RP1 operations. As a result, overtime expenses continue to plague NCC due to slower throughput time.  In addition, growers (suppliers) are upset at the additional cost burden and idle time of truck deliveries.  NCC must keep these growers happy and make critical adjustments to end the bottleneck at RP1.

In the existence of a bottleneck, few dimensions can be altered to alleviate it.  The path of the process can be elongated or altered (which adds time), work-in-progress areas can be created, or the path can be widened with increased capacity (capital investment).  Based on the predicted harvest makeup of 70% wet berries, RP1 needs to be augmented to accommodate wet capacities through additional capital equipment expenditure (widening the path) or additional labor expense (stretching the time).  The exact decision will be based on NCC’s short and long-term strategies.

If the VP of Operations anticipates fluctuation in berry harvests from year to year in terms of wet vs. dry berry composition, it may be more practical to keep costs low and flexible by continuing to rely on additional shifts of seasonal workers where needed.  This, however, will come with seasonal overtime expense.  If the composition of future berry harvests is expected to remain consistent over the long term, then a capital expenditure is a better option.  This will eventually eliminate overtime expense.

We recommend avoiding any further purchase of dumping bins.  Increasing inputs at the front-end will only further exacerbate the bottleneck at RP1.  Instead, we recommend the addition of two dryers to the RP1 process to increase capacity and reduce throughput time.  Additionally, the capital investment in two dryers will achieve payback within approximately four years via offset of overtime expense savings over the period.

II.    RECEIVING PLANT PROCESS CAPACITIES

As an alternative to Question 1, we offer the following time analysis:

Assuming:
Input of 1,500 BBLS/hour
Transfer time between phases is negligible
1,500/75 = 20 trucks and 5 kiwanee dumpers. We’d need to unload 4 sequential sets of 5 trucks to equal 1,500 BBLS.

Ratio of wet:  dry of 70:30
Wet: 1050 BBLS/hour or 262.5/load
Dry: 450 BBLS/hour or 112.5/load

Cycle starting 7:00:  Throughput: 131.625 minutes
Temp storage: 8 minutes (first transfer from trucks)
Wet track: 44.625 minutes
De-Chaffing: (262.5/3000)*60 minutes = 5.25 minutes
Drying: (262.5/600)*60 minutes = 26.25 minutes
Grading: (262.5/1200)*60 minutes = 13.125 minutes
Dry track: 14.625 minutes
De-Stoning: (112.5/1500)*60 minutes = 4.5 minutes
De-Chaffing: (112.5/1500)*60 minutes = 4.5 minutes
Grading: (112.5/1200)*60 minutes = 5.625 minutes

Temp storage: 8 minutes (Second transfer from trucks)

Wet track: 62.875 minutes
De-Chaffing: (262.5/3000)*60 minutes = 5.25 minutes
Idle: 18.25 (Drying process working on first load)
Drying: (262.5/600)*60 minutes = 26.25 minutes
Grading: (262.5/1200)*60 minutes = 13.125 minutes

Dry track: 14.625 minutes
De-Stoning: (112.5/1500)*60 minutes = 4.5 minutes
De-Chaffing: (112.5/1500)*60 minutes = 4.5 minutes
Grading: (112.5/1200)*60 minutes = 5.625 minutes

III.    MAJOR REASONS FOR DELIVERY TRUCK WAIT TIME & EXCESSIVE OVERTIME

When deliveries are processed at National Cranberry, truckloads of cranberries are initially weighed, sampled and color-graded as they move through the front-end of the plant. The delivery truck commences the process by backing up and tilting out its contents onto 5 conveyor belts, which moves the cranberries up to the second floor to be held in temporary holding bins.  From temporary bins, the cranberries should move into “later” processes as long as there is no bottleneck issue and there is space available for transfer.  The full procedure of emptying the contents of these trucks onto the conveyor belts should only take 7-8 minutes to drop-off and depart from the facility, but on occasion the process is taking several hours.

Currently, the major reasons for excessive wait-times and overtime are the temporary holding bins are becoming full because of a bottleneck at RP1.  Specifically, the delivery trucks have to wait with the cranberries if the temporary holding bins become full because no portion of the receiving plant is dedicated to transition cranberries off the first floor if none of the holding bins are available on the second floor.  Thus, trucks are waiting several hours for the back-end of the facility to catch up with the amount of cranberries already in the temporary holding bins.  This type of bottleneck ultimately holds up the delivery trucks and the entire process unless National Cranberry rethinks and augments its existing system and strategy.


IV.     TRUCK WAIT TIME ON A BUSY WORKDAY

The following is applicable to calculate wait time for a busy workday:

  • Working Hours: from 7am to 11pm
  • Total working hours: 15 hours
  • Assume delivery per hour is 1,500 bbls
  • Wet berry: 70%
  • Weighted: 1,050 bbls
  • Capacity of bins for wet berry: 3,200 bbls

Because the capacity is 3,200 bbls, the trucks don’t have to wait to load before 1pm.

The time that the trucks need to wait at 1pm is:

(filling + dechaffing + (drying*3))- delivery time = (0.5 +0.4+(1.8*3))-6 = 0.3

The time that the trucks need to wait after 12pm is:

1.8 – (0.5 + 0.4) = 0.9 hour

 

The weighted average waiting time for wet berry is:

(0.3 + (0.9*9) )/16= 0.525

Dry berry: 30%

Weighted: 450 bbls

Capacity of bins for wet berry: 4,000 bbls

 

Time required processing the one hour delivery:

*hour

Because the high capacity, the trucks for dry berry don’t need to wait if they deliver 450 bbls per hour.

 

The total weighted average waiting time for all trucks is:  (0.525*0.7)=0.3675 hour or 22.05 minutes.


V.    BENEFITS OF SHIFTING PROCESS TIME

 

A significant issue facing the National Cranberry Co-operative’s receiving plant #1 is the amount of time that the trucks are sitting idle waiting to download their product. This issue is further magnified by the fact that as a cooperative, the costs of the leased trucks and hired drivers increases as the trucks sit idle which directly impacts the bottom line of our business partners. We need to keep the growers happy.

Moving the processing time from 11:00 a.m. to 7:00 a.m. during the peak period is critical to downloading trucks quickly and avoiding costly idle time. Based on the assumption that we receive 18000bbl on a single day during the peak season, 66% or 12,000bbl is wet and 33% or 6,000bbl is dry equates to 240 truckloads of berries. Of these truckloads, 160 would be wet berries and 80 would be dry. It takes trucks 8 minutes to back onto the dumper, empty its contents, and leave the platform. With additional storage bins to hold berries added to the process, we could keep trucks moving. By beginning the process at 7:00 a.m., the receiving plant would be able to end operations at 8:00 p.m. More importantly, these improvements would benefit the growers.

Based on Exhibit 2 total barrels delivered from 9/1 through 12/10 is 610,185. From 9/20 through 10/9 RP#1 receives 327,596 or 54% of the production for the entire season. The 7:00 a.m. start time would be most critical during these three weeks, but I feel the benefits of keeping the trucks moving makes this start time a good idea for the entire season.

VI.    PROPOSED CHANGES: COST/BENEFIT ANALYSIS

In sum, we propose to start the process at 7:00 a.m., and install 2 dryers and an additional grading line. This will cut the workday from 7:00 a.m. through 4:00 a.m. (under current capacity) to a workday of 7:00 a.m. through 8:00 P.M.

Hourly cost of labor:

  • Length of season: 16 weeks
  • Workdays per week: 7
  • Average salary per employee: $10.5 (assuming no overtime)
  • Average number of employees: 40 (assuming equal time of heavy and light volume days)
  • Total Cost per hour of having workforce: $47,040

Past 11 PM:

  • Total Cost per hour of workforce: $10,584 (only 9 employees are needed beyond 11 p.m.

If we only purchased one Dryer it would reduce the work hours from 4:00 a.m. to 11:00 p.m. This would only produce savings of $52,920 and therefore not enough to cover the cost of one dryer.

If we purchased two Dryers it would reduce the work hours from 4:00 a.m. to 10:00 p.m. this would produce savings of $99,960 again not enough to cost of this solution ($120,000).

However, if we purchased 2 dryers and added an additional separator line hours of operation would be reduced from 4:00 a.m. to 8:00 p.m.

Savings due to reduced hours:
X = 5 * ($10,584) + 3* (47,040)
X = $52,920 + $141,120 = $194,040

Total Cost of implementing recommended solution:

  • Total cost of dryers: $120,000
  • Maximum cost of new separator line to maintain this option as viable: $74,040

VII.   CONCLUSION

 

In conclusion, National Cranberry Cooperative is facing a bottleneck in RP #1 that is causing several hours of excessive overtime and delivery truck wait-time at the front-end of the facility.  Our team analyzed the data and offered alternative solutions towards correcting the problem that is upsetting suppliers because of idle time and additional cost burdens.  National Cranberry understands that it must augment its processes to become more efficient or potentially lose business and overall profits.

As discussed in detail above, commencing the process at 7:00 am, installing 2 dryers, and an additional grading line, will ultimately decrease the amount of hours worked by 8 hours, and National Cranberry will achieve a savings of $194,040 because of these reduced hours and proposed recommendations.  Our team after reviewing the data believes this proposed solution is the most proactive, and cost-effective way to reduce the bottleneck issue and excessive wait-times plaguing our front line.  Our team suggests we implement said changes immediately as they are critical to effectively adjust the efficiency, and overall productivity of National Cranberry Cooperative in the future.