National Cramberry Case free essay sample

The National Cranberry Cooperative faces several challenges with its operations at receiving plant 1 (RP1) in 1970. The primary challenges that RP1 is facing transmits to capacity and efficiency of their cranberry processing. For example, often there are trucks waiting to unload their cranberries because of existing bottlenecks in the processing system. This wait time can reach as long as 3 hours. If there is no processing backup, the trucks can unload within 5 to 10 minutes. The bottlenecks that attribute to the truck backup result from full holding bins or max drier utilization. The reason for the long delays is because RP1 experiences a greater input of cranberries than it can process. Specifically, this backlog of trucks stems from the influx in wet cranberries, which require an additional processing step before bagging and shipping. Recently, RP1 is experiencing a higher percentage of wet berries as a result of its location and the industry trend of harvesting the cranberries wet. We will write a custom essay sample on National Cramberry Case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The second key issue at RP1 is the deficiency in quality assurance of cranberry grading. In 1970 alone NCC paid the premium on 450,000 bbls of berries while half of them turned out to be less than grade 3 berries. The imprecision in grading cranberries resulted in a cost overrun of approximately $112,500. Human Resource Utilization is the last key issue identified for RP1. RP1 has an issue with absenteeism which leads to a greater number of employees on the payroll than necessary for operations. Absenteeism also results in unnecessary overtime pay for those employees that show up, which further increases payroll costs. Industry trends that may affect cranberry processing The current industry trend that has the most significant impact on cranberry processing is the wet harvesting method. If the berries are harvested wet they have to undergo two additional processes before they can go to market, dechaffing and drying. While the purchase of additional machines increases costs, the drying process introduces a new capacity constraint due to its processing capacity ranging from 150 to 200 bbls per hour, depending on the method of shipment (bags or bulk). Sources of variability for NCC There are four (4) key sources of variability that the NCC is subjected to: quality assurance, ratio of wet harvested to dry harvested berries, resource availability, and government legislation. The variability in Quality Assurance arises because the chief berry receiver grades the berries based on color. When a berry is uncertain between grades of No. 2B and No. 3, the chief berry receiver selects No. 3. NCC pays a $0. 50 premium for No. 3 berries. Of the 450,000 bbls of berries receiving No. 3 grades, only half turned out to be premium grade. As the growers of cranberries have a choice on whether to harvest the berries dry or wet, NCC has to be prepared to harvest both styles of berries. The wet processing takes longer and is more expensive, therefore the processing plants have to design their work flow and systems to accommodate the wet berries. A spike in wet growing would have an adverse realized capacity and utilization effect on a plant that is inadequately designed and/or operated for wet berry processing. The key source of variability relates to the demand for resources and government regulation or legislation. Cranberry processors are reliant on trucks to supply their plants with raw berries for processing and have fixed and variable costs associated with them. If another industry has a need for similarly configured trucks, costs would increase based off limited supply and increased demand. Government legislation and regulation is another area of variability for the NCC. Currently the growers set aside 10% of their harvest to keep market prices stable because there is an annual surplus of berries over demand. If the government puts an end to this practice it would create a surplus of berries thus causing prices to drop. Depending on the variability and scale of operational efficiency, NCC most likely would experience a diminishing profit margin. Scenario: Peak harvest-season day involves 18,000 barrels of berries, 70% of them wet, arriving over an 11 hour day. Would trucks have to wait to unload? When during the day would trucks be waiting? How much truck waiting time would you expect? Assumptions Made ? RP1 only processes a bin if it is completely full at the start of each hour ? Bins 17-24 are assigned for wet berries (Bins 1-16 are sufficient to process dry berries) ? Bins 25-27 are counted as six bins with a capacity 200 bbls each ? Total wet bin capacity is 3200 bbls (total capacity of buckets 17-27) ? There is no allowance for inventory to be stored between Dechaffing and Drying If RP1 had to process 18,000 barrels of berries per day and 70% of them were wet harvested, NCC would experience a backup of trucks at the receiving/unloading dock. Trucks would start waiting at hour 6 and would continue to wait until hour 15, which is when the inventory can be unloaded into the bins[1]. The trucks would on average wait 2. 9 hours per day during the peak -harvests season. The primary reason for this backup/delay is the inventory buildup in the temporary holding buckets. The inventory back logs there because the wet berries are being processed slower than the rate that they arrive at. The bottleneck in this process are the dryers, their total processing rate is 600 bbls per hour. The inflow rate of wet berries is 1,145 bbls per hour and the holding bucke ts that are equipped for the wet berries has a capacity of 3,200 bbls per hour which leads to truck backup if the berries are not being processed fast enough. Exhibit A demonstrates the throughput of the wet and dry berries, where after hour 6 the wet holding bins are at capacity and trucks are waiting to unload. The inventory builds up until hour 15 when wet berries can be processed and additional capacity becomes available in the temporary holding buckets. It is important to note that there is no delay in the processing of the dry berries because the holding buckets have a capacity of 4,000 bbls and the destoning machines can process 4,500 bbls per hour, leading to no inventory buildup, given its current inflow rate of 491 bbls per hour. The average time that the trucks have to wait is determined by Little’s law (I=R*T). The average rate is the amount of bbls that the bottleneck can process per hour, which in this case are the dryers at 600 bbls/hr. The average inventory is computed by taking the summed backlog of barrels that cannot be processed and dividing it by the total inflow hours (13,819 bbls /11hrs=1,256bbls). T=IR or 1,256 bbls / 600 bbls per hour=2. 09 hours of wait time per truck Peak Day Performance Recommendations We recommend purchasing two additional driers and converting one of the dry bins into wet bin storage. The cost is $25,000 for each dryer and $5,000 to convert a bin (from dry to wet). With an average truck delayed 2. 09 hours combined with a rental rate of $15 per hour per truck, NCC incurs an excess (due to backup) cost of $7,537 per day. During the 20 day peak season RP1 incurs $150,742 of losses due to the backup of trucks. [2] To confirm our recommendation, we ran a scenario or two additional driers at a total cost of $50,000. The two additional dryers add 400 bbl. per hour capacity to the processing plant, this additional capacity increases the throughput and trucks do not get backed up until the 11th hour of operation. 3] The additional dryers reduce the cost of the delivery truck wait time to $960 per day and $19,200 during the peak season. [4] Furthermore we recommend converting a dry bucket to a wet one. This $5,000 conversion cost was again implemented into the existing scenario. Exhibit E demonstrates that the increased wet berry bin capacity of 200 bbl. removes the truck backup at the 11th hour. [5] The net result of the bin conversion saves $19,400 per peak-harvest season. (The truck backup attributed to the wet bin storage amounts to $970 per day due to capacity limitations. ) The net savings in year one is $19,400-$5,000 conversion = $14,500) The total cost accrued for the upgrades will cost RP1 $55,000, but with the additional ability to process additional cranberries they will be able to save $95,742 in delivery truck backup costs in the first year. After the purchases NCC will need to assess the separator capacity as it becomes the new bottleneck. The separator bottleneck does not affect the truck backup because additional inventory can be stored in the new holding bucket or the destoning process can be throttled back to reduce flow to the separator. As the industry turns to wet harvesting more resources and capacity need to be able to process the changing product mix.