Brown Chemical Manufacturing produces a single product called CRX. The company’s product is sold mainly to food processing manufacturers who use it as a preservative. The production process for CRX is quite complicated. The product goes through four different stages, and each stage is carefully controlled with regard to temperature and moisture. At the first stage, two basic chemicals are mixed together and heated to 1,500 degrees. At the second stage, the product is cooled, and an additional chemical is added when it reaches just the right temperature. At the third and fourth stages, the resulting chemical is refined successfully. Therefore, the company has to maintain raw materials inventory for three different chemicals. In addition, the finished- goods inventory for CRX has to be maintained. Almost all the cost of producing CRX is for raw materials and overhead. Since the process is fully automated, there is no direct labor cost. Another major cost, however, is that of storing the finished product. In order to increase the product’s shelf life, the finished chemical is stored under specially controlled temperature conditions. These conditions require refrigeration to 0 degrees, with essentially no moisture. This refrigeration process is fairly expensive because the company manufactures a very large quantity of CRX. Recently, management of the company has been evaluating the overall systems design. Several comments have been made with regard to the manufacturing and inventory systems:
a. It has been determined that a large number of production batches of CRX have to be discarded due to inadequate environmental conditions during processing. At present, there is no management reporting for the costs of the lost materials or time.
b. Management suspects that the company is incurring too high a cost in the refrigeration of finished goods. It would prefer that production batches be run as customer orders are placed. In this way, the finished CRX could be shipped directly to the customer without a need for refrigerated storage in inventory. However, the problem is that the company has never been able to successfully implement this type of system for several reasons: (1) delays in processing of customer orders, (2) difficulty with efficiently scheduling production, and (3) problems with distribution. It is often the case that when a production order is ready, the company’s trucks are all out of state making deliveries. It would be disastrous if a production batch was completed and there was no truck to deliver it. This would result in the loss of the entire shipment.

Present a systems design alternative for dealing with Brown Chemical’s problems.

  • CreatedFebruary 26, 2015
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