Supply Chain Management Capstone Course

ODPG - A Case Study

Introduction

Carver Parks closed his eyes, lowered his head and rubbed his fingers along his brow. His eyes were strained looking at report after report, but he was determined to find a solution. That's why Suhani hired him in the first place. Solutions were his specialty, but lately he was having trouble getting out of the weeds and seeing the path the company needed to follow. A steady trend over last 12 months showed a slow reduction in gross margin. Despite changes made in all areas of the business, no one could figure out how this was occurring. Suhani Ojah, President & Chief Executive Officer (CEO) of the company, felt this was a wake up call to start taking the company in a new direction. Carver joined the lucrative business, ODP Group Inc. a little over 18 months ago. He was weary to leave his own position at the Ivey Business School (Western University, London Ontario) but he was excited for a new challenge and it allowed him to be back in his hometown of Winnipeg, Manitoba. Officially his title was Vice President of Business Management. Most didn't' really know what that meant, but as he directly reported to Suhani, his position came with a great degree of authority. His role was to act as an internal consultant; investigate as required and develop recommendations for the company to grow in primarily four areas 1) Financial 2) Sales & Operations 3) Team (Employees) and 4) Community. Suhani had stressed to him the importance of making sure he has the buy in from the Executive Team to ensure everyone was aligned as they move forward. For the most part he was greeted with enthusiasm by the Executive Team, but Carver could tell there was some degree of defensiveness when it came to probing in anyone's respective area. He expected this and tread carefully as he started his review of the company. In the first 6 months of his tenure, things seemed to be going well. He had found some hidden gems in the area of transportation and was able to help contribute to the company's profitability. He also found an ally on the Executive Team, that being Michael Makinda, the Director of Supply Chain Management. However, the good news was short lived. Over the last 12 months the Finance Department reported a significant drop in gross margin from 33.79% to 26.21%. This was announced to the Executive Team at the end of the first quarter of 2020, for the 2019 fiscal year. The news came as a shock to all, especially to Carver, who felt his efforts may have actually contributed to a better performance in 2019. Suhani advised the Executive, at this time, this was now Carver's top priority and he should be allowed full cooperation in order to ensure they do what is necessary to recover and bring the company back to expectation. Although Carver appreciated the vote of confidence from his boss, the more he investigated the more challenges emerged.

Company History

Ojah-Diaz Plastics Group (ODP Group Inc.) was a third generation privately owned family business. The business was founded 63 years ago, in 1957 originating from Trinidad & Tobago (in the Caribbean). Suhani's grandfather (Ivan) was an operator in the newly formed refinery and worked close with the British engineers, as the Petroleum Sector expanded throughout the country. He became well recognized for designing his own parts that would help him as an operator. Although he had no formal education, soon enough he became a regular part of the engineering team with his quick ability to sketch and design different customized parts that could help the operational process. Metal was expensive and took time to produce, but with the advent of plastics dominating the industrial sector, it became a viable option for the petrochemical industry in Trinidad. With the encouragement of some of the engineers, Ivan eventually opened his own company Ojah's Plastics Limited (OP Ltd.) specifically designed to create customized plastic products (through injection molding) to support the petroleum industry in Trinidad. For the next 20 years, the business flourished in Trinidad and OP Ltd. became the primary supplier for different companies involved in the oil and gas sector. His company manufactured over 1,000 different sku's and expanded to Venezuela and Guyana (in South America). At this time, several family members were on the Board of Directors with his son Chris and Anthony both in Executive positions within the company. In 1977, Anthony and his family moved to Canada and settled in Winnipeg, Manitoba. Anthony began to explore the possibility of supplying the Canadian Automotive industry as Chris focused on expanding the operations in the Caribbean and Latin America. By 1987, expansion continued into Canada as well as Mexico. However, the cost of manufacturing and exporting all from Trinidad was taking a toll on the company's profit margin. A decision was made to close the manufacturing operations in Trinidad and re-establish in Canada. In 1990, OP Ltd. established two manufacturing plants in Canada (Lloydminster, Alberta & Sarnia, Ontario) with Distribution Centers in Canada (Winnipeg, Manitoba; Oshawa, Ontario; Calgary, Alberta), Mexico (Mexico City) and Trinidad (Pointe--Pierre). At this time, Chris and his family also moved to Winnipeg, Canada and Anthony officially took over as President of OP Inc. as Ivan settled into a well-deserved retirement. Under Anthony's leadership the company started focusing on new markets including 1) agriculture 2) automotive 3) pulp & paper and 4) mining. Chris also recognized Mexico's increasing potential as a major player in the oil and gas sector and the advantage of being a supplier from Canada with the newly formed NAFTA agreement (North American Free Trade Agreement). Anthony encouraged expansion through partnerships and in 1995, after extensive negotiation OP Ltd. officially became a joint venture with a privately owned Mexican company (the Diaz family) forming a new company called ODP Inc. (Ojah-Diaz Plastics Incorporated). At this time, the company produced over 10,000 different sku's for more than 50 different industry sectors. They were clearly recognized as a key manufacturer and distributor in North America and Latin America for B2B (business to business) plastics solutions (industrial and commercial). The company continued to expand and in 2005 a new manufacturing plant was opened in Sao Paulo, Brazil to support continued growth in South America. At this time, both Anthony and Chris's children had joined the Board of Directors.

Company Today

In 2017, Suhani Ojah (daughter of Chris) became the President & CEO of the ODP Group Inc. The company's footprint had become quite complex including several manufacturing facilities, distribution centres and sales offices. Although the company was growing physically, profitability had fluctuated over the last 10 years with some locations consistently in the red. Under the direction of Suhani ODPG began to lean its operations and become more efficient. Each location started reporting its individual effectiveness and its contribution to the company's overall profit. Lean manufacturing became a core part of the ODPG philosophy as well as community commitment. However, the challenges to sustain margin were greater today than any other time in the company's history. Off shore competition and raw material prices continued to pose difficulties. Suhani knew the company needed outside help. In early 2019 she went through an extensive recruitment process to find someone she felt could help identify the next steps for the company in order to grow. Carver Parks was hired in May of 2019. His initial task was to understand the process used in each of the key functional areas of the company.

Products

The products of the company were related to 3 categories: 1) Custom Orders This represented manufactured plastic parts which were customized for a specific customer and would only be ordered once. Typically there was no holding of inventory and orders were shipped and invoiced upon completion of manufacturing. For each of these orders an individual quotation was made for the customer. Each year, custom orders represented approximately 19% of annual revenue. This product line did not have a consistent gross margin but on average it was second highest (of the three product lines). Since these were many one time (or first time) customers payment terms were always an issue as these customer typically would flat out refuse any pay in advance terms, which resulted in an extremely long cash to cash cycle (terms were typically net 90 or 120 days). 2) Replenishment This represented manufactured plastic parts which large customers ordered on an annual basis. There were over 100 customers in this category (considered large) and each of them ordered in a different way. Each client had a separate contract related to their order and for many (approximately 75%) inventory was held and shipped out as required. Some had long term contracts others used blanket PO's for the year and others simply placed an order for each dispatch. For most of these orders, the product was the same as previous years. As a result prices were not quoted annually, and only occasionally prices would change. There did not seem to be a system in place as to how and why this occurred. Additionally, forecasting was the responsibility of the ODPG (and customers paid extra for this feature), but for some sku's inventory levels were dangerously low or completely out of stock while for others there was years of inventory. Since each customer had a different agreement, some customers were paying for the inventory holding costs, while others were not. Inventory was kept in the distribution center which made the most geographic sense. However, for large companies which had multiple locations, inventory was kept in more than one of ODPG's distribution centers. Each year replenishment orders represented about 69% of annual revenue. This product line had the lowest gross margin. 3) General Inventory This represented thousands of common plastic parts that were used in a variety of industries. They were typically considered low value items. Inventory was held of these in every distribution centre in order for customers to order direct. Similar to the replenishment products, inventory levels were out of stock on some items, very low on others and excessive for other items. Each year general inventory represented about 12% of annual revenue. This product line had the highest gross margin.

Carver, categorized the stages of operations in the following way:

1) Pre-Production (for product category Custom Orders or when there were changes to Replenishment) This is defined as a specification review of the quotation by the engineering team, the procurement team and scheduling If issues arose they would notify the sales department. If no issues, the quotation would be considered "verified" and it would move to the next stage called "Planning Que" where it would wait to become either a confirmed order (called a won opportunity) or a lost order (called a lost opportunity) 2) Planning Once a quotation became a confirmed order (a won opportunity) it moves from the "Planning Que" to the "Planning Schedule". The first step of the planning schedule was an engineering verification, where the specifications from the pre-production were checked against the specification from the confirmed order. If everything was the same, the order would move to the next stage, called MRP (materials requirement planning). If there was a discrepancy between the pre-production verification and the planning schedule verification, the order was placed "on hold" until the sales team resolved the issue with the customer. No order progressed until the pre-production verification and the planning schedule verification matched 100%. Carver noticed that there were hundreds of jobs "on hold" and in speaking with the Sales Team, it was not common to advise the client of the status, as the problems were resolved internally (if they could be). At the MRP stage, the procurement requirements, operational information and scheduling took place. For the most part the MRP consisted of a combination of spreadsheets (for all schedules) as well as some stand alone databases (built through Microsoft Access) for each different area. For example, purchasing had their own data base which provided all supplier contact information, history and generated a purchase order. However, it did not connect to any other platform being used. Similarly scheduling was performed manually using spreadsheets, updated on a daily basis. When the daily schedule was updated, the weekly schedule and monthly schedule were automatically updated at that same time. Carver recognized that the schedule was usually not updated promptly so it was always a few days behind. Operational Information (called a Job Pocket) was entered into an Access database and each department then used as the job moved through the production plant. It was not uncommon that the Job Pocket changed through the course of the production (with information updated, or changed). 3) Supply Chain Procurement: Procurement was not centralized. Typically, procurement focused on 3 critical parts for the injection mold process: 1) The resin pellets - These can come in many shapes, sizes and resins due to nature of the manufactured product - There were 11 primary suppliers (distributors) the company dealt with in Canada and over 27 secondary suppliers the company dealt with internationally; lead time varied as did inventory levels and it was not uncommon to have either too much or not enough pellets when jobs came up - The company did not deal direct with any manufactures of the pellets 2) The mold die and colour - All dies were from steel and came from one specialty manufacturer in Hamilton, Ontario. 3) Parts required for the equipment - Parts were ordered, as required from various distributors in the different cities of manufacturing (Lloydminster, Alberta & Sarnia, Ontario) or distribution centres - There was no central inventory of parts although each plant or distribution centre seemed to have their favorite supplier to purchase from and sometimes kept buffer parts - It was not uncommon that machines went down due to parts and air shipments were made between the different plants or distribution centres to get equipment back up and working Logistics & Warehousing: - In the main manufacturing plants, warehousing of pellets for the main replenishment and general inventory lines were always held. However, it did not always mean they were in stock. Carver noticed there were constantly pellets of these products on order or too much of them - The inventory system used was a stand alone database with a barcode system based on Microsoft access. As raw materials (pellets) came into the warehouse , it was barcoded, data entered and then put away into the warehouse (it was not uncommon that there was backlog here with raw material left in the "work in process" area for days until it was put away) - The pellets were transported by dry bulk transportation. Although there were specially designed transport units (hoppers) ODPG standardized a few years ago to receive everything in cartons and on wooden pallets so they could put in their warehouse racks. This standardization caused a significant up-cost as distributors had to re-package everything they sold from manufacturers. - Both manufacturing plants had access to both rail and road transportation direct to their facilities - All the distribution facilities were connected by an integrated inventory program so there was transparency between the facilities - Carver noticed, that many times the distribution centres would ship back and forth to each other to fill orders (as opposed to asking the main manufacturing plants for the order directly) 4) Production The production process was actually quite simple, consisting of the following steps (reference, Custom Part.Net Injection Molding): a) Clamping - Prior to the injection of the material into the mold, the two halves of the mold must first be securely closed by the clamping unit. Each half of the mold is attached to the injection molding machine and one half is allowed to slide. The hydraulically powered clamping unit pushes the mold halves together and exerts sufficient force to keep the mold securely closed while the material is injected. b) Injection - The raw plastic material, usually in the form of pellets, is fed into the injection molding machine, and advanced towards the mold by the injection unit. During this process, the material is melted by heat and pressure. The molten plastic is then injected into the mold very quickly and the buildup of pressure packs and holds the material. The amount of material that is injected is referred to as the shot. The injection time is difficult to calculate accurately due to the complex and changing flow of the molten plastic into the mold. c) Cooling - The molten plastic that is inside the mold begins to cool as soon as it makes contact with the interior mold surfaces. As the plastic cools, it will solidify into the shape of the desired part. However, during cooling some shrinkage of the part may occur. The packing of material in the injection stage allows additional material to flow into the mold and reduce the amount of visible shrinkage. The mold cannot be opened until the required cooling time has elapsed. d) Ejection - After sufficient time has passed, the cooled part may be ejected from the mold by the ejection system, which is attached to the rear half of the mold. When the mold is opened, a mechanism is used to push the part out of the mold. Force must be applied to eject the part because during cooling the part shrinks and adheres to the mold. In order to facilitate the ejection of the part, a mold release agent can be sprayed onto the surfaces of the mold cavity prior to injection of the material. The time that is required to open the mold and eject the part can be estimated from the dry cycle time of the machine and should include time for the part to fall free of the mold. Once the part is ejected, the mold can be clamped shut for the next shot to be injected. e) Packaging & Delivery - once sufficiently cooled the finished product is packaged in standard cartons and held in the warehouse for dispatch. The warehouse had a weekly schedule (spreadsheet) for delivery to clients directly (for custom products) or to their distribution centres (for replenishment and general inventory). However, Carver noticed a large whiteboard which outlined each day's priorities. He found that the staff seemed to pay more attention to that then the weekly schedule, when it came to shipping. The whiteboard was constantly updated by a member of the planning team, responsible for scheduling.

WHAT WILL BE THE SWOT ANALYSIS AND IDENTIFY THE ISSUES (SHORT AND LONG TERM) AND WRITE RECOMMENDATIONS AND IMPLEMENTATIONS FOR THE ISSUES IDENTIFIED?