Can you draft a summary of this case study The Oak Hills facility is a unit of The Oil and Gas Services Company $($TOGS$),$ an inte$-$ grated oil and gas industry services provider headquartered in Houston, Texas. Primarily, TOGS provides upstream services to public and government$-$owned energy companies. Currently, oil prices and demand are at a low point in an industry$-$wide cyclical slump, and no upturn in oil prices or demand is evident in the foreseeable future. In addition, a wave of mergers and acquisitions has taken place within the oil and gas industry. TOGS was no exception and had recently acquired a competitor, Triangle Corp. $($Triangle$).$ The two companies manufacture the same types of service products. In turn, TOGS was in the process of being acquired by Pasadena Services, a larger competitor. At the time of the facility visit, the acquisition had not yet been fully completed. In order to finance the purchase of TOGS, Pasadena Services planned to issue a large amount of bond debt. Press releases by Pasadena Services indicated that the company intended to reduce operating expenses by consolidating redundant operations. Pasadena Services also expected that rev$-$ enues would increase since the combined companies would now offer a full array of upstream services that could be marketed as a complete service package.

The Oak Hills Facility and Product Line

A project team of students in a Supply Chain Management class had been assigned the task of assisting the Oak Hills manufacturing facility in improving their operations processes. The semester was only two weeks old when the team met Pauline Zhang, spe$-$ cial projects coordinator at the Oak Hills facility. Oak Hills was a separate facility located close to TOGS headquarters, and Pauline had recently been assigned to the Oak Hills plant. The agenda for the visit was to provide an overview of the facility and the product line under consideration for conversion to a lean system. A full tour of the facility, including the production lines, and a short question and answer session would conclude the visit. The facility layout is shown in Figure $1.$

The main product manufactured at the Oak Hills facility was a special testing instru$-$ ment used in oil and gas exploration. The facility supplies both internal and external cus$-$ tomers. Internal customers at the Exploration and Extraction unit $($E&E$)$ used the testing instrument as part of a logging$,$ drilling and measurement services package offered to external clients. The facility also sold to other oilfield supply companies and to large for$-$ eign government$-$owned companies that did not own manufacturing facilities for the

testing instrument. Due to the depressed price of oil, exploration activities were at an all$-$ time low, and demand for Oak Hills$$ testing instruments was anticipated to drop from an estimated $2\mathrm{.}5$ million units in the previous year to less than half of that amount for the current year. This estimate included the demand from Triangle, but not from Pasadena Services. Oak Hills management was not certain when testing instruments would actually be provided to existing Pasadena Services business units and customers.

Demand for testing instruments was both local and global and, as seen in Table $1,$ was highly erratic within product lines. Large volume orders with lead times of up to three months were the norm for foreign orders, so months could go by before a specific instru$-$ ment was manufactured again. The reason for the large international orders was the strin$-$ gent paperwork requirement of the U$.$S$.$ Government. Domestic order volumes were smaller, and lead times were between one to two weeks. Many E&E domestic orders were rush jobs and had to be expedited on the shop floor since the daily cost of an idle exploration well could range from U$.$S$.$ $$50,000$ to U$.$S$.$ $$100,000$ a day. Oak Hills management wanted to reduce domestic lead times to one week and lower the number of expedited orders.

The Oak Hills plant had little information concerning current or impending E&E projects that would require the testing instruments the facility supplied. Another prob$-$ lem was the fact that E&E customers were used to the luxury of placing rush orders: hence the plant had to maintain a high level of raw materials inventory on site. This, in turn, meant that inventory holding costs were quite high; inventory was estimated to turn over five times annually. Increased delivery costs and overtime pay were other costs associated with expediting orders. In addition, employee morale suffered and desired customer service levels were not maintained.

The testing instrument produced by Oak Hills was simple in design and consisted of three primary components that comprised $80$ percent of the total production cost.

A machined case acted as a protective receptacle for a sensor board. A lid made from a composite of powdered metals was adhered to the case with a sealer. This combination was called the $$box$.$

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