How should Northwest Newsprint (NN) ship products meet its market demands?
Northwest Newsprint, which is a producer of Newsprint and pulp paper, has been having issues meeting the increasing demand for its products. Towards meeting its market demand, the company can take the following options, especially in the area of shipment. The company should adjust to a transportation claim management, where the strategy relies on the reduction of travel needs.
This could be realized through organizing for models, which allow for the redistribution of transportation between time and space. In the case of Northwest Company – as the case should be in any production-distribution network, managing the demand for their products should be a cost-effective option, likely to increase the company’s delivery capacity. The possibility of adopting a demand managing approach to transport will also have the potential to deliver better market demand response, thus realize better performance. The options available to the company include capitalizing on the collective transportation model.
Besides resulting in a reduction in the costs of operation for the company, through freight discounts, the fewer transportation frequencies of more quantities can help meet the company’s demands in a shorter time.
Towards adjusting to the market demand in a substantive manner, and towards aiding the meeting of the market demand in the long-term, the company can shift to supplying shipments of 100,000 tones and above, as opposed to the making of supplies lower than the 100,000 tones limit in a more frequent manner. Another option available to the company is that of swapping the delivery models and channels – to shift the different customer centers to suppliers who are closer to the customer centers in question. In this case, principal customers like the Los Angeles times will receive contractual change, shifting them to different supply centers (Brown 24-28).
How does your solution differ from the original allocation? What are the benefits?
From the allocation of the production, two production mills, Spruce and Duchesne, were assigned to deliver their produce to the nearest respective markets, while Naomie production mills were left to meet the remainder of the market demand. From the allocation, it is clear that the three mill centers are underused in the area of product delivery. In adopting a different production allocation model, the transport costs involved should be put into account, taking the options that will present the least transportation costs, and an adjustment to the production increment demands, which are more comparable to the optimistic amount supplies projected by the company.
The delivery of the higher demand would be met through the reduction of operational costs, through making the transport model more efficient, as well as the improvement of production models – to realize amounts that are much closer to the full utilization of the efficiency of the different plants. According to the case study, many of the plants were running at 85% efficiency, which can be improved to higher levels, like that of the Groundwood specialties line, which stood at 96% (Brown 24-28).
The prospected allocation is shown next.
|The New 1995 Allocation (Tones delivered to distribution centers)|
|Distribution center||Spruce Mills||Naomee Mills||Duchesne|
The benefits to be drawn from the new allocation of production amounts are based on allocating more production quantities to the plants that present the least costs of transportation, as transport makes one of the major costs that do not allow for increased production. The amounts allocated were also based on the projections of the production (optimistic demand forecasts), which may be realized from the utilization of the funds saved from the fewer transportation costs to be consumed, as compared to that of the other production plants.
From increasing the production to be realized from the different plants and capitalizing on production from the low production plants – will also lead to an increase in production efficiency. From bulk production, the company will also benefit from a reduction in the fixed costs involved, including chemical, wood, and supplies costs, energy costs, and direct labor – as the intensification of production will involve a more efficient usage of the required resources.
However, some of the production input costs will have to be increased, these including the directly consumed inputs, like production chemicals and wood supplies. Also, as an efficiency strategy, Naomee, as a production center – should not be used in meeting the extra demand required by the customers of the company. This is because Naomee center should work towards meeting the demand for the company’s products as a unit and not a supplement to the other units (Brown 24-28).
Can NN save money through freight rate discounts on volumes greater than 100,000 tonnes? If so, how much?
The company can save on the transportation of freight amounts greater than 100,000 tones, considering that the company is projecting to deliver 675,588 tones on the upper margin of 492,616 in the case the company is to deliver the lower limit of the production projections. From pursuing the freight rate discounts to be drawn from the delivery of demand quantities above 100,000 tones, the company will be able to draw the following amounts:-
Using the original amounts to be delivered to the different distribution centers, the company will not be able to benefit from the freight discount of 5%. This is the case, as the company does not have any delivery quantity above 100,000 tones for any of the distribution centers. However, following the proposed distribution allotment quantities, the company may benefit from the discount, in the case of the distribution amounts to be delivered to New Orleans and Los Angeles, which are 102 and 189, respectively (Brown 24-28).
Calculations of the amount to be saved from capitalizing on the 5% discounts include, New Orleans: 102,468 tones, at a transportation cost of USD 166.18 per ton. The freight costs to be borne amount to 102,468 X 166.18 = 17,028,132.24 the total cost for the freight is USD 17,028,132.24. The 5% discount to be drawn is 17,028,132.24 X 5/100 = USD 851,406.612. For the Los Angeles case, the Freight cost to be borne is 189,440 tones at a cost of USD 147.46 per ton.
The freight costs to be borne amount to 189,440 X 147.46 = USD 27934822.4 (Total freight cost). The 5% discount to be drawn is 27,934,822.4 X 5/100 = USD 1396741.12. The total discount amount to be accrued by the company from the 5% discount on freight levels above 100,000 tones is (1396741.12 + 851,406.612) = USD 2,248,147.24
Should a 58,000-tonne-per-year machine at Naomee Mills be converted to groundwood specialties?
This alternative is logical towards making the production of the company more efficient and less costly. This is mainly because; in the previous year (1994), the company Groundwood specialties production had operated at 96% efficiency, which is very much comparable to the maximum effective rate of production of 100%. However, from the 96% efficiency production, the company was not able to guarantee that they would meet the demand for the product in the future.
However, the conversion of the 58,000 tons would lead to a reduction in the newsprint amount delivered per year, which can be compensated from pursuing better efficiency of production at the other production plants. Most of the news print plants are operating at an efficiency rate of 85% therefore; an improvement of the efficiency to more than that level; which is the minimum set standard would lead to a recovery of the lost 58,000 tons per year.
Further, the demand for Groundwood specialties’ production is currently increasing, as opposed to that of newsprint production. As a result, the field should be improved, as opposed to the other stagnant production lines. Other fields that were highly productive in the past include the lumber and building ones, which was the case, due to the housing starts time, but are not highly productive anymore.
From making the shift to the production of Groundwood specialties, the company will be able to meet the rising demand for the produce of that line, which will result to the creation of more revenues, as opposed to turning the demand for the commodity down, which is likely to reduce the reputation of the company, in the area of meeting its customer’s needs (Brown 24-28).
Can you recommend specific “delivery swap” arrangements to improve NN’s bottom line?
The delivery swap to be adopted by the company should be one, which will present the least costs in the areas of production and transportation, as well as reduce the time required for the making of the deliveries to the different distribution centers. The swap of the delivery centers should also be based on the proximity of the company’s clients from the different production mills (Brown 24-28).
|The New Allocation of the amounts to be delivered to the distribution centers|
|Distribution center||Spruce Mills||Naomee Mills||Duchesne|
The swaps shown on the table were based, mainly, on the consideration of the costs of transportation, which are dependent upon the proximity of the distribution centers from the production mills. This is mainly because; the choice of the allocation of the major clients will depend on their proximity to the distribution center as well, mainly because a reduction in the time required to secure their supplies will also lead to a decrease in their procurement cost, thus production efficiency.
The Los Angeles times, their center for supplies will be shifted to the Los Angeles distribution point. Knight-Rider will be reassigned to the New Orleans regions, as this distribution is closer than the others, on the basis of distance and favorability of transport network connecting the two centers. Hearst Chains will be reassigned to the San Francisco distributor point, as it is closer to their premises and the transport network connecting the two is favorable, thus the reduction of transport elated inefficiencies (Brown 24-28).
Brown, Casey et al. “Transformation from Batch to Lean Manufacturing: The Performance Issues.” Engineering Management Journal 18.2 (2006): 24-28.