Manufacturing Strategy of Riordan
First and foremost, it should be noted that Riordan is primarily a business to business manufacturing company. Some of the company’s clients include appliance manufacturers (i.e. Carrier, Samsung, etc.) aircraft manufacturers (i.e. Boeing), as well as car companies (ex: Ford Motors) and even beverage producers. Based on the work of Denrell (2013), it was noted that corporations that focus on B2B (business to business) sales are oriented more towards a chase type strategy as compared to a level method of production or a combination of the two strategies. The basis behind this assertion is due to the fact that the production of goods or the provision of services under a B2B agreement is based upon a contract.
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This means that there is a set amount of goods or set time in which a particular service is provisioned as indicated in the contract agreement. This differs significantly from a company that deals with a business-consumer type strategy wherein the exact amount that is needed to be produced to match demand is unknown.
The primary relationship of the supplier in this instance is that of a components and moulding provider. This entails the production of the plastic casing, plastic buttons, and plastic fan blade used in the electric fan.
Production Capacity meets Demand
One metric that should be utilized to evaluate the performance of the supply chain is to determine if the production capacity of the supply chain actually meets the demand of consumers. This can be done by examining how the combined parts and the resulting finished product match up to market demand. If there are too few parts to match demand then it can be stated that the current production capacity of the company is insufficient. On the other hand, if there are too many parts and finished products then the company is overproducing and is in effect wasting money.
The last approach that should be considered by companies when evaluating performance is to take into account business cycles and market slumps and adjust prices accordingly. What must be understood is that pricing is a critical element of successful operations; in good times and in bad and many companies do not focus enough on getting their pricing right. A company should not sell products at premium prices during periods of low demand. It is based on this and the cyclical cycle of business that companies should consider proper pricing strategies when selling particular hard to move products. For Riordan manufacturing, this takes the form of taking into account the physical value of the product being sold as well as various non-tangible elements that its consumers take into consideration before they will be willing to pay for a product.
For example, the state of the housing market in the U.S. is at an all time low however there are still individuals who are in need of homes. In such cases developers need to take into account the physical cost of the home itself and factor in the current housing slump before creating a price range for a particular apartment or home. It is based on this that it can be said that the greater the amount of non-tangible assets that are taken into consideration by the customer before making a purchase the greater the need for companies to fix prices in accordance with what is necessary to sell the product itself. The ability of Riordan manufacturing to properly set prices based on the aforementioned factors is a good indicator of effective supply chain management.
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Lean Production Methods
Through the use of lean production methods, such as Six Sigma, a company can reduce the amount of losses it incurs during the production process by increasing efficiency and lowering the amount of defective products that are created. This makes the company more profitable since it is able to operate in a more cost effective manner.
Business Forecasting – Qualitative
One method that should be utilized in business forecasting would be to examine the current business conditions in the markets where the company’s buyers are located. At certain times products become a “tough sell” as a direct result of consumer objections to the product itself. In such cases what is needed is to frame an offer to get rid of the objection (Denrell, 2013). This means to create a buying situation where the consumer observes the perks of buying a particular product and neglects to take into account the possible negative implications of the sale. Within the context of economic conditions, this comes in the form of a drop in consumer demand for electric fans due to seasonal or current market conditions.
Seasonal drops in electric fan sales usually come during autumn or winter when the weather becomes progressively colder. As a result, consumers usually refrain from buying items that would cool them off and choose to purchase heaters. One possible way of addressing this concern is by offering discounts on the plastic materials used to create the fans so as to convince manufacturers to continue buying despite the lacklustre demand.
Market conditions on the other hand refer to the current market demand within a specific region brought about through a variety of external conditions that are economic in nature. These can range from unemployment rates, rate of international trade, as well as the rate of employment for new employees. What is important to look at is how likely consumers are to have the necessary funds to buy new electric fans as compared to a situation where it is unlikely they have the funds on hand.
High rates of unemployment combined with low levels of international trade is indicative of a recession in place which makes the likelihood of electric fan purchases to be quite low. On the other hand, high rates of employment combined with high rates of international trade are indicative of good economic conditions which means that consumers have the funds on hand to make purchases. By utilizing these factors as a means of business forecasting, it would help Riordan to determine the rate of production needed for the electric fan components.
Historic Local Demand
Based on the work of Thompson (2013), it was noted that one way of developing an effective sales forecast was through the use of historic demand for particular types of products (Thompson, 2013). Thompson states that historic demand relates to particular seasons where certain types of products are more popular with the general public as compared to other seasons. One example that Sabnis, Chatterjee, Grewal & Lilien (2013) point out is that during summer the rate of purchases related to ice cream and air conditioning units increases considerably. The reason behind this is related to the hot weather increasing localized demand for a means of keeping cool (Sabnis, Chatterjee, Grewal & Lilien, 2013). The same can be about electric fans since it is likely that demand would increase considerably during the summer months since people would like a cheap and effective way of staying cool.
The following is the sales forecast that has been developed which indicate the months when the sales of electric fans should increase and the percentage of production that the company should allocate towards these months.
|Months of the Year||Production Percentage|
|January to March||15%|
|April to July||70%|
|August to October||10%|
|November to December||5%|
Aggregate Production Plan
Based on the sales plan it has been determined that demand for the electric fan is greatest during the summer months of April to July. As such, 70% of the company’s manufacturing capacity and resources will be utilized during this month with the months of January to March acting as the ramp up period for full operations during summer.
Since a majority of the sales and production will be conducted during April to July, one way of increasing efficiency would be to start production on the smaller components of the electric fan (i.e. the buttons and casing) during January to March with the larger components (i.e. the base and the blades) being made during summer. Production will decrease after July due to anticipated low demand.
Materials Requirement Plan
Since it is assumed that the materials have an unlimited shelf life (i.e. because they are plastic), there is no issue regarding storage. As for obtaining the base materials for production, it is recommended the procurement of raw materials occurs during November to December with the initial materials being shaped on January to March.
Since an electric fan has multiple components that are needed at different times during the production process, a two bin inventory control is recommended since parts that were already produced from January to March can be replenished as needed.
Denrell, J. (2013). “Experts” Who Beat the Odds Are Probably Just Lucky. Harvard Business Review, 91(4), 28-29. Web.
Sabnis, G., Chatterjee, S. C., Grewal, R., & Lilien, G. L. (2013). The Sales Lead ] Black Hole: On Sales Reps’ Follow-Up of Marketing Leads. Journal Of Marketing, 77(1), 52-67. Web.
Thompson, E. (2013). Striking a Balance between Sales and Operations in the Forecasting Process. Journal Of Business Forecasting, 32(4), 29-31. Web.