IAC Reynosa Case Study Final
In our evaluation, IAC had improved its operations by increasing TTS transparency, enhancing the flow of information by updating their SAP system, and as a result, improved their warehouse management strategy. With this updated warehouse management, it allowed IAC to eliminate their Canadian and Texas warehouse, and use only the Reynolds plant with their new packing strategy. This enabled them to become more standardized and lean In their practices. This was further complemented by their milk-run strategy for their trucks.
Followed by a port switch from the Vernacular port to the Altair port, resulting In optimization of their supplier route and significant cost savings. With those changes In place, the problem that has yet to be resolved by Salinas remains unaddressed.
The recommendation Is Tanat Salinas can Implement most management meetings to establish a continuous improvement culture. With the establishment of continuous improvement, the processes behind it will allow for enhanced employee benefit programs, professional training, improved key performance indicators for employees and management.
As a result, this will reduce the supplier base and allow IAC to focus on maintaining long-term relationships with them, enhancing their supply chain. Problem Definition The Reynolds plant had various areas of concern that were observed. Many of these issues listed pointed to a much larger and central problem that needed to be fixed.
We observed the various symptoms that took place in the Reynolds plant, from which we were able to derive the major concern at hand, as we realized amongst all of these concerns, there was something much deeper as the root cause to all the symptoms identified.
During our analysis, it must be kept in mind that even though there is a lot of research being conducted during the construction of this case, we do not have all the information needed to make a sound Judgment on why things appended the way they did. It was realized that there have been some speculations and assumptions that affected our analysis, which will be documented in this report.
Taking all of that into consideration, the problem we found to be present with International Automotive Components Company (IAC) was that at the Reynolds plant, there was a lack of a continuous improvement culture, especially with the sudden transfer of ownership, there was no proper process followed that worked as a strategic fit for the company. This as a result, created the central problem that led to the underperforming of the Reynolds plant. An evaluation of Salinas approach and our team’s own analysis is included in the case to arrive to our final recommendations for the company.
Key Assumptions The original company that Global Automotive purchased before IAC was much smaller in size Most major decision makers are from the original company before Global Automotive after ‘Sac’s purchase IAC Reynolds plant had the financial backings to perform Saline’s purposed changes The original company was a Mexican family business and was operating using traditional methods The suppliers under NONFAT is reliable Quantitative Analysis The Reynolds plant of IAC had only 3 employees per administrator where the Quarter plant had only one administrator for 9 operators.
In addition to that, the Reynolds plant had 765 employees in the plant compared to Quartered 311 employees. Furthermore, the Quarter plant was selling $9 million worth of goods, while Reentry’s was only $7 million. According to the results in Appendix – A, the Reynolds plant had 7. 38 times more administrative staff and 1. 84 times more operating staff, while each employee is only 32% as effective compared to the Quarter plant.
This indicates a significant HER problem as well as the working efficiency of the Reynolds employees.
The original logistics department had 14 employees, which were divided into two groups. One group was the buyers and the second was planners, each with their respective team lead. In the recommended solutions, Salinas reduced the number of employees from 14 to five, with the implementation of four logistic planners and one logistics manager, which lowered ten communication channels drastically. Slung ten communication channels calculation, as shown in Appendix – B, we can see that the number of communication channels were reduced from 91 to 10, internally.
The new structure increased effectiveness of the role and allowed for more transparency.
Now problems are much easier to identify. The original ground transportation process crossed three borders and required goods to be stored at three locations/stages. The solution suggested by Salinas only required one border crossing and all goods were stored in one location. The difference in operations can be demonstrated as shown in Appendix – C. In addition, the 13 carriers were reduced to one running through three routes.
By optimizing the order quantities, this resulted in reducing the delivery trucks for raw trial from eight to four, which is a reduction of 50% and the delivery of finished goods was reduced from 20 to eight, which is an increase in efficiency of 250% per truck while maintaining sales.
Which the changes can be observed in Appendix – D The new structure allowed the company to have a much more lean and simplified process, allowing greater ability to facilitate further improvements. For their ocean freight, the switching from Vernacular port to Altair port reduced delivery time by nine days, which is a reduction of 37. %. Port clearing at Altair was $607 cheaper per container, a reduction in costs of 44. %. Transportation cost reduction of $1093 per container or a 59% reduction.
Detailed calculations can be seen in Appendix – E The new structure optimized the company’s supply route, reduced lead-time and transportation costs. This led to significant cost savings, which can be reallocated to other improvement initiatives. Finally we have included the comparisons work flow form the old process to new process in Appendix – F. Qualitative Analysis Reynolds had two transfers of ownership within the last few months.
With this event, it affected the company culture and employees needed the time to adjust to the new culture. With this change, it impacted the employees drastically with their daily roles and responsibilities.
Thus, it is no surprise they don’t feel loyal, as this has instilled fear of losing their Jobs. When considering a continuous improvement culture, employees work in a method that allows them to do more than what it expected to retain quality and efficiency, which is fundamental for continuous improvement.
However, with the changes like that of IAC as described above, the employee’s attitude to going the extra mile, or doing more than what is expected is very unlikely, since everyone is focused on safeguarding their positions. The earlier management at Reynolds were seen as traditional and resistant to a lot of changes that Salinas made. This was the cause to why the earlier management from Salinas left because they could not deal with the amount of transparency that the came into place with his changes.
In addition, when the plant was purchased with ‘Sac’s own cash reserves, the requirement to be profitable as soon as possible became unrealistic, which caused significant amount of pressure on the management at Reynolds to perform, leaving very little time and room for analysis for continuous improvement.
When cooking at the miscommunication between buyers and planner, the original composition probably worked well when the company was small. However, with a company of the size of IAC, the amount of coordination that is needed from these two functional areas is enormous.
So instead of coming up with better methods to increase collaboration, the management’s decision was to hire more staff on both teams, wanly demonstrates a traditional way AT twinkling when ten performance AT the department is not on target. This led resulted in a one to three admit to operator ratio, significantly increasing the amount of labor cost. This demonstrates that the employees were measured using the wrong key performance indicators and the management had a lack of understanding of their own processes.
Furthermore, Reynolds lacked of a standardized and effective way to record orders. Manual order recording works in a situation where the company is not receiving orders on a consistent basis. However, in ‘Sac’s case, with the increase in ordered quantities, manual order recording was no longer an accurate method to manage the level of complexity that is involved in using manual entries of information. Along with the increased mistakes with the various processes within IAC, it greatly reduced the flow of information across the supply chain.
In a continuous improvement environment, these problems would have been addressed much earlier and fixed before a problem reoccurred.
As we analyses further and look at the steps taken to improve their processes in the warehouse, it shows a good example of continuous improvement. With the implementation of the chaotic warehousing, is was complemented by the upgrade of SAP. Usually, the biggest challenge with chaotic storage locations is the ability to identify where the item is located. However, with SAP this improves order processing and logistics management, providing a better view of the flow of materials.
This reduced the number of runs the trucks have to make in collecting the raw materials, which explains their switch from depending on 13 carriers to one carrier using only three routes, the milk-run strategy.
From reading the case we can appreciate that the ideal solution is not a one step process; the chaotic storage locations was likely the initial idea for change, but then the ability to manage the type of inventory became a problem. Upgrading SAP and increasing the usage of the information system further tackles this.
All in all, demonstrating the importance of continuous improvement. The original method of finished goods storage does not make sense from a lean perspective. The potential conflict of this may have arose from the fact that the previous company that owned it used the Canadian and McAllen warehouse; therefore, the management’s decision was to keep the previous processes. This not only major prolonged the lead-time of raw materials and finished good deliveries; it also expanded the supplier network further to northern US & Canada.
Another potential reason may possibly be that Michigan was close to he finished goods inventory and the automobile industry was booming when the warehouse was established. Initially, it made sense back then because the goods could be delivered more efficiently. However, due to economic events, such as a recession, it is capable of forcing an industry to relocate, as the location used for the finished goods inventory is no longer optimal, implying relocation should have been considered away from Michigan, in ‘Sac’s case.
If we apply this theory to IAC, one would realize that a detailed transportation cost analysis was never conducted until Salinas arrived. This indicates that the previous management acted based on instinct and common knowledge rather than actual numbers. Additionally, the amount of suppliers Reynolds has in Europe is quite concerning.
The possible cause to the misalignment of procurement and logistics may be due to the time spent by procurement, who is in search of the lowest possible price for goods, without the constellation AT tenet logistic Delving uses Day Tanat particular suppler.
Scholarly, Walt the usage of NONFAT approved suppliers, these suppliers were very far away from the Reynolds plant. It is possible that they were introduced to them through referrals, as mentioned earlier regarding the choice of warehouse location, most of the automobile suppliers were abundant in Michigan, which led to the referral, since it was close by. Moving on, the Vernacular port being the biggest port within Gulf of Mexico, has been a popular choice for industries for a long time.
This popularity not raised the costs for customs clearing significantly, but also made the port become much more congested.
Altair, on the other hand, is much closer to Reynolds and has faster custom clearance, at a lower cost. However, this was never considered. This concern sounds similar to the analysis made regarding the issue with their warehouse management; the choice of using Vernacular was most likely based on intuition and common knowledge of management rather than consistent cost analysis and continuous improvement.
Moreover, traditional companies usually work with an approach of minimizing risk, especially in the case of Reynolds. The original management never identified what possible expenses with its INCOMERS could be incurred; instead, it assumed that because there is less risk related to the delivery of goods, it would be better. This shows a significant lack of understanding and unwillingness to take risks, which most organizations that maintain a focus on continuous improvement need to embrace.
Last but not least, all the employees of the business were individually meeting their expected roles and responsibilities and as a result, did not view themselves as a driver of how the company performs as a whole, based on their individual roles. With the management changes, this soloed their approach and the silo in the company became even more apparent as everyone was more fearful to losing their Jobs, so they only completed only what was required ND/or assigned. They were unwilling to the extra mile to keep the company aligned according to company’s strategic plan.
This demonstrated the type of thinking that was fostered by the older management. As a result, this instilled a culture of work, which was to keep doing what worked (effective thinking), but not what can be changed to allow a strategic and efficient approach to meet end goals (efficient thinking). Recommendations For our recommendation, we propose the following changes that Salinas can implement to further improve the operations at Reynolds.
Implementation of Continuous Improvement Culture The original owners of Reynolds lacked a process in place that would allow ideas to be shared and flow easily from the bottom up.
This hindered the employee’s ideas and needs to be unheard by the management of the company. The changes Salinas made, such as taking away walls in the office, increased the amount of transparency and simplified this concern. However, if the leader cannot encourage an environment for an employee’s to voice to be heard, testing their ideas and allowing a sense of experimentation, there would be no source of encouragement for the innovators thin the group. This requires a change in focus of the upper management’s mindset.
To allow a culture of continuous improvement, a shift in the management’s mindset would facilitate a belief of innovative thinking for the company. This will discourage from falling into the same trap as with the previous management’s way of twinkling, wanly was to only Touch on traditional way AT conducting Dustless ratter than identifying the problems internally and determining a root cause. With the amount of cost savings Salinas achieved, it is possible to allocate those resources to such programs into the company. Enhance Employee Benefit Improve employee benefit programs and properly reward employee based on performance and innovation.
The employee will need to have incentive to innovate, or else they will not have the motivation to do so. As a result, their effort of innovative thinking in their work will have never seen fruition.
There can be various ways to conduct this approach. One of the incentives can be to implement a bonus structure based on plant performance, which is already widely adopted by many firms within the service industry. Another one can be giving employee equity in stakes, so that hey can act like true entrepreneurs, which companies such as West and Disney have implemented and have seen great success.
Provide Training to Employees Similar to the experience Salinas has noticed in the training at the Quarter plant (six month initially and then several session per year, also sessions in Germany and Detroit), the Reynolds plant needs to invest on training its employees, similar to how much the Quarter plant did. Once the employees possess the knowledge to enhance themselves in operations, combined with the other implemented solutions such as continuous improvement thinking, together, can motivate an accelerated pace of change.
Properly Identify Key Performance Indicators (Kips) The employees at IAC Reynolds were evaluated using the wrong Kips, where employees are evaluated in silos while the process suffers little by little because they did not focus on what is important in providing value to the customer. The re- evaluation of Kips needs to focus on providing transparency and value, rather than just complete the task at hand. Identify a Strategic Fit Sometimes it is beneficial to re-evaluate the path the company is taking when it moms to improving operations.
The Reynolds plant changed owners twice in the span of Just three months. The original owners did not identify all the areas of concern that it needed to address with its operations before they let the buy-out of the plant take place, followed by leaving the company very quickly after the investment took place.
Similarly, IAC made the same mistake until Salinas arrived. The importance is to understand that before making a major decision for a company, there must be a process in place to identify what the company’s current state is and what are its strengths.