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Morrison Company Case Analysis

POM Presentation
by

Ankit Purohit

on 3 April 2013

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Transcript of Morrison Company Case Analysis

Production Planning Troubles & Solutions Product Line
& Markets Manufacturing Process & Planning The Company &
Smart Tags Manufacturing Process All manufacturing activities in single 28,000 sq.ft. facility located in Aurora, Colorado.

Mfg process involved 60 hourly production employees and following 6 activities: (1) receiving, inspection and inventory, (2) parts picking, (3) inlay fabrication & testing, (4) tag assembly and testing, (5) personalization, (6) packaging.

Material Resource Planning system and separate web-based order management system.ERP system was considered but not adapted due to high implementation costs and compared to benefits.

Sales forecast: Based on inventory projections and expert knowledge, production manager determined parts and labor required to meet monthly targets.

Master production schedule was created taking into account the demand from known orders independently for both production lines based on one 8 hour shift, 5 days a week.

Company aimed at lowest possible finished goods inventory: risk of obsolesce, high inventory costs, space limitations.

Set up in 2003 by CEO Jason Robbins.

Idea behind setting up this company was the emerging supply chain management trends including the use of RFID technology to track pallets and cases of goods after they left the shipping dock en route to downstream supply chain positions.

Morrison developed and manufactured RFID tags known as smart labels for retail and pharmaceutical industries.
Company Background RFID Original production line consisted of standard smart tags available in 2 sizes to meet rigorous standards by the DEA (Drug Enforcement Agency) and state regulations.

In 2010, Morrison had acquired 30% share of the pharmaceutical smart tag market.

Global sales of tags to pharma companies was projected to increase at a CAGR of 34% till 2015.

RFID popular among pharma sector because: operational efficiencies gained by greater inventory visibility, increase patient safety by fighting proliferation of counterfeit drugs, reducing the risk of tampering and tracking expiration dates.

Drug companies valued smart tag performance and reliability over price. More than 85% of pharma product sales were of HF chips, favored for their smaller size and better performance despite of double the cost of UHF tags.

$0.22/tag and customized optional label printing.

In 2010, pharma sales: $36.2 million (2/3rd of annual revenue) Pharmaceutical Line Retail Line Thank You Radio-frequency identification (RFID) is the wireless non-contact use of radio-frequency electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects. Some tags require no battery and are powered and read at short ranges via magnetic fields (electromagnetic induction). Others use a local power source and emit radio waves (electromagnetic radiation at radio frequencies). The tag contains electronically stored information which may be read from up to several meters away. Unlike a bar code, the tag does not need to be within line of sight of the reader and may be embedded in the tracked object.

RFID tags are used in many industries. An RFID tag attached to an automobile during production can be used to track its progress through the assembly line. Pharmaceuticals can be tracked through warehouses. Livestock and pets may have tags injected, allowing positive identification of the animal.
Operations Management
Case Study Analysis
Greater competition as retail was a developing market for smart tags.

Morrison initially offered only small range of standard tags.

With acquisition of new technology in 2009, it began offering the option of personalization that consisted of custom printing, colors, sizes, shapes on finished labels.

85% of retails orders were customized compared to only 15% of pharma orders.

Price: $0.11/tag (UHF). As the cost of tags dropped, item-level tagging in retail grew in popularity.

Predicted CAGR of 12.1% by 2015 for UHF tags.

Due to company's acquisition of patents for devices that combined inventory control capability of RFID with theft deterrence functionality of retailers' existing security systems, company attracted the interest of the largest retail chains.

$18 million of revenue (1/3rd of total) Morrison fabricated inlays with 2 fully automated RFID inlay assembly systems. Setup required special operator to handle delicate IC’s.

10 large, sophisticated, automatic machines for tag assembly: an automated process that involved mounting the inlay between backing and facing. Adhesive was applied to the backing. Out of these, 4 tag assembly machines had capability of personalization.

Production employees were responsible for QA at each step of manufacturing process.
Retail products were ‘built to order’ while pharma products were ‘built to stock’ (Customization levels differed).

Less than 30% of raw materials were common to both production lines.

Inlay sub-assembly work divided into equal size batches. Tag assembly batch sized according to order to reduce setup time.

Company placed order bi-weekly based on a 5-month planning cycle.
Ineffective production controls and inefficiencies caused by supply shortages.
Recovery from recession in 2009 had caused huge demand for IC’s which met with limited supply.
Due to resulting microchip shortages, Morrison delivered orders as late as 10 weeks beyond the original delivery date.
Stock outs during part picking had tripled in 6 months.
This meant partial completion of orders which remained in work-in-process inventory on the factory floor.
Inlay sub-assembly machines showed mechanical problems and rework had to be done.
Bottlenecks occurred during personalization.
Customer order returns in excess of 3% than its historical average of 1%. These involved content errors than malfunctioning tags.
Production Troubles New assembly line can be added, but not an option due to space limitations.

Extra shift required expert workers who demanded higher pay.

Company made higher than expected production in their retail line which reduced their revenue to below target. So proper inventory predictions are to be done. (Production manager inefficient).

Company had only 1 supplier of IC’s. It could have increased it supply by collaborating with more IC suppliers till the recession effect wore off.

A package order re-checking department should be added after the packaging process to ensure correct order delivery.

Facility area too small for all production, marketing, administration, packaging, warehousing to be accommodated in 28000 sqft. Could lease the nearby smaller developed plots for some of the functions.

Potential Solutions Questions? Presented By:

Shreya Gupta (B-14)
Ankit Purohit (B-40)
Shweta Wadhwani (B-64)
Full transcript