National Cranberry Case Report

Operations Management - I

Team Name: Study Group 7

Authors:
1. T Karthik Raj PC20200226
2. Md Muaz Hyder PC20200234
3. S Pavithran PC20200241
4. Sanjana Koli PC20200261
5. Sreehitha Ghuguloth PC20200273
6. Vibhu Sehgal PC20200277

Section: C

05 October 2020
To: Hugo Schaeffer
From: Group 7, Section C
RE: RP#1 processing

Memo
Our Co-op's strategic objective is to improve the operations by reducing overtime costs and truck
waiting times before 1971 crop comes in. The co-op has already invested $75,000 last winter for fifth
Kiwanee dumper, yet the overtime costs are still very high. This year, the water-harvested berries
are expected to be 70% of the total process fruit from last year 58%. So, we need to optimise the
process by deciding on the number of dryers to purchase and the number of conversions from dry
bins to wet bins. To analyse the problem, we have prepared a process flow diagram and calculated
the implied utilisation of each process to find out the bottleneck of the process, which we found out
to be drying process with highest 168% as the implied utilisation. With arrival rate being 1008bbls/hr
and processing rate being 600bbls/hr, we found the inventory buildup rate to be 408bbls/hr. Total
inventory buildup in the 12 hr window is 4896bbls but our wet bins storage capacity is 3200bbls, so
this led to the waiting of the incoming trucks.

Inventory keeps building up at 408bbls/hr in the wet bins and the wet bins become full at 2:51 pm
(after 7.84hrs of the start of the buildup). Hence, trucks should keep until the plant inventory goes
down below 3200 which happens at 9:50 pm. Hence the wait time of the trucks is 6hrs 59mins with a
total wait time of all trucks as 79hrs.

Further, we calculated the labour overtime cost for a busy day during September to be $4.52/hr and
the total overtime cost for 12000hrs turned out to be $54,240.

We have evaluated options of buying one dryer, two dryers and bin conversion and bottleneck
resource of the entire process individually in each case. While analysing, inventory buildup graphs
were evaluated basis new inventory drawdown rate and inventory buildup rate. These were used to
compute the impact on overtime costs as well as truck waiting cost. We have also calculated the
impact of converting some of the storage bins from storing dry berries to wet berries and found out
that converting eight dry bins into multi-purpose bins would bring down waiting time of the trucks.

The analysis is given in the tables below.

Original Process With 1 new dryer With 1 new dryer Bin Conversion
New investment 0 $25,000 $50,000 $40,000
Labour Overtime Cost $54,240 $35,316 $32,325 $54,240
Truck Waiting cost $7,900 0 0 0
Total cost $62,140 $60,316 $82,325 $94,240
*Note – Assuming truck waiting cost is incurred for entire harvest season of 3 months

Original Process With one dryer With two dryers Bin Conversion
Savings on overtime pay $0 $18,924 $21,915 -
Savings on Truck waiting $0 $7,900 $7,900 $7,900
Total Savings $0 $26,824 $29,815 $7,900

Hence, it is recommended to purchase one additional dryer since we can see that savings are more
than investments in that case. Apart from that, the industry is highly seasonal and high level of
demands are observed only during three months which will enable high production utilisation
throughout the year.

Cost of installation of Light-meter system is found out to be $10,000 whereas savings are found out
to be $112,500 with net savings of $102,500. Hence, the installation of the system is recommended.
 Supporting Analysis
Causes of Delay
The process flow diagram below captures the flow of berries and how they are processed at NCC. It
also captures the capacity of each process and the bottleneck process. The dry berries has to
undergo destoning treatment before going to dechaffing process and it can skip the drying process
after dechaffing.

Figure1: Process Flow Diagram for RP#1

Operations Demand Capacity Implied Utilisation
Kiwanee Dumpers 1440 3000 48%
Dry Berries Bin 432 4000 10.8%
Wet Berries Bin 1008 3200 31.5%
Destoning (Dry Berries) 432 4500 9.6%
Dechaffing 1400 4500 31.1%
Drying 1008 600 168%
Separator units 1440 1200 120%
Bagging and Bulking 1440 3467 41.5%

The company expects 70% wet berries this year out of all the berries. Calculating the implied
utilisations, we find the bottleneck to be the drying process since it has the highest implied
utilisation. The demand for drying process (1008) very high compared to the capacity available (600).
Due to the bottleneck in dryer capacity. The inventory builds at a rate of 408 bbls/hr. We take only
the wet berries input rate as the drying process is associated only with wet berries. This comes by a
formula
Inventory build-up rate = Arrival rate – Processing rate = 1008 bbls – 600 bbls = 408 bbls / hour.
 Total inventory buildup = Inventory buildup between 7 am to 7 pm and peaks to a value of 4896
bbls.
Draw-down rate = Processing rate= 600 bbls/ hour.

The available storage capacity for Wet berries in the plant is 3200 bbls. So, the trucks do not need to
wait until the buildup is 3200.
Time at which Factory inventory is full = Total plant capacity / buildup rate = 3200 / 408 = 7.84 hrs.
Time at which trucks will start waiting = 7 am + 7.84 hrs = 02: 51 pm
The trucks keep on coming till 7 pm. It is when the peak load is reached (4896 bbls). After 7 pm there
is no incoming of berries which lead to consumption of inventory. The trucks must wait till the time
the plant inventory goes below 3200.
So, the wait time after 7 pm (t)
= 4896 – 600(t) = 3200; Time = 1696/600= 2.83 hrs.
Time = 7pm+ 2.83 hrs. = 09: 50 pm
Waiting time of trucks = 02: 51 pm - 09: 50 pm = 6hrs 59 mins.
Total waiting time of all trucks = 0.5*(12+2.83-3200/408)*1696/75 = 79 hrs

Truck Inventory Buildup Chart Factory Inventory Buildup Chart

2000 3500
3000
1500 2500
2000
1000 1500
1000
500 500
0
0
3pm 4pm 5pm 6pm 7pm 8pm 9pm 10pm
 LABOUR COST AT NCC
For a busy day during September during 1970, NCC employs 53 workers (27 full-time employees,
while rest are seasonal) for the operating the complete process. The distribution is as follows-
Overtime-pay is paid for anything over 40 hours per week. During harvest season, the process fruit
side of RP1 was operated for seven day a week.
Straight-time per day = 40/7 = 5.71 hrs
No. of For the year 1970: -
Process
workers
Receiving 15 Given, total overtime hours-12,000
Destone,
1 Overtime pay rate =(3.75*(27/53)*1.5) + (1.5*(26/53)*2.25)
Dechaft and Dry
= $4.52/hr
Milling 15
Shipping 20 Total overtime cost= 4.5 *12000 = $54,240
Control Room
1(per shift)
Op.
INVESTMENT ANALYSIS
COST-BENEFIT ANALYSIS
1. Adding 1 new dryer
If NCC adds one new dryer to the process, the total cost of investment is going to be $25,000. The
overall drying capacity increases by 200 bbl/ hr from 600 bbl/hr to 800 bbl/hr. As a result, the
implied utilisation of the drying operation has reduced from 168% to 128%. However, the drying
operation is still the bottleneck.
Inventory buildup rate= Wet berries demand – Capacity = 1008- 800 = 208 bbl/ hr. At this rate, the
bins for wet berries will be filled in 3200/208 = 15.38 hours which is more than 12 hours. Hence,
there will be no waiting time for trucks.
At the end of 12 hours, the total inventory in the bins is going to be 208 * 12= 2,496 bbl. At a
drawdown rate of 800 bb/hr, time taken to finish the inventory = 2496/800 = 3.12 hours
Total overtime for workers has reduced from 14.44 hours to 9.40 hours, a 34.88% decrease
Saving on Overtime pay= $54,240 * 0.3488 = $18,924
Savings on Trucking Waiting time = 79 hours * $100 = $7,900
Savings= Savings on Overtime pay + Savings on Trucks Waiting time = $18,924 + $7,900 = $26,824

Inventory Build Chart

3000

2000

1000

0
7am
9am
11am

1am
3am
1pm
3pm
5pm
7pm
9pm
11pm
 2. Adding two new dryers
If NCC adds two new dryers to the process, the total cost of investment is going to be $50,000. The
overall drying capacity increases by 400 bbl/ hr from 600 bbl/hr to 1000 bbl/hr. As a result, the
implied utilisation of the drying operation has reduced from 168% to 100.8%. However, since the
implied utilisation of milling operation (separator) is 120%, it now acts as the bottleneck. The
demand for separator is 1000 (output of drying operation) + 432 (dry berries) = 1432 bbl/hr
Inventory buildup rate= Demand – Capacity of separator = 1432- 1200 = 232 bbl/ hr. At this rate,
total inventory after 12 hours will be 2784 which is less than 3200. Hence, there will be no waiting
time for trucks.
Time taken to finish the inventory = 2784/1200 = 2.32 hours [Drawdown Rate = 1200 bbls/hr]
Total overtime for workers has reduced from 14.44 hours to 8.60 hours, a 40.40% decrease
Saving on Overtime pay= $54,240 * .404 = $21,915
Savings on Trucking Waiting time = 79 hours * $100 = $7,900
Savings on Overtime pay + Savings on Trucks Waiting time = $21,915 + $7,900 = $29,815

Inventory Build Chart

3000
2000
1000
0
7am
9am
11am

1am
3am
1pm
3pm
5pm
7pm
9pm
11pm

3. Bin conversions
The storage bins hold berries between receiving and other processes.
Current capacity of holding bins for wet berries = 8*250 + 3*400 = 3200
Current capacity of holding bins for dry berries = 16*250 = 4000
Next year there will be more wet berries than dry berries, so some of the dry berries holding bins
need to be converted so that they can be used to store either of dry or wet berries.
Required total capacity of wet berries holding bins = 70% of (24*250 + 3*400) = 5040 bbls.
Required number of bins for holding wet berries = 3 + (5040-1200)/250 = ~19 bins
Currently, only 11 bins can hold wet berries. Hence, (19-11) = eight bins need to be converted.
At a rate of $5000/bin, total cost = 8*5000 = $40,000.
The new holding capacity of (1200+16*250) = 5200 barrels will be able to handle all the deliveries
and cut down the waiting time of trucks.

4. Installation of Light-meter system

Currently, NCC pays a premium of 50 cents per bbl for No. 3 berries. In 1970, the company paid a
premium for 450,000 bbls of berries. However, only 50% were No. 3s. Here the growers are getting
paid extra and the company is currently suffering losses on the same.
Cost of installation of light-meter system = $10,000
Change in wage cost of operator = 0* (New operator will receive the same pay as Chief Berry
Receiver)
*Assuming that the new light-meter operator would replace the existing berry receiver as the light-meter
takes up the berry receiver's job.

Savings with installation of light-meter system = $ 450,000*0.5*0.5 = $ 112,500

Net savings = $112,500 - $10,000 = $102,500

EVALUATION SUMMARY
Original State 1 New Dryer 2 New Dryer Bin Conversion
Worker Overtime cost $54,240 $35,316 $32,325 $54,240
Trucks Waiting cost $7,900 0 0 0
New investment 0 $25,000 $50,000 $40,000
Total Cost $62,140 $60,316 $82,325 $94,240
*Note – Assuming truck waiting cost is incurred for entire harvest season of 3 months

Conclusions
We have found out that NCC is incurring high overtime costs as well as truck waiting costs. The
process was analysed and the drying process was found out to be the bottleneck process with a
highest implied utilisation of 168%. The inventory arrival rate was 1008bbls/hr and processing rate
being 600bbls/hr, we found the inventory buildup rate to be 408bbls/hr. Since there was an increase
in the wet berries percentage to 70% of the total berries, the bin's capacity of 3200bbls was not at all
sufficient to hold the inventory pile up, there would be increased waiting time for the trucks.

After analysing the options of installing one dryer or two dryers, we found out that the installation of
1 dryer brought about higher savings than costs. Hence, we recommend the plan of installing one
additional dryer. Apart from that, the industry is highly seasonal and high level of demands are
observed only during three months which will enable high production utilisation throughout the
year.

We have found out that we need to convert eight dry bins into multi-purpose bins for $40,000,
which would make sure that there is no waiting time of the trucks. We have also found out that the
installation of the light-meter system would bring us an additional savings of $112,500 with a
minimal cost of $10,000.