Abstract

This postulation briefly introduces the case of Custom Gears Inc. This paper delves into
the operational issues that lingers Custom Gears Inc. Amongst the aspects of operational
issues include target market issues, production process flow issues and management issues.
The findings of this article provide valuable insights for organization in the light of
contending to these operational issues.
1.0 Introduction
Custom Gear Inc, is a manufacturer of custom made metal gears weighing from ounces to
over 50 pounds in Philadelphia. Custom Gear primarily sells the product to engineering
research and development laboratories or very small manufacturers. The gears are built of
a variety of distinctive metals hinging on the customers requirements. Over the past year,
40 different types of steel and brass alloys have been used as raw materials. Custom Gears
has vibrant business growth where it can be seen succinctly that the company lost money
for the first two years (2009 and 2010), but made small profits in 2011 and first quarter of
2012. Sales surged rapidly in 2009, 2010 and 2011. Withal to that, a recent market survey
unveiled that the sales of Custom Gears Inc. is likely to experience further growth in the
throughout the horizons yet to be.

2.0 Problem Statement

1. Management Myopia in Target Market
One of the major problems that Custom Gears Inc. encountered is its target market, which
is deemed to be inadequate. Sales targets of Custom Gears Inc. are comprised of primarily
engineering research or development laboratories, worse not small manufacturers. This
severely impedes and casts a veil of limit on its sales revenue as these customers only
attribute to small orders, which yield relatively low net worth. Often the issue of defining a
proper target market is of a critical core to business success. The fact that management has
sidelined or overlooked the scope of market that the business is capable of serving is not a
newly emerged issue. In this case, the management of Custom Gears Inc. has defined its
target market in an over-niche manner, which deterred its profitability in result. Should
Custom Gears Inc. conduct a thorough market research and define its target market by not
just emphasizing on its operational facilities and capabilities but also the possibility of
operational integration to serve a more broad yet differentiated target market, its
profitability should have not been what it is to date.

2. Inefficient Flows of Production Process and Non-Value Adding Supplier

Pursuant to the case, it could also be vividly determined that Custom Gears Inc. has an
inappropriate production process, which hindered the flow of the process. It was
discovered that large orders caused a handful of the small orders to incur remarkable
delays prior to being processed. One most notable hindrance that warrant our attention
would be that the materials often take 1-2 weeks to arrive, depending on the supplier and
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type of material ordered. Whilst production process for most gears takes approximately 2
weeks retrospectively in the past, the current production process has its time required
increased to 4 weeks. As a result, lead time are significantly increased which would result
in unnecessary delays and slowdowns.

3. Bottlenecks in Production Process

Apart from that, the foreman of the company Joe Irvine, also discovered that bottlenecks
are emerging in the production process. A stark instance pertaining to this would that one
week the bottlenecks may be in one machine center, the next it would be in another. These
bottlenecks would be a severe impediment and impairment in clearing or delivering the
orders of Custom Gears Inc. customers on time. The major concern rests on the fact that
there are a multitude of problems in the production process which are deemed a
predicament to be identified and tracked down.

4. Perennial Disruption of Orders

A constant interference of orders being processed in the shop was also unveiled in the case.
The typical order consumes 90% of its time waiting in line for a machine to become
available. In essence, it stays idle until a machine that caters for its further procession is
available. To make it worse, only 10% of the time is actually spent on the processing of the
order on the machine. This could be one of the vindications as to why Custom Gears Inc.
took 2 weeks longer than before to process an order. The main concern boils down to the

fact that large and small orders are processed simultaneously. There is no specific blueprint
of work flow catering for different sizes of orders.

5. Loss on Returned Orders

Finally, Custom Gears Inc. is also experiencing about 6% return of orders due to poor or
non-conforming qualities. In 75% of the cases, the returned orders failed to undergo one or
more operations or flaws has been found in the operations for instance all the gears were
found missing a hole. Due to this, Custom Gears Inc. has to compensate the products for its
customers within the timeframe of 4 days. As a result, the cost of the company has
increased tremendously as the compensation batches of products needs to be produced first
due to short lead time. This would result in a huge chunk of unnecessary costs as
compensation products are processed followed by other product orders to prevent any loss
transpired in a company. Unnecessary costs range from cost needed to transport, repack,
reprocess, reschedule the production and etc.

3.0: Analysis & Discussion

As a recap, the problems encountered by Custom Gears Inc. are: (1) Target Market
Defining, (2) Inefficient Production Process, (3) Bottlenecks in Production Process, (4)
Constant Interference or Disruption of Orders and (5) Loss Due to Returned Products.
These are the key areas where Custom Gears Inc. should seek to delve into and rectify to
remedy its operational issue. Short of that, it would result in the reputation of Custom
Gears Inc. tarnished and profitability dampen or drop drastically.
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1. Production Process Issues - Redesign or Restructure of Layout

Of all the issues afore conferred, production process has the most flaws and unjustified
errors, which should warrant immediate attention. Its inefficient and sluggish production
process has resulted in numerous unnecessary issues for instance delays in production,
delay in delivery of orders and return of products due to poor quality. It was identified that
the main problem in the Custom Gears Inc. in production process stemmed from its
standard job shop layout, as shown in Exhibit 3 in the case. It can be observed that each
work center has a common set of machine or processes, catering for both small and large
orders. The flows or channelings of materials from one work center to another are varied
upon the size of orders and the operational procedures required producing these orders. A
typical order will generally follow the path from A to E
Table 3.1: Initial Layout of Custom Gears Inc.

On the basis of the layout plan, it is observed that the work centers are not aligned in
accordance to the order work flow. In fact, they are categorized or clustered by similar type
on the shop floor, which is the root cause of the sluggish production flow. As a result,
flows of operations to process the products ordered are messed up which resulted in
wastage of time. Also, it may be confounding when products are moved from one end to
other end, which resulted in poor quality or missing screws due to complicated and
unorganized process flow.
In contending with this issue, the layout should be restructured and aligned with the order
work flow. It may be instead structured in this manner:
Table 3.2: Restructured Layout (Proposed)

By the swap of the drilling center and the heat treating center, there will be a drastic
decrease in the time required to transport the products from one center to another. By this
virtue, the production process will be more organized and orders will be processed in a
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more effective and efficient manner. Apart from that, it may also reduce confusion and
ultimately missing screws as the production flow are more in place than before thereby
reducing the incurrence of unwanted expenses.

2. Production Process Issues - Investment of New Machines

Whilst bottlenecks may be due to primarily the initial layout, which has been proposed of
an improvement by restructure and rearrangement, it could also be due to lack of machines
required to process the orders. Due to insufficient machine to process the raw materials and
unfinished goods, the typical order spends 90% of the time idle and only 10% of time to be
processed. To circumvent this issue, Custom Gears Inc. should look into the purchase of
more machines for the production process to reduce the bottlenecks to ensure that
operations are always in an effective and efficient manner. As the business is expanding
and growing, more machines and fixed assets should be invested to support its growth.
Else, the growth of business could be rendered beyond the capabilities of Custom Gears
Inc. to handle which is dire and might result in damage to profitability. Custom Gears Inc.
may decide the number of machines to be invested through the use of financial analysis
tools Net Present Value Analysis and Payback Period Analysis with a required rate of
return of at least 10% on the second year. The cost involved in the investment of new
machines would definitely result in a higher return seeing as how the company is growing
vibrantly.

3. Production Process Issues Blueprint for Specific Work Flow

As identified in problem statement earlier, the production process also encountered the
issue of all orders of different sizes are processed together or simultaneously. No special
work flow is utilized for different work orders. This implies that even if the company
receives an order of 1000, 300 and 2 gears in sequence, the order of 2 gears would have to
hold on until the former have been finished or completed. This answers as to why small
batches of orders were delivered late. This would be damaging to both Custom Gears Inc.
profitability and reputation in the long run. To deal with this issue, Custom Gears Inc.
should look into the possibility of forming a customized work flow intended for different
work orders. For instance, it may define the minimum and maximum range of a particular
work order flow for instance 1-50 for small, 51 300 for medorate and 301 and above for
big. This will ensure that all orders could be completed on time.

4. Production Process Issues Training & Stringent Quality Control

Last but not least, another concern pertaining to the production process is that poor quality
of finished goods often resulted in return of products by customers. As identified
previously, 75% of the cases of the returned orders have failed to undergo one or more
operations. This again, boils down to the initial layout which is essentially jumbled up and
unstructured. However, the issue of inexperienced employees and unprofessional quality
assurance from the QC team should not be sidelined. Should these groups of employees
exert due diligence or have the proper experience on detecting flaws during the process,
none of these issues may have occurred. Thus, it would be ideal for the employees to
undergo appropriate training. In terms of the QC team, more stringent guidelines of quality
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assurance or check should be drafted and imposed to ensure that the quality of products
delivered are of constant top-notch condition to minimize the event of return goods due to
poor quality. This would be both profitable to Custom Gears Inc. revenue and reputation as
a robust manufacturer.

5. Target Market Issue Redefining Target Market

Custom Gears Inc. primary target markets are engineering research and development
laboratories where in most cases orders are small. Such targets severely impede its
profitability as it limits the orders that are essentially the key to generate profit. To derive
at higher sales and profitability, Custom Gears Inc. should attempt to do a 360 degree
market search and research. Larger companies which require a higher volume of orders
should be targeted too. By focusing to larger companies, Customer Gears Inc. would
eliminate the issue of finding customers too as the profit generated from a large order far
outweigh the profit generated in small orders due to lower variable cost and better spread
of fixed cost. Such large target market may include automotive, semiconductor and
aerospace industries, which would essentially require these gears as well for their
manufacturing activities.

6. Management Issue Adoption of Proper Scrutiny Guidelines

Whilst not a major issue in this case, Custom Gears Inc. may be hindered of its business
growth due to management issues too. For instance, there are past-due raw materials in the
shop. It is imperative that of the supervisors and managers to take a close note on the
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inventories. The presence of expired materials is most likely caused by an error or surplus
when ordering materials from suppliers or cancelled orders. Based on the past trends of
surpluses, the supervisors or managers should be able to contemplate the orders in the
future to avoid waste of inventories due to expiration. Also expired materials should be
disposed immediately to avoid unnecessary storage cost and accidents to happen due to
overpiling. Also, lost orders were also discovered in Custom Gears Inc. This might stem
from the carelessness of management when handling orders. The management should
ensure that files are properly documented to avoid this issue. This would ultimately
minimize complaints from customers due to lost orders.

7. Supplier Issue Seeking and Securing a New Supplier

As afore-conferred, the material required for different customer orders are acquired from
different suppliers. As a result, the materials often take from 1 to 2 weeks to arrive,
depending on the supplier and type of material ordered. Instead of relying on different
supplier, Custom Gears Inc. should seek for supplier that has a large variety of large
materials rather than individual suppliers that provide different parts of materials. This will
essentially result in lower cost as compared to sourcing from individual suppliers. Also, by
securing a larger manufacturer as supplier, material delivery lead time could be essentially
reduced as larger manufacturer has more operational capacity than small, individual
suppliers.

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4.0: Relating to Operations Strategy and Process Design Concepts

1. Product Design
Product Design should reflect joint efforts of many areas in the organization to achieve a
match between financial resources, operational capabilities and supply chain capabilities
(Azmawani, 2013). Under the semblance of this case, Custom Gears Inc. products are
custom made gears which would be sold to engineering research and development
laboratories and small manufacturers. Due to the fact that it is tailoring differentiated or
customized products, it invokes operational and supply chain variations which would be
challenging to derive at an effective and efficient production flow. Custom Gears Inc.
should definitely start contending to these issues while its business growth is still
manageable or proportionate with its current capabilities and start investing in new
innovation or new products to further support its business growth.

2. Processes and Methods

Processes involve the conversion of inputs to outputs, which is the core of operations
management (Azmawani, 2013). It is closely related to process design concepts as the
methods that involved in the transformation of inputs to outputs are the key to production
process success. Process selection and facility layout are momentous selection of process
and layout should be operationally fit and strategically fit the available capacities and
nature of process flow as well as order manufacturing. Apart from that, processes should
be designed and customized in a way that it meets different order sizes as similar to this
case. It should also answer to the big questions of labor required to man the process as well
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as a justifiable operational cost. In this case, Custom Gears Inc. adopted a layout of job
shop. Such layout is used primarily when a low volume of high-variety goods and services
will be needed and each job is of different processing requirement. By this virtue, high
flexibility using general purpose equipment and skilled workers are the critical essences of
Custom Gears Inc. Thus, the process design and facility layout issues should not be
overlooked as it is paramount to Customer Gears Inc. smooth operational flow.

3. Quality
Quality refers to materials, workmanship, design and services. Customer judge quality in
terms of how well they a product or service will satisfy its intended purpose (Azmawani,
2013). Hinging on the fact that customers generally return goods that failed to comply with
quality standards ascribed or predetermined, as shown also in the case of Customer Gears,
quality control should not be overlooked. Should Custom Gears Inc. neglect its quality, in
the long run, its reputation will be damaged and customers may opt for different suppliers
as they may perceive Custom Gears Inc. as operationally incapable. This will severe deter
Custom Gears Inc. profitability. Should Custom Gears Inc. perform its deliveries with high
quality finished goods, customers will be more willing to pay for a premium price even
when competitor charge lower. Hence, Custom Gears Inc. should heed the fact that higher
quality often lead to higher customer satisfaction and ultimately higher premiums can be
charged.

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4. Cost
The cost of an operational firm output is a critical component which affects the pricing
strategy and profitability of that given firm. Lower cost would generally result in higher
profit margin as compared to a good with higher cost. Cost may also serve as a competitive
edge for firms competing on the basis of cost leadership or even in some scenarios
differentiation (Peng , 2012). Also, low pricing requires low variation in products and
high-volume in manufacturing. Recently, Custom Gears has decided to accept a few larger
orders for 100 gears or more, lower prices were accepted on these orders due to high
volume of orders. This is actually in congruence with the theoretical fundamentals of cost,
whereby high volume with less variation in the realm of operations management would
derive at a lower cost to manufacture.

5. Lead Time
Lead time is the time between the initiation and completion of a production process.
Customer Gears has a clear operational disadvantage in terms of its lead time. Orders were
processed simultaneously regardless of size which resulted in small orders going have to
be put on hold till large orders are processed completely. This resulted in unwanted delays
in delivery of small orders. Should the flow of production process be more structured, the
issue of lead time and delays on small orders could be contended to.

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6. Scheduling
Also, Custom Gears must plan on schedule orders in a more contemplated manner.
Scheduling small orders and large orders should be done with due diligence to avoid
excessive stocking of inventories and increased in lead time and ultimately delayed
deliveries.

5.0 Conclusion
To conclude, Custom Gears Inc. should adopt a well-structured layout as proposed to serve
as the first step to contend with the issue of production process flow. Some follow-ups
would include the investment of new machines, training of employees, blueprints for
customized process flows based on order sizes and more stringent guidelines on quality
assurance. In terms of management, due-diligence and ability to schedule and forecast
future materials to be sourced from suppliers should be exerted to avoid unnecessary
expenses due to wastage of resources. Last but not least, Custom Gears Inc. should look
into all the factors relevant to process design concepts which include costs, scheduling,
quality, product and design and ultimately processes methods. Should Custom Gears Inc.
be able to consider these operational practices, it would garner a higher profitability and
better business expansion.

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