National Cranberry Case Report

National Cranberry Cooperative Case Report

EGES B332

Team Name: LOPPEM1

Authors: Harold CroenenCharles Van Hoorebeke

Victor Talpe ____________________________

____________________________

February 2014

1 Harold Croenen – Charles Van Hoorebeke – Victor Talpe

Team LoppemNational Cranberry Case Report 1

To: Hugo SchaefferFrom: <<Loppem>>RE: RP#1 processing

MemoDear Mr Schaeffer,

After intense analysis of the problems disrupting your production process flow, we found out that the main cause of your problems is the low hourly capacity of your dryers for wet berries (only 600bbls). These form the main bottleneck of your rate of production. This causes slower than expected treatment of berries, which in turn, fills up your inventory bins very fast and causes long waiting lines in the afternoon for truck drivers arriving with berries. Each truck that has to wait costs you 20$/hr and in total this queue costs you 1000$ everyday in high season. The problem wasn’t situated in your dumping capacities as you thought.

To reduce this cost, we advise 2 possible investments. The first option would be the expansion of your drying capacity with one dryer. This will cost $40.000 but would repay itself in only 40 days and highly reduce frustrations from local farmers because there would no longer be any queues. A second dryer could be an option in the long term, but we have calculated that at the current hourly rate of arrival of berries, this investment wouldn’t be viable. If you would see a big raise in this hourly rate of arrival of berries, we advise you to perform a new research. The second option would be to convert some of your unnecessary dry bins to wet bins. Of your 16 dry bins, only 2 are really necessary. If you would convert 6 of these 14 unnecessary bins, at the price of 7500$ per bin, you would already increase bin capacity enough to no longer have a waiting line in front of your facilities. In total this would cost 45000$ but as it saves 1000$ a day, this investment would repay itself in 45 days. Because of the smaller cost of expanding by adding a dryer, we advise you to buy a new drying unit.

Next to these two investment options, it is also recommended that you invest in a light meter to assure that you more easily recognize No. 3 berries because at this moment, only half of these most valuable berries are being recognized.


Causes of delay

The primary bottleneck in the process flow diagram is the drying process for the wet berries and after that the separating process. The dry berries currently don’t face any bottlenecks.


Inventory build-up diagram

We have solved this case assuming that that 75% of all berries are wet berries and 25% were dry berries and that berries arrived at a continuous pace, this gave us an arrival rate of 325 dry berries per hour and 975 wet berries per hour.

1. Dry berries

The arrival rate of dry berries doesn’t exceed the processing capacity of a single process in the process flow diagram; therefore we can conclude that there is no inventory build-up for dry berries. There is no inventory build-up in the separation process (capacity of 1200 berries per hour), because even though total berries arrive with 1300 berries per hour, only 600 of the 975 wet berries can be dried, so the maximum amount that the separating process could face is inferior to it’s capacity ((600+325) < 1200).

2. Wet berries

The wet berries however face an inventory build-up in the bins as soon as the first trucks start arriving at 7 a.m. in the morning. Taking in account the maximum holding capacity of the dumpers (3200) and that the accumulation of cranberries will happen at 375 bbls/h, we easily calculated that, in average, the bins will be full at about 3.34 p.m. Once the bins are full, trucks will start to wait in front of the bins in able to deposit their berries. This build up of waiting trucks continues until 7 p.m. after which the amount of berries held in waiting trucks starts to decline with 600bbls/h, which is the capacity rate for wet berries, thus the draw-down rate of first trucks and then the bins. At 7 p.m. the line of trucks holds a total of 1300 bbls of berries. At 9.10 p.m. the line should have disappeared (7 + (1300/600)= 9,1666 or 9.10p.m.), and at 2.30 a.m. of the following night all berries should have been processed (7+4500/600= 14,5 or 2.30 p.m. plus one day).

The build-up in bins, trucks and the total build-up of wet berries are represented on this graph:


From this graph, we can also calculate the total amount that truck drivers are waiting and the salary cost that comes with this waiting. First, we calculate the amount of berries that are waiting; this is represented by the top triangle between the total build-up and the build-up in bins or the total build-up in trucks. In total 3750 of berries will have waited one hour. Considering every truck can hold 75 bbl and that leasing a truck and driver costs $20/hr, the total cost of this waiting is 3750bbl/75bbl *20$ = 1000$.


Analysis of Investments

1. Kiwanee Dumper #5

The addition of a fifth dumper to the dumping process wasn’t the best investment to make. The dumping process wasn’t a bottleneck, so this investment that increased dumping capacity with 600 bbls/hr , from 2400 bbls/hr to 3000 bbls/hr doesn’t benefit the total capacity rate of the process flow. The price of $100000 paid for a fifth Kiwanee dumper that didn’t solve the problem of the waiting lines is therefor not praised as useful. This higher capacity might become more useful if the other bottlenecks other than the dumping process were dealt with and if the arrival rate exceeded 2400 bbls/hr. This wasn’t the case. We wouldn’t recommend further investment in Kiwanee Dumpers for as long as there are other existing bottlenecks.

2. 1 or 2 new dryers

The cost of a new dryer is 40.000$ and every dryer expands current capacity with 200bbls/h. It has no impact on the dry berrie production, which has no build-up.

a. 1 New dryer

Adding one new dryer to the drying capacity raises the capacity from 600bbls/h to 800bbls/h. With this new dryer, there will never have to wait a truck, as overall capacity of the process flow is now 325bbls dry berries per hour (stayed the same) and 800bbls wet berries per hour (up from 600bbls/hr). With a cost of 40000$, we can save 1000$ every day in waiting costs. That means the investment of a new dryer will have repaid itself in only 40 days. We highly recommend doing this investment. The build-up in the bins will never exceed 2100bbls of berries. This number stays largely under the 3200bbls of wet berries that the bins can handle.

Build-up in bins represented on a graph: (Note that there is no build-up in trucks)


b. 2 New dryers

Adding a second dryer will still benefit the capacity rate of production but won’t be as effective as the first added dryer. This reduced effect is because of the change of bottleneck in the process flow after adding another 200bbls/hr of capacity to the drying process (drying capacity would then be 1000bbls/hr, up from 800bbls/hr) and because the current arrival rate of berries isn’t high enough to justify a new investment in the capacity rate of production. As long as there are no costs associated to a build-up in the bins and as long as the arrival rate of berries doesn’t show any signs of rising, we have no interest in investing in higher capacity rate of production. Also, because of this second dryer, the bottleneck would now become the separation process, which is currently capable of 1200 bbls/hr and would have to handle in case of a second drying unit 1300bbls/hr. That’s why we don’t recommend an additional investment of 40000$ in a dryer.

Build-up in bins represented on a graph:


(Note that there is no build-up in trucks)

3. Bin Conversions

Another option to reduce the costs is to convert dry bins to wet bins. The price of conversion per bin is 7500$. Because there is no build-up in bins for dry berries and we only produce 325bbls/hr of dry bins while our dry bins can stack 4000bbls divided over 16 bins, we can convert some of these bins, with a maximum of 12 conversions. Knowing that the maximum total build-up that we ever had is 4500bbls, we should convert 6 bins to be able to handle this build-up without having a queue. This conversion comes with a total price of 6*7500 or $45000. This makes the total bin capacity for wet berries 4700bbls. By eliminating any costs associated to queuing truck drivers (1000$ per day without bin conversion), this investment would repay itself in only 45 days.

4. Light meter system for color grading


We can consider the instalation of a light meter system for color grading at the cost of $20000. Next to this cost this system also requires a full-time skiled operator at the same pay grade as the chief berry . In 1980 there was a premium of 75 cents that was paid on about 450.000 bbls. of No.3’s berries. But , we found out that when these berries were used only half of them were No. 3’s. To know how much money we will earn with the light meter system we have to multiplie that premium with 225.000 (the half of the No. 3 berries) and we obtain 0,75$*225000= 168.750$.We must also pay the full-time skilled operator 6,5$ per hour. That worker works as a full-year employee 40 hours each week of the year. So he would cost 40*52*6,50$ = 13.520$. This means that this investment would increase profits with 168.750-13520-20000= 135230$.

Conclusion

The main problems, the long waiting lines for truckdrivers before they can dump their berries, at RP#1 didn’t have anything to do with the lack of dumpers. That’s why the decision to invest in an additional Kiwanee dumper didn’t have any use. The main bottleneck in the production process flow was the drying process. By installing an extra dryer at the cost of 40.000$, this problem can easily be addressed. The cost of 40.000$ would be regained in only 40 days and would eliminate any waiting time. An additional dryer wouldn’t raise the profit with the current arrival rate of berries. However, if this rate of arrival would go up, we highly recommend analysing the possibility of investment in a new dryer. Next to dryers, a second option would be to convert 6 dry bins to wet bins. With a total cost of 45000$, this investment would repay itself in 45 days and would completely eliminate waiting lines, as the wet bin capacity is high enough to hold all trucks at the current rate of arrival of berries. These bins are not necessary for the dry bin production, which only needs 2 of the currently 16 dry berry dedicated bins. A light meter would also increase profit because not enough of our no. 3 berries are being recognised with the current means. The investment is inferior to the profit it would bring to the company so we think this would benefit the company.


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