Llenroc Plastics Europe:
EU/US International Operations Collaboration
January 1995
revised: January 1996
revised: January 1997
Peter Jackson[1]
Pierre Semal[2]
revised: February 2000, 2001, 2003
Ph. Huang[3], B Kleiner[4], P. Semal
Acknowledgments
Llenroc Plastics is a case study carried out by John A. Muckstadt and Peter L. Jackson at ORIE, Cornell University, Ithaca, NY. This original case was reported in: "Llenroc Plastics: A case study in Manufacturing and Distribution Systems Integration", Technical Report N. 898, Cornell University, March 1990. Llenroc Plastic Europe is an adaptation of this case study to Europe.
Abstract
Llenroc Plastics is a case study originally carried out by John A. Muckstadt and Peter L. Jackson, ORIE, Cornell University, Ithaca, NY. The original case was reported in: "Llenroc Plastics: A case study in Manufacturing and Distribution Systems Integration", Technical Report N. 898, Cornell University, March 1990. Llenroc Plastic Europe is an adaptation of this case study to Europe.
Llenroc Plastics Europe is a comprehensive case study in redesigning the manufacturing and distribution systems for a medium-sized manufacturer of high pressure decorative laminates. A series of six cases examines, in turn: (Case 1) the transportation system for a regional warehouse, (Case 2) the inventory policies of a regional warehouse, (Case 3) the design of a pan-european distribution system, (Case 4) the operational improvements of a bottleneck manufacturing operation, (Case 5) the work flow and layout improvement of a non-bottleneck operation, and (Case 6) the redesign of the manufacturing planning and control system. The cases are integrated by a common concern to reduce cost and inventory investment and to improve quality and customer service. The collaborations will focus on Case 1 and Case 3.
Llenroc Plastics
Introduction
Background
The Llenroc Plastics corporation is one of several major manufacturers of high pressure decorative laminates (HPDL). These laminates are found in counter tops in kitchens and bathrooms, are used as wall surfaces in homes, mobile homes, and offices, and are used by furniture manufacturers to fabricate tables, desks, and cabinets for both home and office use. They are very popular due to their low price, high durability and wide variety of colors and patterns.
The HPDL market is not large. It is expected to be approximately 480 million ECU's this year. This market is divided into three segments: direct sales (for OEMs, 22%), residential (served by distributors, 35%), and commercial specifications (large projects, 43%). Llenroc Plastics has historically concentrated on direct (32%) and residential sales (60%) with only 8% of its business in the commercial specifications segment. Overall, Llenroc's projected current year sales are 81.6 million ECU's. Future market growth in real terms is expected to be about 4% per year, with most of it coming in the specification segment.
The major competitors in this market are Wilson and Formica. As you will observe in Table 0.1, these companies dominate the industry in terms of market share, per unit production and distribution costs, and production capacity. Furthermore, they presently dictate the industry standards for product variety, quality, and customer service. Consequently, all financial and operational decisions must consider the impact they will have on the company's relative competitiveness. Table 0.2 summarizes the company's current gross margin.
The rest of the introduction is devoted to a description of the manufacturing and distribution operations and an overview of the project.
Table 0.1. Comparative Market Share and Cost Analysis
Company / Market Share / Raw Material / Factory cost / Freight(%) / ECU/sqf / ECU/sqf / ECU/sqf
Wilson / 39 / 0,180 / 0,107 / 0,016
Formica / 26 / 0,182 / 0,132 / 0,017
Llenroc / 17 / 0,183 / 0,130 / 0,022
Nevamar / 10 / 0,189 / 0,148 / 0,020
Micarta / 4 / 0,192 / 0,146 / 0,023
Table 0.2. Gross Margin: Average Costs per Square Feet
Raw Material / ECU 0,183Labor and Overhead / ECU 0,130
Manufactured Cost / ECU 0,313
Freight / ECU 0,022
Delivered Cost / ECU 0,335
Sales Price / ECU 0,530
Gross Margin / ECU 0,195
Manufacturing Operations
Let's take a brief look at Llenroc's manufacturing operations. At the present time, Llenroc has one main manufacturing plant located in London, UK. All the products they manufacture and sell are laminates. Each piece of HPDL consists of several layers of different types of paper, which are each impregnated with resins and pressed together at high temperatures. Four types of paper are used in the process. The top layer, which is used primarily for protection, is colorless and transparent and is called the overlay paper. The second layer is a single sheet of decorative paper, which provides the color and pattern to the surface. The third layer consists of 2 - 4 sheets of Kraft paper. The decorative paper is impregnated with melanin resins while the Kraft paper is impregnated with phenolic resins in the manufacturing process. The exact number of sheets of Kraft paper and the weight of the individual sheets of the paper depend on the desired strength of the final product.
Here is a description of the complete manufacturing process. The first step is the receipt and storage of rolled paper. The rolls of paper are received from the suppliers in 3, 4 or 5 feet widths (note that because the manufacturing plant is in UK, the usual length unit for the company is the foot, which is about 0.3 meter). These rolls arrive by truck or rail. Rail transport is used primarily to receive large rolls of Kraft paper. After storage, paper is withdrawn from stock in rolls. A prescribed amount of paper is removed from a roll and treated with an appropriate resin. The exact resin content varies among different types of paper. The precise resin mix is required to guarantee a high quality final product. Once it completes the treating process, the impregnated paper is cut into individual sheets, which are 8, 10 and 12 feet in length. Altogether, there are 9 standard sizes of paper that emerge from the treating operation, ranging from 3 x 8 to 5 x 12 square feet (sqf). Once the paper is cut to length it is generally stored in racks according to pattern, color, and size. Currently there are 180 different colors and patterns in the product line, each available in the 9 standard sizes.
The individual sheets are then assembled into so-called "books" prior to pressing. A book contains all the paper required to make two final pieces of laminate plus some additional paper. Figure 0.1 shows the construction of a typical book. The name "book" comes from the fact that the resultant assembly is symmetric in content with the exterior pieces of paper called the cover paper. The extra sheets of paper added in the assembly process are required to protect the remaining paper during the pressing operation.
In Llenroc's plant, there are six presses used, each of which has limitations on the sizes of the material that it can press. Furthermore, the number of books per press load also varies among these presses. More detailed data on the presses will be provided subsequently.
While there are differences, the presses operate in essentially the same manner. Each press has a series of openings. The number of openings depends on the press. Each opening in each press has capacity for only ten laminates (5 books). The precise manner in which these loads for each opening are constructed will be discussed in one of the cases. Once an entire load is constructed and placed in a press, the press cycle begins. This batch pressing process takes about one hour to complete.
Following the pressing operation, the individual laminates are stacked onto pallets and moved in multiple press loads to a finishing area, called the fabrication room. The final trim and sanding operations, as well as some inspections, are performed there.
Finally, each piece is inspected, stacked, and then sent to the finished goods warehouse racks for storage or shipping. The storage area consists of a high bay storage and retrieval system and a set of storage racks for high demand rate material. Figure 0.2 gives a summary of this operation sequence.
Figure 0.1 Construction of a Press Book
Plate
Release
Overlay
Cover (Print)
2-4 Kraft (treated)
Untreated Kraft
Untreated Kraft with special release on back
2-4 Kraft (treated)
Cover (Print)
Overlay
Release
Plate
Figure 0.2 Manufacturing operations
Receiving
Storage
Treating
Cut
Storage
Assembly
Pressing
Finishing
Inspection
Storage
Distribution System and Operations
The distribution system consists of one central warehouse, located in London with the manufacturing facility, and seven other regional warehouses. These warehouses are located in Copenhagen, Hamburg, Munich, Milano, Brussels, Lyon, and Madrid. The national sales regions are depicted in the map shown in Figure 0.3. Table 0.3 contains the data showing annual sales for each region. These warehouse locations were not chosen with great care. They were established primarily based on the Marketing Department's feeling that "the closer we are to our customers the better." However, cost and service issues were not adequately addressed when the location decisions were made.
The market can be conveniently segregated into two groups, Original Equipment Manufacturers (OEMs) and others. The OEM business refers to the direct sales business mentioned earlier. All other segments are served by a network of distributors scattered throughout Europe. Independent of customer type, the finished goods flow to the customer occurs as follows.
Once manufactured as described previously, the laminates are normally placed into the finished goods stock at the central warehouse. In some instances where backlogs exist, the finished product goes directly to the shipping department. Orders are received at the central warehouse from one of two sources, OEMs or regional warehouses. Distributors place their orders with a designated regional warehouse. All customers receive their stock from their designated regional warehouse. OEMs and other customers receive their inventory from their assigned regional warehouse. The flow of material that occurs is depicted in Figure 0.4.
The flow of information concerning inventory and shipping occurs somewhat differently. The regional warehouses provide aggregate data on a daily basis to the central warehouse. Some of the data concerns shipments to individual customers, which is used primarily for preparing invoices and tracking customer service. The second type of data is orders for replenishment stock. Whenever a regional warehouse's inventory position for an item reaches a reorder point, an order is placed automatically requesting a shipment be made to that regional warehouse.
The central sales facility located in London monitors all OEM accounts directly. The OEMs place their orders with London. Inventory is held in the appropriate regional warehouse "to provide excellent service to these highly important customers." Once an OEM order is placed, an electronic message is sent from the central warehouse to the regional warehouse that contains all the pertinent information. It takes about two days from the time an order is placed until the regional warehouse receives these shipping instructions from the central location's information system.
Shipments are made in full truckload quantities from the central warehouse to each regional warehouse so that transportation costs are kept as low as possible. Furthermore, each regional warehouse operates its own trucking fleet to serve its region. Shipments from the regional warehouses are made to customers on the day after the order is known to the distribution system. The truck dispatcher does his best to give his customers next day service while keeping transportation costs as low as possible.
Table 0.3 Sales regions
Sales Region / Break-bulk Point / Responsible Warehouse / Weekly Volume (sqf) / Weekly Volume (FTL)1 / Finland / Helsinki / Copenhagen / 45642 / 0,40
2 / Sweden / Stockholm / Copenhagen / 155781 / 1,35
3 / Norway / Oslo / Copenhagen / 155781 / 1,35
4 / Denmark / * / Copenhagen / Copenhagen / 6435 / 0,06
5 / North Germany / * / Hamburg / Hamburg / 17216 / 0,15
6 / East Germany / * / Berlin / Hamburg / 5397 / 0,05
7 / Central Germany / Stuttgart / Munich / 72208 / 0,63
8 / South Germany / * / Munich / Munich / 18104 / 0,16
9 / Austria / * / Wien / Munich / 110128 / 0,96
10 / Switzerland / Bern / Munich / 408528 / 3,55
11 / North Italy / * / Milano / Milano / 53929 / 0,47
12 / South Italy / Roma / Milano / 46035 / 0,40
13 / Benelux / * / Brussels / Brussels / 594912 / 5,17
14 / North France / Paris / Brussels / 97624 / 0,85
15 / SW France / Bordeaux / Lyon / 144917 / 1,26
16 / SE France / * / Lyon / Lyon / 380924 / 3,31
17 / East Spain / * / Barcelona / Madrid / 31953 / 0,28
18 / West Spain / * / Madrid / Madrid / 293713 / 2,55
19 / Portugal / Lisboa / Madrid / 145765 / 1,27
20 / Ireland / Dublin / London / 76532 / 0,67
21 / Scotland / * / Edinburgh / London / 174128 / 1,51
22 / England / * / London / London / 69425 / 0,60
Figure 0.3 Sales regions
Manufacturing Plant
ß
Central Warehouse
ß
Regional Warehouses
ß
Break Bulk Point
ß
OEMs and Distributors
Figure 0.4 Flow of material in Llenroc's Distribution System
10
CASE 3
The Warehouse Location Problem
1. Overview