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Ergonomics, Inc.

Case Study

By

Dr. Omar Keith Helferich


Director Supply Chain Management Program
Eli Broad CoUege of Business
and Graduate School of Management
Michigan St.ate University

Robert Sroufe
Doctoral Candidate
Eli Broad College of Business
and Graduate School of Management
Michigan State University

LOGIS17CS CASE STUDY

DEVELOPED FOR:

COUNCIL OF LOGISTICS MANAGEMENT


Ergonomics Inc.

What industry would you be in if you were responsible for designing a system
that does not adversely impact indoor air quality, reduces indoor noise, filters outdoor
noise, reduces eye strain, increases privacy, promotes peace and quiet, and is
manufactured in an environmentally responsible way? The industry would be office
furniture. Ergonomics, a $I 00 million dollar company, is currently developing a new
product that is faced with major environmental production and sourcing issues.

ENVIRONMENT AL IMP ACT ON BUSINESS


Businesses are finding they must compete on a new level. This new level is the
environment. International laws and certification programs such as ISO 14000 are
influencing the way products are produced, marketed, and reclaimed. Environmentally
responsible manufacturer (ERM) means much more than recycling paper in the office,
ERM is a systematic approach. to environmental stewardship. Businesses are finding
bottom line impacts (e.g., increased profits) from producing products with less waste,
using alternatives to hazardous materials, choosing lower costing recycled raw materials,
and reducing internal and external risks to the company. ERM includes the before
mentioned attributes and is often associated with: ISO 14000, total quality environmental
management, design for environment. Design for Disassembly (DID), life cycle analysis,
total cost, pollution prevention, strategic sourcing, supply chain management, and waste
minimization.
Many managers know it is not be easy to convince upper management to support
a project on green issues. Alternatively you can sell projects on short term and long term
impacts based on profits. Environmental champions and environmentally conscious
employees alike are finding ways to recover lost profits by staying away from the
typically ''psychological" environmental issues, and basing project recommendations on
bottom line impacts to the firm. When looking at the potential to reduce waste in a
process, typical results can include fewer costs associated with handling the wastes,
tracking and reporting, disposal, and fewer legal risks associated with the liability a firm
may have to assume when cleaning up a contaminated site.

OFFICE FURNITURE INDUSTRY


Most of the office furniture industry can be found on the west side of Michigan.
Michigan is situated near approximately 90% ofNorth America's fresh water, has
decreasing landfill space, and competitive office furniture manufactures are marketing
based on environmental claims and awards. Thus, furniture manufacturers are well aware
of the environmental challenges and opportunities facing them.
Competitive conditions are challenging office furniture manufacturers to improve
products further without sacrificing design or quality and offering lower prices to the
customer. The challenge facing Ergonomics Inc. is deciding when to include ERM issues
in the new product design process? The importance of this decision is heightened
because this office chair can become the ERM model for future products within

l'I •I"" ation of this ease is for the basis of elass ~ nlbcr than IO illustrale eilhcr effective or ineffective handling
of on administrative situation. Some dala bas been modified IO J)f'Otect prcprictary infonnalion. The writers of !he case
~ fully responsible for the infunnati<>11 within the case.
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Ergonomics. Competitors are attempting to be more environmentally friendly and have
received benefits from doing so. It has been shown that a firm can correct problems more
easily and at less cost during the design stage of a new product than after the product has
been released to the transformation process. As a rule of thumb, a change during design
might cost $1000 to implement, making the same change might cost $100,000 after
design but before production, and SI 0 million during production.1

ERGONO:MICS-NEW PRODUCT DEVELOPMENT


Goals for Ergonomics Inc. include: designing an office chair that will meet and or
exceed industry standards for strength and durability, while producing products that have
minimal impact on the environment. Typically, this involves meeting and exceeding
regulations. Ergonomics plans on incorporating into the chair any environmentally
sensitive process and design improvements that could be used in connection with the
development of future Ergonomics' seating products. These goals can be the way to
bring about manufacturing synergy through standardization, common application, and
waste reduction.
As the new product team, you will be assigned to the design and development of
the newest chair. You and the team members chosen to design and build the newest Sage
chair have the option of waiting to include all of the environmental concerns into a future
produce line, or including and implementing these initiatives as soon as possible. Th.is
project has the potential to be a significant opportunity for those involved, but with
opportunities come risks. There needs to be a choice between going with this large scale
environmental effort for Ergonomics, or going with the tried and IJUe methods already
established. Like many firms assessing green corporate issues, Ergonomics has to decide
whether to take a wait and see approach to green products, or take the risk of being an
Environmentally Responsible Manufacturer?
While there are environmentally conscious people within Ergonomics Inc., there
is no formal decision criteria for ERM issues within the design process. A large obstacle
within Ergonomics will involve convincing management that taking the additional time
necessary to develop a thorough, environmentally sensitive process will be worthwhile.
Everyone has ideas of what the approach should be, but there is no strategy, and few
tools available to your team tasked wita designing and developing the new chair.
Analytical hierarchy Process (AHP) is recommended as the decision support tool you can
apply and use to make your decision in this case. (see AHP attachments)
The project options for this case include: (1) Ergonomics designs and builds the
chair internally using environmentally responsible manufacturing practices, (2) Design
and produce the chair jointly with Supplier A who is very reputable and has worked with
Ergonomics for the past 10 years, (3) Design and produce the chair jointly with Supplier
B who is part ofErgonomics' European supply base, located in Germany, is ISO 14000
certified, and has been working with Ergonomics for the past 5 years, { 4) Develop the
new chair using existing processes and technologies or waiting, while letting other
companies address environmental issues before Ergonomics does, Several key factors

1 Christopher Meyer, Fast (:ycle Time(New York: Free Press. 1993). p, 31


will influence the decision making process; these include design, waste reduction, life
cycle implications and shipping.

PROJECT EXPECATIONS
The importance for this project can not be stressed enough within Ergonomics.
This product line is forecasted at $2 Million its first ytar, doubling in sales annually for
the next two years and reaching $10 Million by the fourth year. Chairs within this market
usually have sales growth of 25% for years five through ten. The expected life of the
chair is 10 years with an additional 5 years after refurbishing. Ergonomics' products
have been very successful in terms of customer acceptance, sales and future growth
prospects. Customers are eagerly awaiting the release of this new Sage chair. The chair
will retail for around $400, and the cost of goods sold is predicted to be $300. Material
costs are expected to be 60% of the retail price.

DESIGN
The typical design cycle time
is one year. Due to cbanges in
personnel, this project has been
underway for almost four months and
is constrained by a one year deadline
for release into the marketplace and
full production ramp-up. As always,
the design of the new chair needs to be
both functional, attractive, structural as
well as visually pleasing. Timing is
always tight in new product
development. Your team realizes this
will impact your recommendations for
this project. and impact any changes
after the design cycle. At this point in
time the design team has a computer
aided draft of the chair, but little else.
Ergonomics sees the DID and ERM issues as new and time consuming, this can
lead to some increased initial cost. 'Ergonomics has the potential for many design
changes. Supplier A will have to work jointly with Ergonomics' design and
manufacturing people closely. Supplier A is known for exceptional quality. and fast
cycle times for new product development. Supplier A typically has few design changes
before production. Supplier B will also have to worl:jointly with Ergonomics' design
people. Supplier B is knowledgeable of ERM practices and is ISO 14000 certified. In
the past Supplier B has only produced products for Ergonomics after the products have
been successfully designed and launched in the U.S. There will be some potential for
design changes before production with supplier B.' Waiting may have the fewest design
changes.

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WASTE REDUCTION
The team can broadened the typical ease of assembly concept to include manufacturing
efficiency; simplerprocesses would make less potential for waste. Any steel and plastic
trimmed during chairproductionshouldbe recycled and reused. Several separate
initiatives aimed at producingpositive environmentalimpact are already underway at
Ergonomics, and these can be combinedinto this Sage chair.
Ergonomics would like to eliminate as much as three pounds of materials per
chair. This reduction in waste can result in a potential 15% to 20% raw materials cost
savings per chair. A focus on design details will make it possible to design for
disassembly without adding costs to the product. DfD will also allow Ergonomics to
target the refurbishedoffice furnituremarket with its products. This means that a chair
from Ergonomicswill be easier to disassemble, recycle, and refurbish because it will
have standard screws, less adhesives, and reusable materials.
Manufacturing has been assigned the responsibility of reducing the amount of
materials used in each new product designed, allowing the company to pass materials cost
savings to customers,or increase corporateprofit margins.
A water blown foam process is one material reduction initiative being researched
at Ergonomics. This process is being developed several years in advance of anticipated
EPA regulations on ozone depletingsubstances. The company's goal is to replace the
CFC blown slab foams it currently produces with a water blown foam, thereby
eliminating the use of an ozone depleting substance. Ergonomics needs a sufficiently
large developmenteffortto produce a foam that has the required durability and
cushioning properties. The advantage of using the new foam and process is lower
toxicity, thus producing a urethane foam which is nearly chemically inert and safe to the
end user. Some foam processes used throughout the industry involve a solvent-based
mold release that produces undesirable Volatile Organic Compound emissions.
The goals set by Ergonomics can be obtained internally through capital
investments. To meet these goals, Ergonomics will have to purchase new machinery and
developnew processes. Some of these effortshave been under way for al.most six
months now. Supplier A has already developed the new technologies and bas the
machinery to handle the water based foams and adhesives. As a result of the research and
development, Supplier A is financially strapped and experiencing some cash flow
problems. Supplier B is still primarily using old processes (solvent based adhesives and
foams), but is willing to investin the future relationship with Ergonomics by purchasing
new machinery. Supplier B is also very familiar with recycling, reverse logistics, and
"take back" product legislation due to current German Jaws requiring manufacturers to
take back their own products. Opting to wait will not bring about any dramatic changes
in waste reduction.

LIFE CYCLE IMPACTS


Ergonomicswants to produce a chair that is easy to take apart, making it simpler
to recycle or refurbish. In order to recycle, componentsare separated, and the plastics
reground to be used again, the upholstery can be combined with other waste products
from the same industry and made into new materials, or products. Another option is to

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refurbish and sell the chair again. Refurbishing extends the life of the product by adding
new components, colors, and materials to the old product. Refurbishing can generate
more revenue through expanding markets for used furniture.
Taking into consideration a product's life cycle impacts early in the design and
production process will thus make it easier to recycle and refurbish products at a later
time. To apply DID, adhesive selection for the chair must be made carefully because
some petroleum based adhesives make it difficult, if not impossible, to disassemble
adhered components. Other DID choices include choosing threaded fasteners verses snap
fit components. The material cost of each assembly method is approximately the same,
however ease of disassembly is significantly different between methods.
Ergonomics is able to refurbish and recycle new products through its existing
industry infrastructure and dealerships. This helps to expand Ergonomics' market
presence in the future through the refurbished office furniture segment. Supplier A is
able to work with the dealerships, but has not typically been involved in the recycling and
refurbishing of their products. Supplier B would not initially be able to work with the
dealerships in any U.S. refurbishing. European take back programs are more geared
toward recycling, but Supplier B, in time, would like to expand its business to include the
U.S. refurbishing concept. Waiting will cause problems for recycling and refurbishing.

SHIPPING
The Sage chairs need to be designed so that the back of one chair fits into the seat
of another (stackable) for shipping. This can be done without having to use foam blocks
to prevent fabric wrinkling that usually occurs from stacked product shipping. This type
of stacking does cause postponement of assembly for the finished product and some
increased labor expenses either at the dealership or at the customer's location.
The chair needs to be designed to be shipped without a canon. Ergonomics gives
its customers the choice of receiving a product cartoned or uncartoned. This is significant
because it has been found that abuse from shipping is far more severe than at any other
time in the life of a product
Ergonomics is pushing the stackable design of the chair to lessen transportation
and packaging burdens. This means final assembly will occur at the dealership or at the
customers location. Final assembly requirements are the same regardless of making the
product internally, or working with suppliers A or B. Including the postponed assembly,
Ergonomics can deliver the chair out to customers within 14 days. Supplier A has its
own fleet of trucks and can deliver directly to the customer, or the dealerships for
Ergonomics in approximately 14 days. Supplier B will use common carriers within
Europe and ship to the U. S. by intermodal boat, rail and common carrier. Supplier B
expects lead times to be up to 21 days for an order. Waiting will have no effect on the 14
day delivery time.

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Case Assignment and Questions:

Make and justify the recommendations with the use of the Analytical Hierarchy Process

tool.
1. What are the advantages/disadvantages list for the case options?
2. What types of further information would aid in making your recommendation?
3. How might ISO J 4000 impact this situation?
4. What are the impacts on shipping this type of chair?
5. What groups of stakeholders should Ergonomics be concerned with when making
manufacturing and marketing decisions that involve environmental initiatives?

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APPENDIX ll

SUPPLIER SELECTION USING ABP

Assume that there are four criteria that are being used to evaluate suppliers (quality, price,
service, and delivery). Further assume that ptupostils from four suppliers (Sl, S2, S3, and S4)
are being considered. The measuremem scale and hierarchy for this application are shown in
Tables I and IL
Jbe buyer must now develop a set of pair-wise comparisons to define the relative
importance of the criteria.. If a buyer believes that quality is equally to modemcly more
impocWll than price, a value of 2 expresses this judgment. If price is moderately more imponant
ma. service, a value of~ is appropriate. Assuming transitivity of judgments, quality would be
strongly u> very sttongly. more itnpor13nt than service (i.e., a value of 6).

However, as prcvioully meotioned, judgmencs arc not always perfectly comistenL


Suppose that, for this namplc, quality is judged moderately to sttoogly mote important than
service, IO a value of 4 is appropriai.:. Continuing with this process, the decision malcer had
decided that quality is moderafdy more impor1ant than delivery (i.e.,a value of 3), and service
is equally ID moderately more impor1lUlt than deliveiy (i.e.,a value of 2). 'Ibae six judglllClllS
compete the pair-wise comparisom that ll'C ncccled II !his stqe, ud are emcrcd in a pair-wise
comparison maaix shown in Table III. The otla' eulries in the matrix arc l's along the diagonal,
and n:ciprocals of tbe six judgmeDu as JRViously discussed. ·

The data in the manix can be used to p:nctl.le a good estimate of Ille criteria weights.
The weights provide a meas1e of the relatiYc importaoce of each criterion. Thb proc:eas is
sullllllllriud in the following three 1tq111:
1. sum the elements in each a>lumn
2. divide each value by its column sum
3. compute row a~

The computation& are shown in Pan B of Table m.


In this example, the final weighrs
for quality. price, scMc:e, and delivery are 0.457, 0.300, 0.138, ud O. lOS, rcspcctively.
Therefore, quality is judged io be about ODC and ooe-balf times (0.4S71().300)as imponant as
price, about three and one-third times (0.4S7J.0.138)as imponam as llClVice, and f0ur and o~
third times (0.457/0.lOS)as important IS the clclivery.

Tbe AHP allows individuals to UIC their own personal psyc:bomettic scale for mating the
requited pair-wise c:omparisom. Mcuuring die consistency of one's judgw.nts allows a cnm-
c:heck on how well that scale is being followed. /u ioJI& as the scale is applied consis1e11dy by
each individual, the AHP can couecdy process lbeir judgmen~.

Computatiom of the consistency rado arc somewhat 1lltft involved, but ere easily
pcrf01 med with a spread.\hcetparhge such as Excel, or a micm:cmpater software pai=kag~ for
AHP such as E1:pert Owice. For lhe pair~ comparison matrix given IS Table UI, i1 can be
shown that the consislency is aa:eplllble.

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Next, the four suppliers mll$t be compared pair·wi.se for each criterion. This process is
virtually identical to the procedure thll was usccl to develop the criteria comparison matrix. The
only difference is that there is a supplier comparison matrix for each criterion. Th.emf~. the
decision maker compares each pair of soppliets with respect to the quality criterion. This is
repeated for the three other crileria. Assume that the buyer provided the four pair-wise
comparison matrices given in Table IV. The weights of the suppliers. for ~ criterion, are
determined using the three-step procedure previously mentioned. These weights are also shown
in Table IV for each matrix.

The final step of the AHP analysis is summarized in Table V. This table shows how the
overall formulationscores arc computed. This procedure can be explained as a simple weighted
average technique. For a given supplier, four "Weights are computed. eee for each of the four
e'4iuation criceria (from Table IV). 'lbeae four weights are multiplied by the appropriale criteria
weights in meeting the goal of the hierarchy (frOm Table Ill), and the results of lbe four
multiplicatiom arc added togcthel" ID compute the 1upplier score. Each supplier score represents
the estimated total benefits to be obtllncd from selecting this supplier. In this example, supplier
1 (i.e., SI) with a score of 0.325 is ;Udged to be best, S4 is second with a score of 0.294,
foll~ by S2 (0.237)and S3 (0.144). Based on this simplified eumple, supplier 1 should be
selccred. .

SUMMARY AND CONCLUSIONS

This article presents a formal methodology to structure the supplier selection decision
process. The Analytic Hie:rarchy Process{AHP) Is used u a framework to fonnali7.e the
evaluarlon of lrldcoffs between the conflicUJ!g selection criteria a.uociared with various suppliers•
offers.

The!e are also a variety of extensions ID the AHP approach which can incrcmc its
usefulness for managerial decision maJdn&. First. the AHP is a flexible modeling tool llW can
accommodate a larger set of eva!Ullioo criraia. For eumplc. relared criteria can be grouped
into caregorie& such as quality. price, delMl'y, and aervice. 'Ibese caicgaries can be compared
pair-• first, and then the individual crifttia can be pair-wile compared within each a1egory.
In this way, a larger number of crilZ:ria can be included within the hierarchy without generaling
an exnemely large pair-wise comparilon maaix.
A accond c:xtensioJl involves the me of AHP IO support a group decision-making process.
This can be accomplbhed in teYml ways. In tbe molt common approiach, each individual's
OU1pUt in the group petfucms die AHP aml}sil ICl)Ulldy (Uld aa:mymously if desired). The
resula are 1epoued to tbe group, and dilc:ussioa among tbe group mcmben follows. This cycle
is repeated as often as llC"'t""''Y 1IDlil a consensus is l"!cfw!.

Use of the AHP apprOICb offers a number of benefits. One imporlaltt advanmgc is its
simplicity. The AHP can also 1CCOmmcwbte uncertain am
subjective infomWkln, and allows
the application of ~. iosipt, and jnndrion in a logical man..,., Perhaps die most
imporrmt advantage, howeYer, is in developing the hietarchy itlelf. This forces bU)'C(S IO
seriously comider and justify die ~ of the cri1leria. ThC ptoetdurea descn"bed in this
article, combiDCd with tbe extensions, can be valuable t.o all firms in their supplier selection

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decisions.

(1) llllml8lioml Jourml of l'llrcbasill& aad MMerials w...,.....m, Spring 1992.


('2) a-itiJative ANJlysisfor .~ • .Rftb J;!jrioo,Barry It.ender ml blpll M.Slllir,Jr.,Allyn ml Jlacaa, 1994.
pp.871~6.

lO
Teb!el Teb!ell

MEASUREMENT SCALE SUPPUER SELECTION HIEJWICHY

Verbal Judgment
Of'Pm-.ct
Exhmely Prelerrfd I
"""~ Pnlt.tted 7
Slracigly Preftrrfd 5
Modlta&ely ,.,,..,ecs 3
Equally Pnl ... •ed 1 SI. SI
l1'le ~ vaiu.s ol z. .... and • prowidl .-. S2 S2
1iOnaf Mia of disclmtmkiL S3 S3
Rldproeals: I ICllVflY I hD ii apecific runertcal rallnO S4 S4
willt lnpecl to~ j. .,,.,. jhD ......... oc:al vu.
wflln~lloL ·

Teb?c Ill

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