Riordan Process Design 1

Process Design for Riordan Manufacturing

Cynthia Jordan

OPS/571

March 28, 2011

Dr. Larry Rhodes

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Materials Requirement Planning

Riordan Manufacturing’s China plant is the organizations producer of electric fans. The

Hangzhou (China) operations are a joint venture between Riordan Manufacturing and local

Chinese businesses. Riordan is responsible for the operating capital, injection molding,

machinery, and product expertise. The Chinese nationals are responsible for supplying the labor,

communication with other local vendors, governments, and regulatory agencies as well as

providing a small sum of operating capital. The Hangzhou plant operates six departments within

the entire operations; receiving, molding, trimming, assembly, packaging, and shipping.

The following describes the China plant’s operations from the receipt of materials to

shipping the product to its customers. Raw materials are then delivered to the plant and verified.

After verification the information is confirmed, raw materials are taken out of the inventory for

use and documented to maintain accurate product levels. Riordan customers order the electric

fans via phone or fax. The orders are then entered in the system and sent to shipping.

Analysis

Riordan chose the Hangzhou location because of its existing business partner

relationships and the proximity to the Qiantang River from the plant. The Chinese partner

relationships meant reduced waiting times for raw materials and savings on fuel and human

capital, as the river’s access led to the Hangzhou Bay for the shipping needs. As product demand

continues to grow, competitors have begun using shipping companies that port in Hong Kong

and Shanghai, thus saving even more monies on shipping.

Initially Hangzhou was the most efficient manufacturing location because of the business

network that already existed. As product demand continues to grow, relocating operations to

Shanghai should be considered a more appropriate plant location, as it would better position
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Riordan to increase market share throughout Asia and Europe. Based on the benchmarked data

of our largest competitors, relocation to Shanghai has been incorporated into the five year

strategic planning strategy.

Process Design

The Hangzhou, China plant uses a make-to-order fabrication process selection strategy

when manufacturing the electric fans. Currently the plant makes fans using a batch shop process

flow structure as the fans specify to their customers needs. Competitive intelligence about the

industry suggest that Riordan Manufacturing should move to a more aggressive process design

system to meet the anticipated increased demand and to gain more market share. Safety stock

will support a just-in-time (JIT) delivery process to reduce delays that are external to the

business such as concerns with work stoppages and working conditions as global plants can

experience.

The new process design system would include maintaining electric fan capacity reflective

of competitor sales performance, and based on the product demand throughout Asia and Europe.

The process flow structure would be changed to an assembly line infrastructure to support

increased operations and sales. An assembly model would also encompass customer specific

orders in addition to safety stock and current inventory requirements.

Supply Chain

Riordan strategically chose the Hangzhou location due to its low raw materials costs

through their Chinese partners’ relationships with the Chinese nationals. Local vendors allow the

China plant to have shorter gaps in product delivery due to the physical proximity of the

suppliers. Combined with the lower cost of purchasing products locally, the supplement business

relationships in the China plant strengthen the efficiency of the supply chain. The Chinese
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nationals are also responsible for the relatively low shipping costs, although they are slated to

change once the company relocates its Hangzhou operations to Shanghai within the next five

years. Labor costs are also lower in China than they are in Riordan’s United States locations,

which reduce operational costs and increases profit margins.

Production Forecast

The electric fan’s original forecast was influenced by industry data, the product being

marketed to the global market, and its projected performance with the expectation of increasing

market share at the years progressed. The original and current forecasts display a growth of 7%-

15% for the next four years. Growth was expected to slightly decrease in years two and three, as

competitors are expected to manufacture their own version of the Riordan electric fan. The

original forecast was amended based on competitive intelligence researched on other leading fan

manufacturers. Riordan’s product standards and value would enable to electric fans to continue

to excel in the market, thus rebounding in the fourth year and anticipating continued upward

growth. It has been recommended that Riordan relocate its electric fan operations to Shanghai

within the next five years, so the forecast as of today reflects the next four years.

Year Item Original Forecast (in the thousands) Current Forecast

1 Electric Fan 185,000 200,000

2 Electric Fan 194,200 220,000

3 Electric Fan 207,794 235,400

4 Electric Fan 228,573 270,710

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Forecast based on annual growth of 7%-15%.

Implementation

Riordan has obtained information that suggests that the electric fans will be a

foundational product to market and sell. The China plant currently manufactures fans when

orders are received. This strategy will not allow Riordan to grow its electric fan division by

capturing a larger and global market. The China plant will move shift operations to an assembly

line structure where fans will be manufactured daily. This process will effectively meet current

demand, retain an appropriate level of safety stock as brand recognition increases, and help

prevent bottlenecks from disrupting production and sales.

Conclusion

Riordan’s decision to launch their electric fans line in Hangzhou, China was an

economically sound decision due to the low cost of labor, raw materials, reduced shipping,

established vendor relationships with Chinese nationals, and its close distance to the river where

products were shipped to their destinations. The Chinese business partners managed the local

government and other regulating agency requirements in addition to contributing some of their

own capital to support the venture. Riordan discovered that moving operations to Shanghai

would mean even further savings on shipping costs than what is negotiated in Hangzhou. The

China plant implemented a more aggressive operations process to meet current, future, and some

unexpected product demands. Sales are expected to increase over a four year period, with slower

growth in the second and third years due to competitors manufacturing their own versions of the

electric fan.
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Appendix

March 28, 2011

Chief Operations Officer
Riordan Manufacturing
Corporate Officer
San Jose, California 94101

To whom it may concern,

This letter is in reference to the plant operations and manufacturing of the electric fans at the
Hangzhou facility. The Hangzhou plant is continuing to run efficiently is meeting current
consumer demands. The facility effectively manages its operational costs and controls overtime.
The local vendors who provide the raw materials and shipping services are also influential in
maintain the operating budget for the China plant. Recent competitive intelligence suggests that
electric fan demand will increase over the next four years. To avoid overtime and meet product
demands or have back order concerns, the following aggregate plan has been proposed,
• China plant move to an assembly line operation to support fulltime fan manufacturing
• Maintain adequate safety stock based on global company sales to meet product demand
• Implement chase staffing plan in anticipation of demand fluctuations
• Hybrid staffing strategy to address short-term unexpected increases in production and
demand.
• Ensure that the China plant is the most cost effective location to manufacture and ship the
electric fans (for the next four years).

The China plant will be involved in all company communications as they relate to production
standards, sales, financing, and logistics throughout the entire organization. The Hangzhou
location will also begin to be involved in the quality aspect of their products instead of the
corporate customer service department managing that function. Customer and management
feedback, the plants participation in the own strategic planning strategies, and the establishment
of leadership mentors will contribute to the company’s total quality management efforts.

Please contact me to discuss the upcoming plans for the China plant and the importance in their
involvement in growing their region and in how they are critical to Riordan’s global success.

Sincerely,

Cynthia Jordan
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References

Chase, R. B., Jacobs N. R., Aquilano, N. J. (2006). Operations Management for Competitive

Advantage (11th ed.). Boston: McCraw Hill-Irwin

University of Phoenix. (2011). Riordan Manufacturing Virtual Organization. Retrieved March

26, 2011 from University of Phoenix, resource, Simulation, OPS571 - Operations

Management.