In the end of 1985, Sunwind AB was one of the six companies of Swedish Perstorp Component AB, which produced wood, wood fibre and plastic moulded components for the automotive and engineering industries. Sunwind, with headquarter at Save, manufactured a line of interior trim primarily for Volvo. It was the only supplier of the floor lid for Volvo’s 700 series station wagon, which represented about 21% of the Volvo’s total 700 series production in 1985 and would be 37% in 1986. In the fiscal year 1985, Sunwind’s sales revenue was 102 millions of Perstorp Component AB’s total revenue of 521 millions SKR.
Its two manufacturing sites in Save and Hogsater would have a capacity issue to meet Volvo’s demand for 700 series wagon floor lids under current manufacturing process. There are undoubtedly many contributors to the drop off in profitability such as rise in materials costs and other common business challenges, but a significant portion of the business expense increases seem tied to inefficiencies at Sunwind as the company attempts to grow revenue on a new product such as Volvo’s 700 series floor lids.
Such increases without sufficient planning lead to extra material costs, expedite fees from suppliers, cost of poor quality, and other inefficiencies. One specific cost detailed in the case history is the cost of material on hand. At the end of 1985 fiscal year, Sunwind carried inventory valued at approximately 4. 32 million skr. The challenge is to describe how a JIT manufacturing relationship between Sunwind and Volvo will increase profitability at Sunwind while also answering the challenge from Volvo for price reductions and better service from their supply base.
While it is true the average number of floor lids produced by Sunwind was 650 per week, that doesn’t account for the fact that workers have seven weeks of vacation and only 45 weeks are available per each full time equivalent, and it doesn’t account for the spikes in demand experienced late in the year with no corresponding head count increases. Based on the table above, the Si?? ve site was overloaded by October 1985 and was probably already experiencing difficulties by August of that year.
As can be seen from the above table, the work load would have been above Sunwind’s capacity to build even assuming there was zero non value added activity such as tool setup times, rework of material, and down time waiting for materials. The table has no computed setup times. One of the largest hurdles to moving from a batch oriented shop floor to just in time is the setup times required at various operations.
Long setup times amortized over small lot sizes will drag down labor efficiencies. This often leads manufacturing managers to manage the situation by building large runs of material. Unfortunately, there is a direct material and capacity cost for doing this, and there are hidden costs when quality issues surface and large amounts of material must be either sorted, reworked, scrapped or a combination of all three.
Due to the costs of maintaining inventories, it is imperative companies such as Sunwind look at ways to reduce the amount of material held in stock. The takt (theoretical cycle time) time from start to finish for building a particular assembly consecutively is about 54 minutes (assuming none are done in parallel). However, looking at only the integration/assembly steps one can see it would be possible to assemble to order an entire set of floor lid subassemblies in just under 30 minutes.