1、managing a lean supply chainCASE STUDY on CASE STUDY on JENNYS CYCLE COMPONENTS JENNYS CYCLE COMPONENTS TiresWheelsFront ForkHandlebarsPowerSteel TubingWEIDING &CUT TUBINGDEGREASE &WELD CLEANPOWDERCOATINGFORK ASSEMBLYTIRE BALANCINGTRANSPORT & QUEUEDELIVERYHANDLABAR MOUNTINGWHEEL ASSEMBLY

2、1.Several-Tire Slowdown on Income2.JIT Strategy3.Special Order4.Limited Profitability5. Product Quality1Several Tires SupplierJIT StrategySpecial OrderSTATUS ANALYSIS01020304Keep core competitiveness Reduce CostTransfer risks to JCCIncrease efficiencynFocus on manufacturing processnKeep variety and

3、innovation of productn Pay the loss of unpunctual deliveryn OEM only controls the first-tier-JCCn Variable cost Lower cost by the scale productionn Fixed cost Reduce inventory administration costWe should continue to keep this method1/ STATUS ANALYSIS1.1 / Several-Tire Supplier0102Affected by the up

4、per and lower SuppliersAn aexclusive contractn An error of any tire will affect JCCn JCC only has one customer-OEMWe should seize the opportunity1/ STATUS ANALYSIS1.1 / Several-Tire Supplier1/ STATUS ANALYSIS Less setup time Strong supplier relationships Obvious production priorities Lower inventory

5、 cost and fixed cost High efficiency Zero inventory Higher revenues based on the lower price and flexibility for satisfying incremental orders No buffer inventory Highly rely on the supply chain Potential stock outs at suppliers Potential overtime expenses from unanticipated ordersGeneral BenefitLim

6、itationJITJCCBenefits that JCC cannot All of these cannot be avoid by JCC! Advantages outweigh the disadvantages，we should continue1/ STATUS ANALYSIS1.2 / JIT Strategy Financial Impact Non-financial Impact1/ STATUS ANALYSIS10.1%9.7%7.6%6.4%201220132014special order16.4%14.6%10.5%8.9%201220132014spec

7、ial orderAlthough the profitability still declines, the pace of decrease slows down.Benchmark1/ STATUS ANALYSIS1.3 / Special Order Financial Aspects1. Profitability33282023201220132014special order17.415.711.412.1201220132014special orderAccepting the order can turn the falling trend of JCCs operati

8、ng capacityBenchmark1/ STATUS ANALYSIS1.3 / Special Order Financial Aspects2. Operating Capacity0.50.70.91.11.31.51.770.00%75.00%80.00%85.00%90.00%Expand production can continue to keep our good debt paying abilityFrom financial aspect, we suppose that accepting is sensible1/ STATUS ANALYSIS1.3 / Sp

9、ecial Order Financial Aspects2. Debt Paying Ability Long-term and stable cooperation with OEM Enhance JCCs bargain power with OEM A new opportunity of expanding production and turning the difficult business dilemma Mitigate shareholders concern over JCCs declining profitabilityNonFinancialFrom non-f

10、inancial aspect, we suppose that accepting is sensible1/ STATUS ANALYSIS1.3 / Special Order - Non-financial AspectsROE57.24%85.31%Return on assets10.51%14.63%Equity multiplier5.44675.8312Assets80,475,00075,135,000Long term liabilities31,000,00031,000,000Current liabilities34,700,00031,250,000Liabili

11、ties65,700,00062,250,000Sales111,000,000113,100,000Total assets turnover1.37931.5053Current assets44,965,00038,125,000Assets80,475,00075,135,000Long term assets35,510,00037,010,000Cash and cash equivalents15,000,00013,900,000Trade receivables, net13,500,0009,300,000Others6,765,0007,725,000Inventory9

12、,700,0007,200,000Net Income8,454,22510,988,825Net profit margin on sales7.62%9.72%Sales111,000,000113,100,000Cost of goods sold81,025,00079,025,000Freight-out4,900,0004,500,000Other operating expenses11,300,00012,000,000Provision for income taxes4,220,7755,486,175Non-operating expenses interest1,100

13、,0001,100,000Cost & Expenses102,545,775102,111,175Cost & Expenses102,545,775102,111,175Inventory9,700,0007,200,0001/ STATUS ANALYSIS1.4 / Financial Analysis DuPont Analysis2TiresWheelsFront ForkHandlebarsPowerSteel TubingWEIDING &CUT TUBINGDEGREASE &WELD CLEANPOWDERCOATINGFORK ASSEMB

14、LYTIRE BALANCINGTRANSPORT & QUEUEDELIVERYHANDLABAR MOUNTINGWHEEL ASSEMBLYSupplyingDeliveringManufacturing2.1 Quality Management2.2 Supplier Evolution System2.3 Transfer price2.4 Bargain 2.5 JIT Information Sharing Platform2.6 Manufacturing Process Re-engineeringTiresWheelsFront ForkHandlebarsPow

15、erSteel TubingWEIDING &CUT TUBINGDEGREASE &WELD CLEANPOWDERCOATINGFORK ASSEMBLYTIRE BALANCINGTRANSPORT & QUEUEDELIVERYHANDLABAR MOUNTINGWHEEL ASSEMBLY2/IMPROVEMENTOverview of Further Actions TiresWheelsFront ForkProblem 1: Problem 1: Unbalanced wheel/tire combination1/ Tire Supplier: Aff

16、ord Testing machine Bill $700/ Unqualified unit2/ Wheel Manufacturers: Balance testCurrent solutionsTesting machine cost Direct labor Outcomes3:00 min Balance Test $2,000/min punishment3/ Long-term Development: Open tendering Supplier evolution system If not, This would certainly solve current2/IMPR

17、OVEMENT2.1 / Quality ManagementSupply ChainEntry PolicyQuality ControlProcessProductQuality Evaluation Quality ControlFeedbackDBCA2/IMPROVEMENT2.1 / Supplier Management- Long-term Supplying Evaluation System1. After-sale service2. Technical support time3. The main technical personnels1. The financia

18、l statements (nearly three years)2. Bank credit1. Product quality (nearly 2 years)2. Delivery time3. Supply price4. Market position and reputation2/IMPROVEMENT2.1 / Supplier Management- Long-term Supplying Evaluation SystemResult of evaluationgrade suppliersreward and punishment .This would certainl

19、y solve current2/IMPROVEMENT2.1 / Supplier Management- Long-term Supplying Evaluation SystemWheelsFront ForkHandlebarsPowerSteel TubingProductsProductsProductsProductsProductsQualifiedQualifiedQualifiedQualifiedQualifiedEvaluationEvaluationEvaluationEvaluationEvaluationTiresEvaluation2/IMPROVEMENT2.

20、2 / Quality Management- Long-term Total Quality Control00.050.10.150.20.2502468101214123456789 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31Normal Distribution CurveFrequencyNormal Distribution Curve-3 Sigma3 SigmaThose data beyond the line of 3 Sigma are unqualified and need to

21、be eliminated.6 Sigma Model 2/IMPROVEMENT2.2 / Quality Management- Long-term Take measurement Define the problem Analyse the reason Making solution Make conclusion Adjust planning Control the process Check the result 2/IMPROVEMENT2.2 / Quality Management- Long-term PDCA CirculationTiresWheelsFront F

22、orkHandlebarsPowerSteel Tubing2/IMPROVEMENT2.3 / Transfer PriceProblem 2:Missed scheduled deliveries due to the filled Problem 2:Missed scheduled deliveries due to the filled orders orders If the external orders + JCCs order doesnt excess handlebars capacity: If orders from external part and JCC exc

23、ess handlebars capacity within 1,000 units:If orders from external part and JCC excess handlebars capacity within 2,000 unitsNumbers of orders excess handlebars capacityTransfer PriceLowest priceHighest price0801250100089.51251000200089.25125Transfer Price External Market Price$80+$0/33750 $80+($125

24、-$80)*100033750Transfer Price$80+($125-$80)*200033750Transfer Price External Market Price External Market PriceHANDLEBARS UNIT COST INFORMATION2015 (Estimated)Selling price to outside customers*$135Variable Cost*80Contribution Margin $45Based on the industry average level2/IMPROVEMENT2.3 / Transfer

25、Price02040608010012014005001000150020002500300035004000Transfer priceExcess AmountTransfer priceTransfer priceMaximize Price(market price)2/IMPROVEMENT2.3 / Transfer PriceProblem 3: Problem 3: Price concessions of $200 per unitFeasibilityp Scale effect of one type product easy to bargainp Transfer p

26、rice within reasonable rangeJCCS UNIT COST INFORMATION（2015）Materials Steel tubing 200.00 Front fork 650.00 Wheel set (front and rear) 700.00 Tires 350.00 Handlebars 125.00 2,025.00 Direct labor 13.33 Overhead 112.50 Depreciation (Generally fixed in total) 550.00 Total unit cost 2,700.83 190.00600.0

27、0700.00350.00120.001920.001920.00 After bargaining: Steel tubing: $190 = 200 * ( 1 - 5.4% )Front fork: $600 = 650 * ( 1 - 5.4% )OutcomesRange of unit cost Normally $15/ unit (0.56%)Bargain $65/unit (2.4%)2/IMPROVEMENT2.4 / BargainEDIEDIEDIEDIEDI2/IMPROVEMENT2.5 / JIT Sharing System2/IMPROVEMENT2.5 /

28、 JIT Sharing SystemJCCS Planned Order ScheduleSeason 1/2/3/4Type of frame geometriesPlannedOrdersSteel Tubing Front Fork Handlebar TypeWheel TypeTire SpecificationsSport bikes380093759375380038001500/2000/300Cruising bikes2775277527751075/700/1000Retro bikes2800280028001200/700/7002/IMPROVEMENT2.5 /

29、 JIT Sharing System2/IMPROVEMENT2.5 / JIT Sharing SystemPurchase plan achievedSafety inventoryPurchase order achievedCustomer satisfactionInformation Synchronization2/IMPROVEMENT2.5 / JIT Sharing SystemBenefits of such solution:Time Efficiency Cost (Inventory+ Equipment)Missed schedule unpunctual de

30、livery Mistakes Limitation of JIT 1. No buffer inventory2. Highly rely on the supply chain3. Potential stock outs at suppliers4. Flexibility for satisfying incremental ordersSolveSolveSolveGetThis would certainly solve current2/IMPROVEMENT2.5 / JIT Sharing SystemInvestment in PPEFailure in current y

31、ears.Inefficiency！Working OvertimeFinancial:Be paid at 150%Direct labor/unit $0.74 Net income 15.56%Non-financial:Workload + Pressure Improvement of product line Capacity?Two Stage:1/ Reduce TIRE BALANCING TIME2/ Combine STEP4 and STEP 5 201430,000 units201533,750 unitsThis would certainly solve cur

32、rent2/IMPROVEMENT2.5 / JIT Sharing SystemThree ApproachesCUT TUBINGCUT TUBING0:300:30WEIDING SETUP TIMEWEIDING SETUP TIME0:150:15WEIDING PROCESS TIMEWEIDING PROCESS TIME3:153:15WELD CLEAN UPWELD CLEAN UP2:002:00DEGREASE & POWDER COAT PREPDEGREASE & POWDER COAT PREP0:300:30POWDER COATING PREC

33、ESS TIMEPOWDER COATING PRECESS TIME3:003:00FORKFORK ASSEMBLY PROCESS TIMEASSEMBLY PROCESS TIME1:451:45TIRE BALANCING PROCESS TIMETIRE BALANCING PROCESS TIME3:003:00HANDLABAR MOUNTING PROCESS TIME - HANDLABAR MOUNTING PROCESS TIME - 1:301:30TRANSPORT TO LOADING QUEUETRANSPORT TO LOADING QUEUEFOR JIT

34、JIS DELIVERYFOR JIT JIS DELIVERYWHEELWHEEL ASSEMBLY PROCESS TIMEASSEMBLY PROCESS TIME2:152:150102030405060708CUT TUBINGCUT TUBING0:300:30WEIDING SETUP TIMEWEIDING SETUP TIME0:150:15WEIDING PROCESS TIMEWEIDING PROCESS TIME3:153:15TIRE BALANCING PROCESS TIMETIRE BALANCING PROCESS TIME3:003:00FORKFORK

35、ASSEMBLY PROCESS TIMEASSEMBLY PROCESS TIME& WHEEL& WHEEL ASSEMBLY PROCESS TIMEASSEMBLY PROCESS TIME2:152:152/IMPROVEMENT2.6 / Manufacturing Process Re-engineeringStepProcessTime （minutes）1Cut and assemble the tubes.4:002Clean up the welds, degrease, and prepare for powder coat.2:303Perform p

36、owder coating.3:004Assemble the fork.1:455Balance the tires.3:006Attach the wheels/tires.2:157Mount the handlebars.1:308Load the frames for transport.OUTCOMES: Processing Time: 4:45 minMinimized the decreasing profits2/IMPROVEMENT2.6 / Manufacturing Process Re-engineering2.deliveringOverall EDI:2.2

37、JIT Information Sharing Platform3.manufacturing2.3 Product Line Reorganization1.Supply Chain1/ Quality Problem2/ Missed Schedule2/ Increasing Inventory1/ Unpunctual Delivery 2.1-1 Supplier Evaluation System2.1-2 Total Quality Control (TQC)Six Sigma + PDCA Circulation2.1-3 Transfer PriceOther issues:

38、Appendix: Cost ControlIncreased Cost2/ Declining profitability1/ Limited productivityRecommendationProblemsSourcesTire/WheelHandlebarSecond-tire SupplierSteel Tubing, Front FrockCapacity2/IMPROVEMENT3The Unit Cost SituationFinancial Factors ImprovementsFinancial StatementsBalanced Score CardJCCS UNI

39、TJCCS UNIT COST INFORMATION COST INFORMATION（20152015）Materials201420142015 After Improvement2015 After Improvement Steel tubing 200.00 190.00 Front fork 650.00 600.00 Wheel set (front and rear) 700.00 700.00 Tires 350.00 350.00 Handlebars 125.00 120.00 2,025.00 1960.00Direct labor 13.33 9.78Overhea

40、d 112.50 112.50Depreciation (Generally fixed in total) 550.00 488.89Total unit cost 2,700.83 2571.17 $10 $50 $5 $3.55 $129.66The unit cost would reduce, indicating a lower cost of goods sold and a higher profit.3/ FINAL RESULT3.1 / Unit Cost Information14.60%10.50%12.15%201320142015Return on Assets9

41、.70%7.60%7.06%201320142015Net Profit Margin2015 before improvementThe profits would stop the downward trend3/ FINAL RESULT3.2 / Financial Factors-Profitability0.50.70.91.11.31.51.770.00%75.00%80.00%85.00%90.00%Creditors would be satisfied with the results3/ FINAL RESULT3.2 / Financial Factors-Debt P

42、aying AbilityJCCS INCOME STATEMENT（Years Ended Dec. 31）2014(In millions)2015(In millions)Sales111118.1Cost of goods sold81 86.7 86.7 Gross margin 29.9 31.4 31.4 Operating expenses:Freight-out4.9 5.9Research and development2.8 2.8 General and administrative8.58.5Total operating expenses16.217.217.2Op

43、erating income13.814.2Non-operating expenses interest1.11.1Income before taxes12.713.1Provision for income taxes4.24.3 Net income8.48.48.8 8.8 3/ FINAL RESULT3.3 / Financial StatementsJCCs Statement of Financial Position（Years Ended December 31）Increase (Decrease)ASSETS2014 (In Millions)2015 (In Mil

44、lions)Percentage%Current Assets Cash and cash equivalents152567% Trade receivables, net13.518.436% Inventory9.72.0-79% Prepaid expenses0.50.57% Deferred tax assets6.36.76% Total current assets44.952.617%Property and Equipment Land and buildings12120% Property and equipment57.557.50% Less: Accumulate

45、 depreciation3955.542%Goodwill550%Total Assets80.471.6-11%LIBILITIES AND OWNERS EQUITYCurrent Liabilities Accounts payable97.3-19% Accrued expenses2516.6-34% Income taxes payable0.70.746% Total current liabilities34.724.7-29% Notes payable31310%Total Liabilities65.755.7-15%Shareholders Equity Common

46、 stock110% Retained earnings13.715.915%Total Shareholders Equity14.817.114%3/ FINAL RESULT3.3 / Financial StatementsJCCs Statement of Financial Position（Years Ended December 31）Increase (Decrease)ASSETS2014 (In Millions)2015 (In Millions)Percentage%Current Assets Cash and cash equivalents152567% Trade receivables, net13.518.436% Inventory9.72.0-79%2014 (In Millions)2015 (In Millions)Percent