Four Star Industries Case Study

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the area of production planning, the company would still need to maintain high safety stock for each of their many SKUs to fulfill the orders from the dealers.

Question 4

Link option 2 and 3

One option that we can recommend to Four Star is to categorize their mattresses into the ABC Model. Once they have categorized the products, they should analyze those on “C” (slow moving items), and determine whether is a good idea to remove these products from the market. As discussed above, it is important to maintain enough variety to placate the dealers, but if maintaining 230 SKUs is causing too much build-up of safety stock, then it may be worth it to eliminate a few.

Based on the information from the case, the mean demand for slow moving items was 30 and the mean standard deviation was 25. If we assume that all 210 of these products have the same distribution and are independent, then if we eliminate 50 SKUs, we would reduce our safety stock for those 210 products by almost 24%. With this reduction in inventory, we will be able to focus more on the other SKUs that were experiencing stock-out.

From a manufacturing standpoint, implementing a sophisticated supply chain system (ERP) to improve communication across the entire supply chain (from customers, dealers and manufactures) could result in having more accurate information in short time intervals. In particular, one of the main causes for stock-outs is when dealer promotions cause unexpected demand in slower-moving SKUs. If there were better communication between the dealers and Four Star Industries, then the company would be able to anticipate the spike in demand that can happen during this time. Additionally, it might be a good idea to require that if a dealer is going to run a promotion like this that they purchase a minimum number of mattresses. This would discourage the dealers from running promotions that would negatively affect Four Star.

Another way that Four Star Industries could improve could be through implementing Lean Manufactures tools and techniques to improve the batch size in the production process and reduce the cost of set-up, in order to for them to be able to change products more frequently and making a pull-system. A beginning step for this to happen could have customer (dealer) orders being pulled from the assembly phase rather than from a finished product inventory. If this were the case, then no safety stock for each individual SKU would be required, rather, safety stocks for the different kinds of Quilt panels and springs would be what was required. Because there is less variability in these components (more variability is added once they are assembled), there would be less inventory overall. When a customer order is received, the manufacturing process would just assemble the appropriate mattress from the proper quilt panels and springs that are already available. The feasibility of this solution would depend on the manufacturing time of one mattress.

Another recommendation could be to open their factory to customers. Selling directly to customers without having the product pass through a dealer could help Four Stars to increase their respond time to market. It may also increase the profitability of the company.