University of California
Type of paper: Thesis/Dissertation Chapter
Supply Chain Management and Master Hog Case
The Director of Logistics and Procurement at Maple Leaf slaughterhouse has a semi-complex logistics problem to solve involving getting the right number of hogs at the right time from local farms to the slaughterhouse to maximize their productivity and keep their costs as low as possible. There are several key success factors important to the slaughterhouse that must be taken into account while making this decision, including: maintaining 100% capacity in production, take into account the appropriate times of operation of each of the stakeholders, and devising a schedule that takes into account the stress on the animals, trucks and drivers, all while keeping total costs as low as possible. While taking into account the above requirements, the Director should choose to purchase 15 new trucks and trailers, keep the transportation and scheduling functions in-house at the slaughterhouse and create 30 size-adjustable pens to make sure the slaughterhouse can run at 100% capacity while keeping costs low.
This option will allow the slaughterhouse to keep control of their critical logistics function to get the right number of hogs to the right place at the right time. This choice will reduce the risks of handing over the critical scheduling function to a 3PL and stocking out of hogs at the slaughterhouse. Once accepted, the Director of Logistics and Procurement and Logistics Coordinator will be responsible for the implementation of this plan. On-time delivery, hours of service and measuring stock-out rates and safety stock levels are among the metrics that will be measured and followed-up on to monitor and control this plan to guarantee that Maple Leaf slaughterhouse reaps the expected results.
The following is the analysis and design of the logistics plan for the Maple Leaf slaughtering house in Brandon, Manitoba while taking into account the demand, trucking routes and times, and inventory levels that were stipulated in the initial report. There are three major decisions that will be solved through the implementation of this new logistics strategy: 1. The number and type of trucks the slaughterhouse will need to operate to be able to pick up all of the hogs needed each year. 2. The comparison of the cost-effectiveness of outsourcing the slaughterhouse’s logistics needs versus owning the trucks themselves and having a substantial logistics staff on hand to cover in-bound receiving, scheduling, and maintenance.
3. The inventory policy that should be implemented for the number of hogs to be kept overnight as well as the number and size of pens required to hold this inventory. Some of the main issues that must be taken into account while solving the above problems include: 1. The starting and ending production times of the slaughterhouse, the farmer’s operation/delivery times and the logistics scheduling of trucks including loading and unloading. 2. The amount of wear and tear being put on the trucks due to long distances and heavy loads. 3. The possible detrimental effects surrounding the amount of time we are asking our drivers to work and the number of drivers we employ. 4. The fact that the slaughterhouse must be run at 100% capacity at all times and the animals must wait in pens for at least four hours after delivery to the slaughterhouse before being killed. 5. The importance of being able to trace the animals back to the point of production.
Environmental and Root Cause Analysis
There are several reasons why each of the abovementioned issues are occurring at the slaughterhouse and why they must be taken into consideration when deciding on the best strategic plan for the organization. These reasons are listed in order below: 1. The starting and ending times of the different stakeholders are very important and must be taken into consideration to make sure the plant can run at full capacity, to prevent the possibility of animals dying on the trucks because of improperly planned routes and to make sure we are maintaining healthy relationships with our farmers by not showing up to their farms too early or too late causing them undue hardship. As well, asking the workers to work outside of these hours may constitute overtime, which can get costly very quickly. Finally, labour laws have to be respected as well as the ethics of how we treat our employees. 2. Employing too few trucks for the necessary routes will lead to low production volumes and excess capacity issues at the slaughterhouse. Combined with the heavy transportation schedule this issue will lead to extended downtime, missed pickups and frustrated stakeholders both working at the slaughterhouse and on the farms.
Eventually higher costs will have to be taken on as a new third-party logistics provider is hired to take over the routes leaving unused trucks or more trucks are added and more maintenance costs are incurred. 3. The amount of time the drivers are working is cause for concern because if their needs are not considered they may quit unexpectedly, be dangerous vehicle operators on the roads perhaps injuring themselves or someone else and their loads will be behind schedule due to unsatisfactory work conditions. Therefore, the appropriate logistics plan will need enough drivers for them to be safe on the roads and meet all applicable labour laws. 4. The root cause of this issue is that a slaughterhouse is a very expensive operation to run and generates profit based on the volume of meat produced per hour and therefore it must maximize the efficiency of each hour that it is in use.
Therefore, the strategic logistics plan must make sure there is enough inventory on hand to cover the killing of 1,000 animals per hour to ensure the plant is covering its costs and meeting its demand. 5. This issue is caused by the importance of protecting humans and the others end-customers of the meat products produced by the slaughterhouse from the possible spreading of disease and cross-contamination between the animals. Therefore, being able to trace the animals back to their point of origin and keeping them separated during transportation and in the hours leading up to slaughter is an important consideration while designing the logistics system. Also, if an animal is found to be sick, it will be much easier to trace it back to its point of origin so the proper quarantine can be implemented on animals from the same farm. 6. A known constraint, but something that that factors into every delivery is the minimum 4-hour rest period for each animal to allow them to calm down so as to provide a high quality end-product.
Alternatives and/or Options
The following topics have been addressed as pertinent to this case: 1. Absolute minimum to get the 2.5 million hogs to the slaughterhouse on time is 12 trucks and trailers, trailers will be based on the split for the average day. Please see reference file: Master Hog Case Analysis, Tab: 12 Trucks.
a. This would be the least costly option.
b. This would be the most efficient way of working for Maple Leaf given an ideal world.
a. Trucks will wear out faster. Our calculations show that using our scheduling each truck in a 12 truck fleet would therefore have to travel on average 189,787 Miles per year. b. Operating expenses for a truck are pegged at $1.46/Mile, and with such high mileage per truck the costs would be prohibitive. (Source #2, Page 2, Less truck/trailer lease)http://truckexec.typepad.com/files/atri-operational-costs-of-trucking-2013-final.pdf
2. Adding three trucks to the fleet for a total of 15. (The additional trailers would be 240 size to accommodate any load size) Reference file: Master Hog Case Analysis, Tab: 15 Trucks.
a. Helps reduce the wear on each truck.
b. Spreads downtime across more trucks.
c. Allows for regular schedule preventative maintenance.
a. Mileage reduces to 151,830 Miles per year per truck. High, but a manageable figure.
3. Use a 3PL to handle all Maple Leaf Logistics.
a. Removes an element of the business that may not be a core competency.
a. May not save us money.
b. Removes some level of risk mitigation.
c. Reduces flexibility both in day to day operations and in times of expansion or contraction of business.
4. Use a 3PL to handle all trucking for Maple Leaf but maintain scheduling in-house.
a. Removes an element of the business that may not be a core competency.
b. Maintains an element that is critical to the continued smooth operation of the Maple Leaf business. c. Maintains a level of control and touch with our vendors. Con’s
a. May be too costly.
b. Gives away some control.
c. Reduces flexibility to make changes both in the short term and long term.
Issue of inventory policy
1. Hold as few hogs as possible to keep inventory costs low, while mitigating the risk of production shortage. Our calculations bring this number to around 5,950 hogs each night. Master Hog Case Analysis, Tab: Inventory Policy.
a. Limits the number of pens required.
b. Limits carrying costs.
c. Allows for continuous production.
Only allows for minimal risk protection in situations of extreme bad weather or truck breakdowns. (Ref. File: S11 and S12 Problem Schedule. Tab: Receipts.)
Issue of Pens
1. Allow for 30 pens – this is our maximum inventory split by a max pen size allowing for 240 hogs. Master Hog Case Analysis, Tab: Pens.
a. With modular and easily moved gating/sections each pen can be quickly resized to accommodate shipment sizes ranging upwards from 30 hogs. b. The flexibility in sizing the pens will allow for segregation of all size of shipments from small farmer shipments to large truckloads. Traceability is therefore not compromised.
a. Should production suffer a sizeable breakdown Operations could cancel and postpone shipments to stop inventory from ballooning. There would not be room to allow for holding inventory of 10,000 hogs in the receiving area.
Based on data collected and analyzed the recommended solution is to continue with keeping the entire logistics component of Hog processing as one of Maple Leaf’s major functions. This decision will require a range of improvements helping to adjust logistics processes to manageable level. These improvements will include:
expanding the truck fleet up to 15 trucks and trailers (Ref: Master Hog Case
Analysis. Tab: 15 trucks) creating 30 size adjustable pens (Ref: Master Hog Case Analysis. Tab: Pens) keeping overnight inventory up to 5,950 hogs. (Ref: Master Hog Case Analysis. Tab: 15 trucks) It is not recommended to outsource any of the logistics components to 3pl companies due to the fact that slaughterhouse provides major portion of revenue for Maple Leaf and has to be utilized at 100% all times.
This makes transportation and scheduling components of logistics as critical as the smooth operation of slaughterhouse itself. As demonstrated outsourcing the logistics to a third party will be more expensive in Cost Comparison. (Reference: Master Hog Case Analysis. Tab: Cost Comparison.) The comparison of in-house logistics options between 12 and 15 trucks demonstrated that though 15 Truck Option is higher in cost it is the option providing greater flexibility and higher efficiency particularly in situations of truck breakdowns or maintenance.
Maple Leaf has been handling in-house trucking, logistics planning and scheduling for many years. The decision to keep doing this will not involve starting from scratch. Given that the possibility of going to an Outsourced model has undoubtedly reached the entire staff it would be important to have senior management kick-off the fact that Maple Leaf will handle all transport internally. This vocal support would be needed to signal to the staff that the company is fully ‘in’ on this endeavor with both feet. No more safety valve of another company taking over the responsibility. An official roll-out of the programs to reignite the team on the responsibility to provide product to our production is required. This re-energizing of the staff will include some effort put into to cross-training the in-house staff on other people’s functions to help promote a team atmosphere. A fresh look at each task and assumption could result in many improvements.
Where applicable all staff should have a voice in such decisions as features included with any new trucks being purchased. Allow some of the fun projects to be touched and influenced by all. Internal Competitions on most efficient route scheduling and pen layouts will result creative prizes for the winners. (Leave at Lunch on your chosen Friday?) Creative yet simple graphics could be applied to the KPI’s to help get the staff to look and pay attention to the stats beyond making it mandatory reading. (Put numbers on the graphic on the title page of this Study based on a week’s production – how many bacon strips were we responsible for this week?)
Drivers will be polled on best routes to be taken – where sometimes the fastest route may also be the worst route for causing tire flats. The incorporation of this feedback would be addressed and implemented based on validity after testing. Farmers will be surveyed to understand their hurdles and possible ways that Maple Leaf could accommodate changes to eliminate them. Maybe the arrival of a truck at a slightly different time would allow for a greater haul? Or the bay door selection changed to allow for easier loading. Even small things that reduce overall friction often make a big difference.
Monitor and control
Upon implementation of the in house trucking fleet several key metrics will need to be measured and tracked. Key performance indicators will be monitored by the procurement/logistics department and will be conveyed to the logistics co-ordinator on a monthly basis. Should there be any significant disparities between the numbers and the expected outcome the logistics team will seek root cause and corrective action and will outline a plan to get back on track. The following metrics will be measured: 1 On time delivery performance: as deliveries are very time sensitive and the slaughter plant is operating on a very lean schedule on time delivery performance will need to be monitored on an hourly basis.
The goal will be to have 98% on time delivery within the hour; performance in any given month below 95% will trigger a root cause analysis and corrective action procedure. In addition to on time delivery percentage the number of deliveries which are more than 1 hour late will need to be tracked. It is not acceptable to have more than 3 deliveries per month which are more than one hour late; should this threshold be breached root cause analysis will need to be determined and corrective action will need to follow. If the root cause is due to a lack of trucks available or lack of flexibility of scheduling because of truck shortages the procurement team will need to determine if more trucks should be purchased.
2 Hours of service: total number of driving hours charged should match the amount estimated in the typical daily and weekly schedule provided in the
appendix. If the numbers are consistently running over the estimates we will need to look into the root cause of the problem with the logistics team. Monthly billed hours will be given leeway of 3% before corrective action requirements kick in. Corrective action would vary depending on the root cause. For example, if the cause is unforeseen unloading times due to congestion at the plant during peak hours we will need to look into rescheduling shipments to spread out the arrival time of trucks. If the root cause is found to be truck downtime we will need to look into revising our preventative maintenance policies and procedures.
3 Stock out rates and safety stock levels: based on the previously calculated standard deviation of lead time and the maximum shipment size, safety stock levels had been set to roughly 1000 hogs. If this level of spare inventory should prove to be either too much or too little based on changes in lead times – i.e late deliveries are more or less frequent than previously calculated – then stock levels will need to be adjusted in order to match the new data. If we are finding that the amount of safety stock on hand is consistently insufficient this would indicate that the delivery performance of the trucking fleet is not satisfactory and will also be reflected in the metrics described previously.
4 Overnight Inventory and stock outs: we will need to monitor the end of day inventory levels to ensure that our on hand inventory consistently matches our early morning requirements. If we are finding that we are experiencing stock outs as a result of lack of rested hogs in the morning then the inventory policy will need to be re-examined.
5 Pen system effectiveness: we will need to measure the capacity levels of the pen system to ensure we are have an efficient amount of pens available to use. Should the pens be consistently running short or if we are found to have an overage in capacity we should consider adding or removing pen capacity. We will also need to monitor the effectiveness of the separation of hogs, the instances in which cross-contamination occurs, the response rate to quarantine any hogs with questionable health and the time which it takes to convert pens from one size to another.
6 Loading/Unloading Time: we are currently allowing for 30 minutes of loading and unloading time for each shipment. These times will need to be documented and tracked to ensure they are accurate. If we find that certain routes or truck sizes require increased loading time we can adjust our schedules accordingly. If we find that too many trucks are arriving at the plant simultaneously and this is causing a bottleneck then we can investigate options to stagger deliveries.
7 Weather/seasonal patterns: it is important to track the difference in delivery performance in terms of monthly patterns from year to year. The weather in Manitoba in the winter months can pose a unique challenge to trucking conditions. If we find that there are consistently more breakdowns or late deliveries due to weather in the winter months we will need to look into ways to mitigate this risk. One such method is to have a backup plan with a 3PL who can be called upon in emergency situations. Another suggestion may be to change maintenance periods during these months or to allow for more safety stock during winter months in the event that late deliveries affects production rates.
8 Truck maintenance down time: it will be important to monitor the amount of time which trucks are spending out of service due to maintenance both scheduled and unforeseen. If we are finding that the trucks are breaking down more often and for longer periods than we expect it may be necessary to look into increasing fleet size or increasing the number of mechanics on staff. If the delays are the result of not having sufficient spare parts on hand a cost analysis will need to be done to determine the value vs risk of holding more parts.
In conclusion we are exciting to have the operations of hog hauling fully under our control at Maple Leaf. We have been successful at handling this part of the business for years. The fact that this study has come out as it has proven that this is part of our core competency. We take pride in that and will continue to do so for years to come.
References, Exhibits, and Appendixes
Master Hog Case Analysis – Each sheet include here.
S11 and 12 Hog Problem Schedule – Each sheet include here. Also available as a soft copy emailed.