Raritan Tool Company
Raritan Tool Company is a leading producer of home tools ranging from hammers,
pliers, screwdrivers, and wrenches to electric drills and other power tools.
The tools are sold in four different product lines ranging from the
top-of-the-line Atlas products, which are rugged tools for the toughest jobs,
to the DIY Helper products, which are economy tools for the occasional user.
The market for home tools is extremely competitive because of the simple makeup
of the products and the large number of competing producers. Customers include
some large retailers and a wide range of stores supplied by a variety of
distributors. Sales are very
concentrated around a few months, when retailers purchase supplies before the
holiday season and the start of spring. These factors compel Raritan Tool to
maintain low prices while retaining high quality and dependable, on-time
tools represent a mature industry. Unless a new tool is developed, or there is
a sudden resurgence in home maintenance due to a temporary tax incentive, large
increases in sales are not likely. It is a constant battle to keep ahead of the
competition. Price and brand name are important factors, but the critical
aspect in securing orders from distributors and retailers is on-time
delivery. No one knows this better than Carole Smith, president of Raritan Tool. She started with the
company as a sales representative 25 years ago and lived through the early
years of rapid growth, which now has leveled off. The tools sold today are
by-and-large the same ones sold 25 years ago give or take a few enhancements in
design. The only way to generate new sales and retain old customers is to deliver
superior customer service and provide a product with high customer value. This
puts pressure on the manufacturing system, which Smith thought was having
difficulties for a while. Recently she has been receiving calls from long-time
customers, such as Home Depot and Tru-Value Hardware Stores, complaining about
late shipments. These customers advertise promotions for home tools and thus
on-time delivery is the key competitive factor.
knew that performance had to improve and quickly − losing customers like Home
Depot and Tru-Value would be disastrous. She decided to ask consultant Karen Cortez to investigate the matter
and report to her in one week. Carole suggested that she focus on the electric
drills as a case-in-point since it is a high-volume, mid-price product that has
been a major source of customer complaints of late.
Planning the Production of Electric
drills come in three models and have a variety of attachments. Each model
shares the same basic elements and assembly is essentially the same except for
the size of some of the components, special features, and final packaging. For
purposes of production, planning is done in aggregate for the entire family
electric drills. Karen decided to find out how Raritan Tool planned the
production of the electric drills. She went straight to Stephen Williams, the production planner, who gave the following account.
are an old company, planning is a little informal around here. Until two years
ago, marketing determined the forecasts of electric drills for the following
year month by month, and then they passed them along to me. Quite frankly, their
forecasts were so inflated that I automatically reduced them by 10 to 20% − it
must be their big egos over there.
What?! Do you
do cut their forecasts automatically? Without telling them? By 20 percent?!
Of course. We
had such high inventories in the past that we usually ran out of space to store
the extra production. We have to be careful because we enter into long-term
purchasing contracts for steel and components, and it is expensive to have the
inventory just sitting around. Plus, long production runs prevent us from
producing a variety of other products on time.
why are then customers complaining about late and missed deliveries?
Two years ago, we stopped producing a fixed quantity
every month to be more responsive to the “ups” and “downs” of sales throughout
the year. Now instead of using the forecasts provided by marketing, I use our
own forecasts which are based on the actual shipments to the sales division (see
Table 1). It is pretty simple: first we forecast the annual shipments with a
linear trend model and then we calculate the monthly shipments based on the
average percentage of each month in the previous four years. The system is
working very well for us and the average inventory came down significantly.
still complaints and says that they are late with customer orders, particularly
at the end of the year.
requests are so random, from having no orders months in a row to months when
their orders vastly exceed our production capacity. I would not trust anything
they tell you.