Flour Mill Winnipeg

Executive summary

The flour mill located in Winnipeg produces 500,000 tonnes of flour annually out of which 100,000 tonnes is distributed to Calgary and 50,000 tonnes to the packaging plant in Toronto. Currently, the distribution of flour is done in a haphazard manner where rail cars carry 80 tonnes per car on a regular basis to both the plants. It was identified however that regardless of whether the rail ships one car or multiple cars at a time, for the same delivery date and destination, the cost is the same and that there may in fact be higher savings in freight if multiple cars are shipped together. The issue however becomes that each of the plants will have to accommodate for the excess stock by creating storage space within their plants.

My decision is to ship 50 cars every two weeks to Calgary and 25 cars every two weeks to Toronto. This would result in a total savings of $525,000 which they will eventually recover. The mill will have to test this out through a trial phase for both plants, which will take only four months to test out but a year before the total savings can be recognized. There will have to be an annual investment of $100,000 to hire a few additional staff to help with these operations and there may only be savings of $300,000 within the first year however the full $600,000 will be recognized from second year going forward as it will also keep in mind the safety stock. The revenue growth will be at least 10% within the first year and an increase in business market share by 20%.

These changes will be monitored through the use of quarterly 360 degree surveys and also monitoring the rail company and inventory stock to maintain safety cover and ensure excellent customer service with consistent delivery times.

Lack of storage and cost effectiveness

Currently, there is not much storage space at the packaging plants because of cars moving at an even pace from the mill to the packaging plants. There are around 125 cars each week that is loaded and shipped to the various destinations and the packaging centres have been able to offload the flour at a reasonable pace. They ship the flour from the mill in a haphazard manner by just assigning different cars to go to the various centres (Calgary and Toronto) and this arrangement currently does not require these packaging centres to require a lot of bulk storage space. Once the rail cars are offloaded, they are brought back to the mill. However in an attempt to increase efficiency in their operations, there is an opportunity to ship 25, 50 or 100 cars to the mill at the same time for the same car rates and potentially even making a savings when shipping in bulk. This would require the mill to build storage facilities to contain this inventory which will also requite extra inventory carrying costs. Moreover, there will also be added costs with respect to getting more space within the two plants and enough quality control inspections would need to be put in place to ensure the flour is in good condition. What is important within the process is to note whether it will indeed be more cost effective to ship the flour in multiple car lots in which case the capacity at which the mill produces the flour will most likely also have to increase than its current rate. Furthermore, being only given a 12 hour window to unload all the flour, additional manpower and labour may also be required both at the mill – to load the trucks and at the Toronto and Calgary packaging plants to offload the trucks and manage the storage facilities. Being used to a certain way of operations, the mill will have to re-adjust the way it functions to accommodate these changes.

Root Cause Analysis

The flour mill produces 500,000 tonnes of flour each year out of which 30% of it goes to the packaging plants (66.66% to Calgary and 33.33% to Toronto). Taking into consideration 50 weeks with each rail car holding 80 tonnes of flour, around 125 cars are loaded and shipped from the mill per week. The mill’s current practice is to just ship cars on a continuous basis as they are supplied by the railway and the railways also sends cars to the mill as they become available without following any schedule. Therefore, the number of cars on a given day or week can vary more or less based on the number of cars that are made available on the railway. Knowing that the mill is paying single car rates for the movement of these shipments regardless of the number of cars going to the packaging plants, instead of delivering multiple times in a week, the packaging plant should have an agreement with the mill where they are able to accept multiple cars in at a time. This will help with freight savings because it will be in bulk and the packaging plants will get its flour for a cheaper price. The cars can either come in 25, 50 or 100 car lots and can be scheduled at regular intervals however the main issue with this would be the storage costs that the plants would incur. Inventory turn over needs to be high enough such that they are able to store their flour in the packaging plants and it gets distributed to the various stores at a steady rate or potentially an even faster rate than it is currently to accommodate the excess of stock. The amount of storage space that they have will also dictate how many car lots can arrive to the plant at one time. Additionally, this is going to lead to extra unit costs along with transportation costs and they also have to ensure they are able to follow the three week order cycle and keep safety stock of 1000 tonnes just to be able to guard against any uncertainty in the demand or transportation delays.

Alternatives and Options

Option 1:

One option is to ship 25 cars every week for Calgary and 25 cars every two weeks for Toronto (check analysis in Appendix A)

Option 2:

Another option is for them to go with 50 car lots at a time for Calgary and 25 car lots at a time for Toronto (check analysis in Appendix A)

Option 3: 

Another option is for them to go with 100 car lots at a time for both Calgary and Toronto (check analysis in Appendix A)