CASE STUDY - AGGREGATE PLANNING

( RYDER MACHINE TOOL COMPANY)

Fourteen years ago, Ryder Machine opened its doors as a small producer of two models of
pneumatic and hydraulic controls. The controls were for machine tools used in the
automotive industry. Within a few short years Ryder developed a high volume for these
standardized products. Demand was strong and inventories were managed on an order
point system which provided adequate stock to ensure all customers of prompt service.
During the next several years, the Ryder shop gradually took on more aspects of machine
tool production. By now the company has essentially moved from its initial status as a
high-volume producer of two basic controls to a Custom producer of large machine tools.
The change had brought its share of problems and Bill Ryder, Jr., the company president,
seemed to be unable to get a handle on them.
Bill had no formal education in business management, so two years ago he responded
favorably when a college professor asked for permission to do a study at the Ryder factory.
He wanted to do some analysis for possible application of a new planning technique.
Ryder was already in the midst of growing scheduling problems so Bill agreed, thinking he
would capitalize on some free consultation time. Bill never fully understood the model,
but as the study progressed he could tell it was impractical for him, so as soon as the study
team finished its project he abandoned the idea of mathematical aggregate planning and
reverted to the more informal and verbal methods Ryder had developed over the years.
In the past, the backlog of orders had fluctuated from about 3 months to 24 months of
work. Currently it was only 8 months, having been reduced from 14 months due
primarily to some recent cancellations. During the last two years the backlog had never
exceed 18 months because the company had adopted a policy of automatically shunting off
any backlog in excess of 18 months to subcontractors. No orders were turned down. This
was probably a carry-over from William Ryder, Sr. (now chairman of the board) and his
often-quoted statement, Always accept an order. You may never get a second chance.
We can always schedule it and get it done-somehow.
The planning staff at Ryder recognized that with their backlog situation there was really no
need for demand forecasting and master scheduling. As orders were received they went
directly into a detailed schedule. Company policy was to hold rigidly to the schedule once
an order was accepted, but this never occurred. As it turned out, expeditors had to
champion almost every major order to get it through the shop, and over time work to get
them out was the normal routine. Even then, orders were likely to be three to six months
late. These late deliveries had already caused some cancellations and, as word of
them got out in the industry, were beginning to affect new business.
In addition to shipment problems, total costs had been getting more out of line over the
past 18 months. Cost appeared to be soaring in some departments, although in others the
reported costs were unbelievably static. While it was apparent that overall costs were

climbing rapidly, it was impossible to relate them to specific jobs. Nevertheless, this was
one of the items on Bills mind when he asked to meet with the production planning and
control staff.
As the meeting, Bills learned that there were several legitimate reasons for the late
shipments. First, much of the fault was not Ryders at all but was due to sub-contractors,
In fact, most of the recent cancellations had been on orders that had been subcontracted
out. Second, many of the in-plant delays at Ryder resulted from the inventory control
department not doing its job properly. The inventory control manager always seemed to
be short of one or two critical items when they were needed most. Third, engineering and
marketing nearly always insisted on last-minute changes even though this was the
theoretically contrary to company policy. These changes created endless problems for the
whole schedule and had even necessitated adding two more expeditors during the past six
months, while at the same time the backlog was going down.
As Bill returned to his office, he thought, There must be a better way. What are we doing
wrong?.
Prepare an analysis for him, clearly addressing the following issues and proposing some
recommended courses of action.
1.

What factors are responsible for the rapid increase in costs?

2.

What would your comment be on the firms problems with respect to inventory
management?

3.

What changes would you recommend with respect to the firms aggregate
planning policy?

4.

How legitimate are production controls reasons for late shipments? Make
whatever suggestions you can to eliminate these problems.
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