Riordan Manufacturing's China plant operates as a decentralized unit of Riordan Manufacturing. It prepares its own forecast of electric fan sales throughout the world, which includes the United States. It schedules production of these fans to meet the forecasted sales.
The electric motors used in the fans are completely assembled units. They are purchased by buyers in the China Plant's purchasing department from a local Chinese company. While this company attempts to maintain adequate quantities of electric motors in stock to meet all its order requirements, its on-time deliveries over the past year have averaged only 93%.
The buyers also purchase the Plant's requirements for plastic polymers locally. The polymers, after being received, are melted at precisely controlled temperatures and injected into individual molds to create individual plastic parts required by the fans. This is accomplished by means of injection molding machines located in the production area. These capital expensive machines control the molding processes to the specifications of the plastic parts being produced, such as the fan blades and fan housings. The plastic fan blades, plastic fan housings, electric motors and other miscellaneous parts are then assembled to create finished models of electric fans. The assembled fans are individually packaged together with instructions on how to use the product and stored in a finished goods stockroom awaiting sale.
This part of the plant's business is a make-to-stock operation in which the future demand for fans is forecasted based on taking the average of sales for the last three years and extrapolating it into the next year. The assumption in using this forecasting method is that history will repeat itself within manageable limits.
Orders for electric fans can be picked up at the China plant by the customers themselves or else they can be shipped to the customers anywhere in China. The China Plant uses a Chinese shipping company that offers...