U.S. STROLLER: Lean
Teaching Notes
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Synopsis and Purpose
U.S. Stroller is a manufacturer and distributor of a line of baby strollers. The company makes
three types of strollers in a typical batch production system. Recently, profits are down and
competition is entering the market that the company dominates. Proposals have been made to go
to a JIT/Lean production system or to a Cell approach for production. Students are asked to
analyze these proposals and come up with a recommendation.
The purpose of this case is to show how a batch system can be dramatically improved by Lean or
Cellular concepts. The case clearly describes the changes that must be made in the production
system to achieve the benefits desired. This amounts to a complete change in layout of the
production floor and a substantial overhaul of the MRP system. The case nicely ties together some
of the material from the text on Lean, GT, EOQ and MRP. The case also requires the student to
estimate cost and benefits of these types of proposals and to identify negative effects of Lean and
GT.
Discussion Questions
1. How would you describe the current situation facing U.S. Stroller?
2. What are the pro’s and con’s of the options presented in the case?
3. What will be the impact of these options on the MRP system currently in use?
4. What option do you recommend and why?
Analysis
Question 1: Current Situation?
U.S. Stroller must do something quickly. Profits have eroded. They are not losing money yet, but
financial results are poor based on percent of sales and return on equity. Also, Chinese
U.S. STROLLER: Lean
Teaching Notes
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Question 2: Pro’s and Con’s?
Option 1: Lean pull system
This option proposes putting in three final assembly lines and dedicating various pieces of
equipment to each of the three stroller models. A Lean pull system will be put in place, setup times
will be reduced, and smaller lot sizes will be used.
Pro’s
Option 1 reduces inventories by the following amounts
Change
Inventory Savings
Finished Goods from 80 days to 22 days1
$765,000 to $210,000
Work in Process from 4 weeks to 2 weeks
$322,000 to $161,000
Raw Materials from 12 weeks to 2 weeks
$337,000 to $56,000
The savings in inventory will improve the balance sheet and return on investment. In addition the
annual savings will be 25% of the inventory reduction or a total savings of $249,000.
In addition to the above savings, U.S. Stroller will achieve a shorter response time for customer
orders. Customers will be able to order with a 2 week lead time instead of a 4 week lead time.
While U.S. Stroller has been supplying the customers from its finished goods warehouses, the
shorter lead time will provide advantages for promotions, special orders or other customer
changes.
Option 1 will also improve quality through faster correction of problems in the plant. This will not
only result in less rework and scrap, but will result in a better product being delivered to the
customer. If the cost of quality, for example, is 30% of sales at U.S. Stroller and is reduced to 20%
of sales, a savings of $456,000 per year will be realized. Thus, the quality savings could be even
greater than the inventory savings. Of course, quality can be improved without Lean, but the two
approaches reinforce each other.
Con’s
Option 1 will cost $200,000 to implement in new assembly equipment, plus a large amount of time
and other costs (including training, lost production time during changeover, management time, etc).
U.S. STROLLER: Lean
Teaching Notes
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Another con is the loss of flexibility in option 2. Since equipment and final assembly lines are
dedicated, changes in final demand cannot be easily handled. You cannot simply shift over from
one product to another. One part of the plant could be put on overtime, while another part is idle,
unless you have very high worker cross training. A second shift may even be needed in one part
of the plant while other workers are on one shift. This can cause problems with the work force and
is a result of the loss of flexibility.
Option 2 Cellular Approach
This option involves setting up a separate cell for each of the three products. Some additional
equipment must be purchased because of the indivisibility’s of equipment and people must be
dedicated to each of the product lines.
Pro’s
The Pro’s are the same as option one except things are carried one step further. Assuming all
inventories can be reduced to 1 week, this option will reduce finished goods inventory from
Con’s
safety stock introduces more costs into the system.
Question 3: Impact of Options on the MRP System Currently in Use?
The MRP system will have to be dramatically changed. In both options a pull system will be used,
so that MRP cannot be used to control the shop floor. The most that MRP could be used for is for
U.S. STROLLER: Lean
Teaching Notes
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The actual order to produce will come from the Kanban Pull system that is dependent on what is
happening on the shop floor.
MRP could be scrapped altogether, especially if U.S. Stroller believes that schedule changes will
be minimal. If approximately the same amount is produced from week to week and there are few
engineering change orders, there is really no need for MRP. Any changes can be “manually”
exploded and advance notices sent to suppliers and work centers, especially for the simple product
line at U.S. Stroller.
Question 4: Recommended Option and Why?
I recommend that the company proceed with Option 1 and then move to Option 2, if demand and
product changes are relatively stable. It appears in this case that Option 1 can be financially
justified and that substantial benefits will flow to the company in profits, balance sheet