Nanyang Technological University Four Stars Industries Discussion Start your discussion by determining what issues should be addressed to accommodate the i

Nanyang Technological University Four Stars Industries Discussion Start your discussion by determining what issues should be addressed to accommodate the inventory and delivery problems of the company. Be sure to reference the exhibits in the case study to do thi.** no outside sources can be used** ASIACASE.COM
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NANYANG
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???001
FOUR STAR INDUSTRIES SINGAPORE – MATCHING
SUPPLY WITH DEMAND
Publication No: ABCC-2009-005
Print copy version: 05 May 2010
S. Viswanathan and D. G. Allampalli
In 2002, Neo Sia Meng took over as Executive Director of Four Star Industries Private Limited
founded three decades earlier by his parents. After joining the family business as Director in 1996,
Sia Meng saw several local and foreign mattress manufacturers enter the Singapore market. This
intensified the competition in the local market which was already seasonal and volatile.
The increased competition resulted in a proliferation of product offerings from all the manufacturers.
The local dealers who dominated the retail mattress market sought an exclusive range of in-house
models from the local manufacturers. As Four Star depended heavily on the local dealers, it tried
to accommodate their demands to increase its product range and service level. However, as Four
Star substantially increased the variety of mattress offerings, its operations became chaotic, and
matching demand with the correct inventory of mattresses became a significant challenge.
The order fulfillment problems created significant pressures on the manufacturing operations and
Sia Meng was worried that these operational problems might provoke some of his long-serving
employees to consider leaving the company. Sia Meng pondered on the short and long-term options
for Four Star to move towards a responsive, but cost-effective operations model.
Professor S Viswanathan and D. G. Allampalli of Nanyang Business School prepared this case based on the interview
of key personnel from Four Star Industries Private Limited. As the case is not intended to illustrate either effective or
ineffective practices or policies, the information presented reflects the authors’ interpretation of events and serves only
to provide opportunities for classroom discussions. The authors would like to thank Mr Neo Sia Meng, Executive Director
of Four Star Private Limited for the support in the development of this case study
COPYRIGHT © 2010 Nanyang Technological University, Singapore. All rights reserved. No part of this publication may
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consent of Nanyang Technological University
For copies, please write to The Asian Business Case Centre, Nanyang Business School, Nanyang Technological
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THE GRANDESCARCINIE
THE V-SHOPPER ORDER
reactions to these mattresses were also very positive
as they found them to be much better?
On 14 July 2002, Neo Sia Meng, Executive Director
of Four Star Industries Private Limited discussed In early eighties, Gim Sin observed that mattresses
with his brother and Company Executive Neo made using individually pocketed high tensile springs
Chiw Em, the problems and chaos created by were gaining popularity as they provided better
the unpredictability of demand which resulted in a support for the back. He pioneered the introduction of
significant decline in the order fill rates. Sia Menghad this new product-pocketed spring mattress (PSM).
learnt from his Factory Manager that even after two Gim Sin first evaluated many Taiwanese machinery
weeks, the order of V-Shopper, a Four Star dealer, manufacturers, but eventually again chose the Swiss
could not be completed due to stock-outs of certain machinery again for their higher productivity. By
slow-moving mattresses. The number of mattress 1985, he successfully introduced PSMs in Singapore.
models that Four Star manufactured had grown 18-
fold in the previous six years. Though the warehouse Gim Sin’s emphasis on quality and productivity
space and inventory had increased substantially. yielded immediate dividends for Four Star. In 1988, it
the stock-outs of some mattress models resulted won the Grand Prix for International Quality – Europe
in the decline of order fill rates. Order fulfillment 89 from EDICON, a Madrid-based international trade
pressures were creating significant difficulty in magazine. Despite the quality recognition, Four Star
production scheduling and putting increasing stress did not enter the European markets due to high
on manufacturing staff. Sia Meng was worried that freight costs. Instead, it focused aggressively and
these operational problems might provoke some of exclusively on the local market. By the late eighties,
his long-serving employees to consider leaving the Four Star had become a leading manufacturer of
company.
PSMs in Singapore and used a variety of spring
counts in their construction. (See Exhibit 1 – Four
Star Models and Spring Counts in 1990s.) Its
BACKGROUND OF FOUR STAR INDUSTRIES production had jumped from 500 mattresses per
annum in 1968 to 35,000 mattresses in 1989.
In 1966, Neo Gim Sin, a carpenter by profession, and
his wife set up Four Star Industries Private Limited
(Four Star) to produce spring mattresses. He chose SINGAPORE MATTRESS MARKET
mattress-making machines
from Spühl AG, a leading
European machinery manufacturer. Gim Sin recalled: The Singapore mattress market in the 1990s
comprised three major local manufacturers: Four
When we first started making mattresses Star, Dreammakers and Dunlopillo, a few foreign
in 1966, my wife and I were doing manufacturers, and traders. While Four Star and
them by hand and we had to import Dreammakers used their own technology, Dunlopillo
bed springs from Hong Kong… Then made its mattresses through a franchise. The
I met a German mattress maker who leading foreign brands of mattresses in Singapore
invited me to visit his factory. In 1968, were Simmons and Slumberland. Simmons, an
visited his factory and several others in American brand manufactured its mattresses in
Europe. When I came back, I decided Japan, while Slumberland had its manufacturing
to buy Swiss machinery to make our operations in Malaysia. Late entrants into the market
mattresses.’
included local brands such as Magic Koil. Wasaly
and Prince Bed
Gim Sin bought the Swiss machines because he was
impressed with their higher productivity and quality. In early 2000, mattress manufacturers depended on
As a result, Four Star’s
production rose 10-fold with hundreds of dealers, of which about 20 were large
the same number (five) of employees. Customer dealers (LDS) and the rest were small dealers (SDS).
1 Neo, L. S. (1989, December 25). A firm belief in technology pays off for Four Star. The Business Times, Singapore.
2 ibid.
3 ibid.
4 This figure included pocketed spring mattress as well as other types of mattresses such as bonnel spring mattress
5 Local mattress maker to move into Asia-Pacific Market (1989, December 16). The Straits Times, Singapore.
6 Chan, S.P. (1991, July 21). Dream of the dream mattress. The Straits Times, Singapore
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MASAN BIGARRENTE
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LDS had huge showrooms in popular shopping Novena’s request, Four Star developed an exclusive
malls. LDs such as Robinson, OG and METRO range of mattress models for the dealer, naming
retailed a large variety of consumer products it Premier which comprised Premier Prestige,
including mattresses while LDs like Novena and Premier Luxurious, Premier Firm, Premier Optima
COURTS specialised in home and office furniture, and Premier Deluxe. The net effect of this was a
and furnishing products. The SDs were spread proliferation in the number of mattress varieties
throughout the HDB heartland of Singapore, and manufactured by Four Star (See Exhibit 2-Number
sold mattresses and furniture to households in these of New Models Introduced by Four Star.) Increased
public housing estates.
competition and a focus on higher-end mattress
models contributed to a decrease in the total number
Together, LDs and SDs became the first point of of mattresses sold annually by Four Star. (See
contact for existing and potential customers. LDS Exhibit 3 – Production of Mattresses.)
sensitised the market, created the demand and
facilitated new product launches. The dealers
served customers who visited their showrooms PRODUCTION MANAGEMENT
and conducted seasonal promotions. They also
offered credit card and loan facilities, and thus When Sia Meng joined Four Star in 1996 and
expanded their loyal customer base. The demand took over the responsibilities for product design
for mattresses was seasonal. However, the demand and development, it had 13 mattress models. In
spiked significantly when the LDs provided steep response to increased competition, Sia Meng began
discounts and conducted clearance sales. While developing new mattress models including in-house
the seasonal demand had a predictable pattern, models for LDs. Four Star added 7 new mattress
for mattress makers, the order volumes were models in 1997, 60 models in 1998 and 40 in 1999.
unpredictable during the highly discounted sales By 2002, Four Star manufactured 230 different
periods
models of spring mattresses. With the proliferation
of new mattress models, and the resultant increase
Before the late 1990s, LDs managed the variations in in finished goods inventory and warehouse capacity
market demand by keeping inventory of mattresses requirements, Four Star moved its factory to a
in their own warehouses. Some LDs even maintained building in an Industrial Estate in Kallang in the
full-fledged delivery and logistics facilities to fulfill eastern part of Singapore. The manufacturing
their customers’ orders. However, towards the end of pocketed spring mattresses at Kallang was
of 1990s, LDs began to move away from these organised into four departments: spring unit, quilt
practices and by 2002, most LDs virtually kept panel, assembly, and warehousing. (See Exhibit
no stock of mattresses, and expected mattress 4 – Four Star – Manufacturing Process.)
manufacturers to maintain the logistic facilities and
provide direct delivery to their customers. Manufacturing Process
By 2002, the competition in the Singapore mattress The manufacturing process of the pocketed spring
market intensified. The LDs had a choice in terms of mattress at Four Star began with the production of
which mattress brands to push in their showrooms. the innermost module, the spring unit.
Al the same time, there was severe competition
among the LDs themselves. The foreign mattress Spring Unit: Four Star imported high tensile wires
manufacturers also increased competitive pressures in three different gauges (1.8g, 2.19 and 2.4g).
by launching several new products with technology After testing the wires and coating them with anti-
based materials and innovative designs. This led rust solvent, they were fed through a spring coiling
the LDs to broaden their product offerings. Many machine to produce coil springs. Next, the springs
LDs therefore asked Four Star lo develop in-house were inserted into individual fabric pockets and
models with higher value propositions. For example, sealed to produce pocketed springs. An optimum
Novena, Four Star’s top dealer with 25 percent share number of pocketed springs were then housed in
of its sales, indicated to Sia Meng that it was unable a carbon steel frame to produce the spring unit
to sell its spring-count based models. Based on assembly. The spring unit was the core chassis or
7 HDB (Housing and Development Board) heartland refers to the public housing estates where 84 percent of Singaporeans live,
mostly in flats
& in house models are mattress varieties that are sold exclusively at the retail outlets of a particular LD.
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THE ASIAN BUSINESS CASE CENTRE
frame of the mattress. There were different types of to use a fabric roll partly for one quilt. Hence the quilt
spring units used by Four Star, and these were due panels were produced in batches of 50.
to the variations in the spring count and the wire
gauge used in the spring
To produce the different types of mattresses, Four Star
varied the number of pocketed springs, upholstery
Quilt Panel: The second floor of the factory housed materials and quilt fabrics to adjust the feel comfort,
the quilt panel and assembly departments, as well durability and the final price of a mattress. (See
as the warehousing facilities. Four Star imported a Exhibit 5 – Raw Materials Composition of Fast-
variety of fabrics in rolls of 400 metres from Belgian Moving Mattresses.) For example, in 2002, the
and German companies with plants in Indonesia mattress Model “PU’ was a Queen-sized mattress
and China, respectively. A foam sheet was inserted with a spring count of 788. The main components
between two fabric layers and stitched into numerous of this mattress model were the spring unit (with a
patterns to produce a curvy outline on the top surface spring count of 788), quilt fabric type “OF 1′ and a
of the quilt. The quilt was then cut into panels of the foam layer of 25 mm thickness.
appropriate size for the corresponding mattresses:
Single, Super Single, Queen and King. For medium The springs were manufactured with wire of gauge
to high-end mattresses, Four Star used superior 2.1 mm. The spring count in a mattress ranged
fabrics with additional finishing for water-resistant from 384 to 1,308 to provide a wider choice to local
and ventilation properties.
dealers and customers. Similarly, 45 different quilt
fabric rolls were used to create the 230 different
Assembly. The mattress was assembled by wrapping mattress models.
the spring unit first with upholstery (i.e. foam and
insulator layers), and then a quilt panel. Folding these Each fast-moving mattress model was assembled in
layers manually, a tape end stitching machine (TESM) batches of 9 to 12. To ensure that all three mattress
was used by Four Star’s operators to complete the assembly tables produced the same model at a time,
assembly and finishing of the mattresses. the slow moving mattress models were assembled
in batches of 3. Due to the large number of mattress
Quality Control: After visual checks of the mattress, varieties, fluctuations in the demand pattern, and
Four Star inspectors checked its feel and firmness, the resultant production scheduling constraints,
and those products that passed its quality standards as well as service requirements, a safely stock
were stored as finished goods inventory in its corresponding to two weeks’ requirement of all the
warehouse
different models of the finished mattresses was
considered appropriate by Four Star.
Production Scheduling
In addition, the minimum order quantity (MOG) for
The capacity at each of the three major manufacturing quilt fabric was between 2,000 to 3,000 metres. Four
stages (namely spring unit, quilt panel and assembly) Star had to hold the cycle stock corresponding to
was more than adequate to meet the current demand the MOQ of all 45 different varieties of quilt fabrics it
levels at Four Star. Only two of its machines had used. Similarly, the inventory of spring wire and foam
significant setup times, these were the coil spring material had to be held based on the corresponding
machines and the quilt panel stitching machines. MOQ for these raw materials. (See Exhibit 6
Each type of spring unit was produced in batches Minimum Order Quantities MOQ & Leadtimes for
of 100
Raw Materials.)
The setup in the quilt panel stitching machine As more LDs stopped keeping inventory of mattresses
involved changing the cam and number of needles and required the manufacturer to perform the logistics
according to the sewing pattern for a particular and delivery functions, the service requirements
quilt. The length of the fabric roll used for quilt panel imposed on Four Star increased significantly
production was 400 metres long, and this on the Typically, the dealers expected Four Star to deliver
average yielded 50 quilt panels. Due to price and the mattresses directly to its customers within a
quality considerations, and the nature of the quilt couple of days upon the placement of their orders.
stitching process, it was not practical for Four Star
9 The spring count (for a particular packing density of spring coils) is the number of spring coils used in a standard Queen-sized
mattress with that oil packing density
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The factory operations and sales departments of order was symptomatic of the operational problems
Four Star were headed by a Factory Manager and faced by Four Star. Recounting the operational
Sales Supervisor respectively, and both reported problems faced during 1999 to 2002. Sia Meng said:
to Neo Chiw Ern. The Factory Manager was
responsible for the entire production of mattresses The demand variability, dealers’
and was supported by three supervisors and about expectations and insistence on in-
100 staff members who had been with the company house models with different quality and
for several decades. At the beginning of each week, price necessitated overtime payments
Sia Meng, Chiw Em, the Sales Supervisor and the by 1999. In the next two years, the
Factory Manager respectively, met to decide on the Factory Manager found it a challenge
production schedule
to coordinate shop floor activities and
mistakes in production led to build up
Order Management
of months of inventory. Such mistakes
caused wastages daily, and order
Both LDs and SDs placed their orders with Four fulfillment got delayed as stock outs
Star after receiving a confirmed order from their became common.
retail customers. Their order volumes over the
week-ends were higher compared to the weekdays, Recalling the employees’ frustration, he said:
and remained very high and unpredictable during
festive seasons and periods of discounted sales. Four Star began to lose good staff due
The dealers used the fax or phone to convey their to the chaotic operations and some
orders to Four Star. If adequate finished goods of the very old employees expressed
inventory of the ordered mattresses were available, their intentions to quit. Some of them
then these orders were fulfilled by Four Star from complained about the problems faced
existing stock. Otherwise, they were backordered, as neither the production nor the order
and manufactured on an expedited basis.
management were going smoothly and
caused stress to them. Some were
The order management and finished goods inventory undergoing treatment for management
planning were made difficult because the dealers did of blood pressure and even brought the
not plan or commit weekly or monthly purchases, and medical report from their doctors to show
the responsibility of maintaining sufficient inventory that their health was affected due to the
of finished goods fell on Four Star. The dealers very stressful operational environment
also expected Four Star to show a high degree of at work.”
flexibility in accommodating the variations in mattress
models, order sizes and delivery lead time despite Sia Meng could accept that the decrease in sales
the operational constraints. This, along with the revenue from S$9 million in 1989 to S$6 million in
minimum production batch size and high volatility 2002 was due to the increased level of competition
of demand, made production scheduling and order in the Singapore mattress market. What he could not
fulfillment very complex.
come to terms with was the fact that Four Star had
incurred operating losses during the previous three
Inventory and Demand Mismatch
years. Four Star had to manage their bottom line
better, and Sia Meng had to find a way to smoothly
In spite of the above factors, the order fulfillment manage its operations so that factory employees
process had worked well when Four Star sold only were not overly stressed out.
13 mattress models. But with the proliferation of
mattress varieties, the finished goods inventory Sia Meng was considering …
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