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Operations research helps reshape operations strategy at standard register company.

Article Excerpt
Standard Register (SR) Company is a 93-year-old firm leading in high-volume print production of forms and print stationery for major US firms. SR is facing the strategic challenge of minimizing the total landed costs to offer competitive pricing in the highly competitive traditional print market segment. We applied a trio of operations research (OR) techniques to help SR optimally allocate the production orders across its production-distribution network for minimizing the total landed cost: (1) regressions to estimate the cost and time efficiency attributes of various printing presses on print jobs of different types; (2) optimization modeling to determine the optimal order-routing strategy; and (3) simulation modeling of the production-distribution network to assess the effectiveness of optimal and heuristic allocation strategies under uncertainty of customer orders and equipment performance. With an estimated potential annual savings of over $10 million across SR's major product segments in the high-volume rotary production business, the study has resulted in a strategic shift in SR's capacity-allocation policies. SR's executive-leadership team has launched system-wide production-distribution improvement initiatives and expedited efforts to build real-time supply chain decision-support capabilities to support this philosophy.

Key words: production-distribution networks: assignment; simulation. History: This paper was refereed.

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Standard Register Company (NYSE: SR) is a leading traditional print and digital information-capture and management firm. It has more than 90 years of experience in its traditional document and label business solutions, and is a leader in innovation in its newer digital products such as electronic forms and document security. SR and the rest of the printed business-documents industry is currently faced with oversupply due to conversion from traditional print documents to new product lines using digital formats. Thus, SR is faced with making challenging operational decisions to maintain competitiveness in its traditional print business. One of SR's major challenges in the traditional print-production business is to reduce total landed costs to offer competitive pricing to customers in a highly competitive market.

The "rotary" product in the print industry generally focuses on high-volume, low-cost print jobs that are run on a continuous-feed roller and are subsequently cut, folded, and trimmed to customer specifications. Examples of such jobs are monthly statements in the financial services, bills in the health-care industries, and customized target-marketing mailers in retail. Approximately 150 presses exist across 13 locations in SR's network of facilities, each with different capabilities and efficiencies. In some cases, a job cannot be performed on a machine because of its requirements (e.g., a four-color job is required and a press has a two-color capability). In other cases, the press might not be well suited for the job, such as when its setup time and cost for configuring the press are high, or because the cost per unit is high on a less efficient press and the job size is large.

SR recognized that deciding which of its thousands of customer orders (jobs) went to which print presses each year was critical to realizing efficiencies in an increasingly competitive market. Although SR has established its order-allocation rules centrally, it frequently makes tactical decisions on the fly based on available local press capacity, geographic proximity, and marketing incentives. SR wanted to reassign customer orders of different sizes and requirements to presses at different locations and of different capabilities to reduce total costs and improve service, or both. We successfully applied a trio of classic operations research (OR) techniques to help SR drastically change its production-orders allocation logic to the contemporary strategy of minimizing total landed cost for the production-distribution network of the firm (SR has coined this approach as performance-based routing strategy).

First, we used regression analysis to estimate the cost and time efficiency attributes of various printing presses on print jobs of different types, as well as to evaluate the confidence of optimization results based on these estimates. Second, we employed optimization modeling to determine recommended joballocation strategies (production, transportation, and materials costs) subject to capacity (hours) constraints of each press in the production network. Finally, we developed a comprehensive simulation model of the production-distribution network and used it to assess the likelihood of success of allocation strategies recommended from optimization as well other heuristics, within the uncertainty of customer orders and equipment performance.

[FIGURE 1 OMITTED]

Existing Production-Distribution Network

The focus of our project was SR's traditional high-volume lithographic print business. Its current production network for this part of its business consists of six plants located across the United States and with annual revenues of about $350 million. Each of these plants processes two types of orders. Figure 1 displays the current logic of assigning orders to individual and production equipment.

For the make-to-order jobs (see the JIT manufacturing section of Figure 1), customers place the orders with sales associates either out in the field or at the corporate office. The orders are entered into the order-entry system, and then routed based on the sales associate's best estimate of which facility in his/her geographical proximity will be able to process the order within the promised due-date time frame. Often, a client places orders with a sales associate in one region for delivery to remote sites. In this case, it would make sense to produce the orders at a plant closer to the actual demand destination. This policy of allowing a sales associate to determine where the order should be produced consistently led to suboptimal order assignment to production locations and individual presses. For make-to-stock orders (see the JIT distribution section of Figure 1), products are produced in anticipation of expected demand from steady customers (managed accounts). Thus, at the time of the order entry, the availability of on-hand inventory is checked, orders are shipped, and reorder (production) decisions are implemented subject to the inventory position falling below the reorder point. The plant for production of the large batch-size jobs is derived using general guidelines like "most efficient production" or "freight-cost minimization." The make-to-stock order is stocked at one or more of multiple company warehouses.

[FIGURE 2 OMITTED]

Figure 2 describes the general printing process at these rotary facilities.

Martinich (1997) describes the production process of printing forms at one of SR's plants in great detail. The production process can be divided into three phases: preprint operations, printing operations, and postprinting operations. Depending on the product specification (roll or cut sheet or its variations, number of colors, trifolds, etc.), SR schedules the order for a specific printing press at a specific location. There are more than 150 presses across the six locations across which an order is scheduled; however, the subset of feasible presses depends upon the technical specifications of the order.

The presses may vary in their cost effectiveness for different volumes of a specific job type. Differential setup costs and variable...

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