Kellogg’s Cereal Production Process

Kellogg Company, one of the largest cereal companies in the world, is struggling with inefficient production flows. The popular Raisin Bran and Frosted Flakes cereals are produced on the same production line. The process is often starved of cereal, which is costing Kellogg thousands of dollars every day in lost revenue. John A. Bryant, Kellogg’s chief executive officer, must come up with a viable solution before next week’s board meeting. This simple production process shows how complications can arise when a resource requires setup time.

• Recognize the role that fixed costs and setup times play in causing inventory build-up.
• Recall that when significant setups (or changeovers) exist, adding products to a product line will result in nonlinear increases in inventory and holding costs.
• Determine the optimal batch size or setup (changeover) time that will avoid inventories and delays.