Space Age Furniture Company - Assignment Example

 Introduction Material Requirement Planning is a planning method that is used for planning in manufacturing processes. It aims at: 1. Ensuring that materials are available for production and products are available for delivery on time. 2. Ensuring the lowest possible holding costs for inventory and storage costs for finished products. 3. Planning for purchasing activities, manufacturing processes and delivery schedules. According to Slack, Chambers & Johnston (2001), Materials Requirements Planning does not take into consideration the capacity of the company to produce a certain number of units. This is done under capacity requirement planning (CRP) This paper will analyse the MRP used in Space Age Furniture Company and recommend a better system that can minimise inventory-holding costs and ensure on time delivery. a. Developing an MRP for Space Age Furniture. An MRP can be developed using the master schedule available for the company that shows production for the next six weeks as shown below. A separate MRP will be developed for the two products that is Gemini TV stand and Saturn microwave stand. This is because the two products use different subassemblies to make them. An MRP for Gemini TV stand that uses subassembly part no.435 Week 1 2 3 4 5 6 Units at start of wk. 0 400 0 300 -200 600 Order 1000 0 1000 0 1000 0 Demand 600 400 700 500 400 600 On-hand at end of the week 400 0 300 -200 600 0 The MRP above shows that at the end of week six, there will be no stock remaining for Gemini TV stands. However, the company incurs a cost of $0.75 per unit per week to hold stock for any subassemblies in stock from one week to another. Hence Space Age Company will incur a total cost of $975 for the six weeks in relation to holding cost. Calculations for holding costs. Week 1- 400 *0.75*1= $300 Week 3- 300 *0.75*1=$225 Week 5- 600 *0.75*1=$450 Total holding cost for part no.435 = $975 Below is a MRP schedule for Saturn microwave stand that uses subassembly no.237 Week 1 2 3 4 5 6 Units at the start of week 0 700 300 900 300 1000 Order 1000 0 1000 0 1000 0 Demand 300 400 400 600 300 300 On- hand at the end of the week 700 300 900 300 1000 700 The schedule indicates that after every week the company has some units of stock left which is an additional cost to the company. Calculations for holding cost. Week 1-700 *0.75*1= $525 Week 2-300 *0.75*2=$450 Week 3-900 *0.75*1=$675 Week 4-300*0.75*2=$450 Week 5-1000 *0.75*1=$750 Week 6-700*0.75*2=$0.75 Total holding costs=$ 3,900 Note: In week 2, 4 and 6, the cost is multiplied by two weeks since those units had stayed in store for two weeks and not one week. Hence the total production costs will be: Holding costs=$3900 +975=4875 Labour costs=$(22*40 hrs. + 11*20) * 6=$6600.This is because it takes 60 hrs. to produce 2000 subassemblies per week. Total cost = 4875 +6600= $11475 b. Improvements for lot sizes of 1000 units for subassemblies It is clear that due to the high number of subassemblies being produced, there is a demand for part 3079 to be produced in high numbers since it is used to make the subassemblies. However, this can lead to the company incurring overtime costs in order to meet the demand for sub assembles produced in lot sizes of 1000 units. This paper recommends that the lot size of producing the subassemblies should be reduced in order to avoid too much demand for part 3079. This is because it can lead to overtime costs, which in turn can lead to the loss of competent staff. This can be done by reducing the lot size to say 800 units and analysing its effects through Material Requirements Planning. If reducing that number still does not yield better results, the company can consider reducing the number further up to a point where they can sustain the demand for part 3079 that is used to make the subassemblies for the final products. Alternatively, since the machine that makes part 3079 can make as much units as possible, the company can consider employing more staff who can make the part in order to meet the demand for the subassemblies required. This will eliminate overtime costs, stock out costs and motivate the staff who will work the regular 40 hours per week. According to Hanna & Newman (2001), for a company to come up with the best course of action, a cost-benefit analysis must be done in order to choose the one that minimises costs and maximises benefits. In this case, the two recommendations will be analysed. c. Trade-off between inventory costs and overtime costs A trade-off is a situation where one gains something at the expense of losing something. That is when one item increases, the other decreases and vice versa. This case involves a trade-off between inventory costs and overtime costs. Inventory costs are those costs that are associated with holding inventory in the store for a certain period. According to Muller (2003), for any company, their main aim is to maintain the lowest inventory costs. This is because when there are low inventory costs, the company will maximise their profits. On the other hand, overtime costs are costs relating to workers working for extra hours than required in order to meet the demand. Hence, if a company incurs high inventory costs, the overtime costs will reduce. This is because the company will be operating with more stock in store anticipating demand and therefore overtime costs will be low, if any. Similarly, when it incurs high overtime costs, the cost of inventory goes down. This is because it will be incurring overtime costs to meet the demand requirement hence little or no units will be held in store. d. Calculations of a new MRP Reducing the size of lot sizes may lead to stock out costs since the demand may exceed the available number of units of sub-assemblies. Hence, it will be better to hire a new staff who will assist Ed in making part 3079. A combined MRP for part no.435 and 237. Week 1 2 3 4 5 6 Units at start of week 0 1100 300 1200 100 1400 Order 2000 0 2000 0 2000 0 Demand 900 800 1100 1100 700 900 On-hand at the end of the week 1100 300 1200 100 1400 500 The above MRP shows that the Company will still incur holding costs and hiring costs but will eliminate stock out costs and overtime costs. This is because it is better to incur these costs and still maintain the goodwill from the customers by providing the goods when needed.it also keeps staff motivated, as they are not overworked. Space Age Company will also have stock to sustain the demand in cases where the demand may increase than what is projected during the period. The new MRP will yield a total cost of: Holding costs-(1100*0.75*1)+(300*0.75*2)+(1200*0.75*1)+(100*0.75*2)+(1400*0.75*1)+(500*0.75*2)= $4125 Labour costs-(2*40 hrs*$22*6)=$10,560 Total costs-4125 +10560=$14,685 The main aim of MRP is to ensure that the cost of holding inventory is minimised, Lunn and Neff (1992). This has been shown by the decrease in holding costs by $750 (4875-4125). Even as the cost of production has increased due to hiring of additional staff, it is worthwhile since the cost of holding stock has declined greatly, which improves the earlier situation. e. Types of production processing According to Li & Meerkov (2009), there are three major types of production processing which are Batch processing, Repetitive processing and Job shop processing. This paper will describe these types of production processing in detail. The Job shop processing involves producing goods with unique specifications in order to meet a customer’s specific requirements. It starts by the customer first specifying the various features he needs to be in that good. The manufacture picks it from there and plans on the production process by making every material that is needed for the good available. The production process begins and a good that is customer specific is produced. The Batch production processing involves production in batches, which may be small or large. It is designed such that one operation is carried out on the whole batch before another operation is undertaken. For example, all goods are first labelled followed by packaging in batches. Repetitive or continuous production processing is where manufacturing is done through a series of interconnected operations that move from one stage to another without interruption. These three processing types are better in one way or another as analysed below. 1. Time factor: The continuous production processing takes a shorter time because there is minimum change over time involved. This is because the processes are interconnected and no interruption occurs at any stage of production. This is opposed to the job shop processing where by one has to change from one operation to another according to the specifications given. This consumes a lot of time due to set up time. The batch processing is also slower than the repetitive processing due to the change over from one operation to another. 2. Cost factor: In relation to cost, the batch processing is relatively cost effective since all goods in a batch undergo the same process at once then move to the next stage, minimising costs. This is unlike in job shop processing where set up costs are high and the cost of meeting the customer requirements also goes high. 3. Flexibility: The job shop processing is more flexible compared to the other two processing types. This is because one can follow different procedures that wold all lead to the final product. This is opposed to the batch processing and the continuous processing where all processes have to be followed systematically, hence no flexibility. 4. Volume: In relation to volume, the batch processing would produce the highest volume as it carries one operation on all the goods before another operation is undertaken. On the other hand, in job shop and repetitive processing, a lower volume would be produced. This is due to the nature of the production processing that would involve a lot of change over and set up time. 5. Variety: When using job shop production processing, one would get more variety of products as it is designed using different customer specifications. This is unlike using batch processing where the same type of product is produced in batches. 6. Trained personnel: In relation to a company having trained personell,when using job shop, one needs very qualified staff to be able to meet the needs of customers. This is unlike when using batch processing which is characterised by routine activities which can be done by a medium level staff. The primary mode of operation is Continuous processing since the operation runs continuously from manufacture of part 3079 to producing subassemblies no.435 and 237, which are then assembled to the final products. f. Ways that management can keep track of job status and location of staff during production. It has been an issue of how management can track their staff when working in order to increase efficiency in production. There are various ways that can be used to track staff in an organisation such as: 1. Manual supervision. This is where by a supervisor is appointed, who must be of higher qualifications and experience than the other workers. This supervisor will be assigned a specific number of workers under his watch. This will enable the workers to do their work better while management will achieve their goal by increased efficiency of workers. 2. Surveillance. In many factories, managers have installed surveillance cameras to be able to record all activities carried out by workers in a particular area. This will lead to workers being at their work areas at the right time as they are being recorded. This surveillance records must only be accessed by the top level management for scrutiny. 3. Automated machines. By using automated machines, management can keep track of the idle time between operations hence be able to track the job status and location of workers. 4. Login systems. These systems help management to track the time that workers enter or leave a certain area of the organisation. This can be done by using login cards or fingerprints to open specific doors and run machines. 5. Use of random roll calls: The management should come up with a system where by they can randomly record the number of staff working at a specific time. This will ensure that workers are keen to work at all times. g. Beneficial changes in the company Space Age Company should implement certain changes in their company other than their Materials Requirement Planning that will benefit the company in the end and give value to the customer. These include the following: Specialising on on-time deliveries This involves working as a team to enable the company to make the furniture on time and deliver them to their customers before they fall over due. This will create a higher goodwill for the company as customers will have a preference for their products. This also reduces the cost of storage of the finished goods in the store since they will be delivered immediately work is completed on them. Therefore, in the end, the company will benefit from this move. Investing more on marketing. This move involves the company putting more investment in marketing for their products that will lead to more sales. This in turn eliminates the cost of storage of finished goods and maximises the company’s profits. Motivating the staff. Staff in an organisation are the key driving force. This is because if they down their tools, nothing can proceed in such an organisation. This can be avoided by motivating staff through many ways such as increasing their monthly pay, improving their working conditions, improving their social welfare, working in shifts and many more. This will go a long way to motivating staff and therefore they would increase their efficiency and production. Branding Space Age Furniture should create a unified, consistent and professional brand that will attract more sales. This will maximise the profit of the company. Reward Loyalty. Those customers that frequently make purchases from the company should be given discount offers in order to make more sales. Conclusion This paper has concluded that Material Requirement Processing is an essential method of planning in production. This is because it helps the company make plans that will minimise inventory costs and maximise their profits. However, other plans have to be incorporated in order to attain maximum profits and customer satisfaction. These are staff motivation, branding, marketing of products, rewarding loyal customers among others. It is therefore recommended that Space Age Furniture Company should implement the above changes, which will in turn yield better results for the company. Due to the ever changing demands of customers, the company should put in place plans to adjust their MRP in order to meet the needs of their customers. References Hanna, M., & Newman, W. R. (2001). Integrated operations management: adding value for customers. Upper Saddle River, NJ: Prentice Hall. Li, J., & Meerkov, S. M. (2009). Production systems engineering. New York: Springer. Lunn, T., & Neff, S. A. (1992). MRP: integrating material requirements planning and modern business. Homewood, Ill.: Business One Irwin. Muller, M. (2003). Essentials of inventory management. New York: AMACOM. Slack, N., Chambers, S., & Johnston, R. (2001). Operations management (3rd Ed.). Harlow: Financial Times Prentice Hall. Read More