Operations and Supply Chain Management - Assignment Example

PART ONE

Chapter 12 Case Study: The Realco Breadmaster

The Realco is a United States’ based company that manufactures bread makers. Some time back, the company introduced a new bread maker which due to its features and price was a success across us. This paper considers the formal planning surrounding the bread maker. In particular the paper evaluates the effectiveness and efficiency surrounding the production of the bread maker while considering how master scheduling can help improve the situation.

It is clear that the production process of the new bread maker is inefficient and ineffective. First, the inventory ending of 7000 units is very high. It increases the carrying cost, or the cost of holding inventory. The holding cost includes cost such as depreciation, insurance, deterioration, spoilage as well as warehouse cost. They also include the opportunity cost of having money which could be used elsewhere tied in inventory. To improve on the efficiency of the production process, the management should reduce such high inventories. Furthermore, one can note that the weakly demand forecast of 20000 units, is not in line with the promised shipment. While the approach used by jacks of promising to deliver to customer three weeks is good strategy, it may not be sustainable in future. Besides, the situation makes the company unable to meet expected increase in demand in future. For this reason, the management of Realco breadmaster should consider employing master scheduling process to improve the situation.

The process of master scheduling define what an organization intend to produce in specific configurations, models and items (Mangan, Lalwani and Butcher 2008). In other words, it specifies what items will be manufactured and in what quantities. The process drives material requirement planning which provides answer to question of what, how much and when components and law materials should be provided. The material planning in turn drives the capacity planning which compare the work load to the available personnel and equipment. The end result is an efficient production process.

Master scheduling has many advantages including enabling effective deployment of company’s strategies. It also simplifies the execution of a company’s strategies, consider all customer demands and stabilize the company’s a strategic plan through managing any changes in the schedules. Moreover a master scheduling ensure that plan are more feasible because it address business constrain and manufacturing bottlenecks (Mangan, Lalwani and Butcher, 2008).

It is clear that Realco needs to alter both its demand forecast and its production. The table below is a proposed master production schedule for the bread maker.

A master production schedule for the bread maker

Week 1

Week 2

Week 3

Week4

total

Forecast demand

23500

23500

26500

26500

100000

production

25000

25000

25000

25000

100000

Ending inventory

1500

3000

1500

0

Average inventory

750

2250

2250

750

The plan, if well implemented, will reduce the ending inventory from 7000 units to 750 – 2250 units. This will considerably reduce the costs of holding inventories. Using the week promised shipment figures, we can estimate the demand for brad maker to be approximately 24000 units. Placing the weekly production at 25000 units will ensure that enough units are produced to meet the customers demand. The figure is slightly above the forecasted demand to meet expected future increase in demand of the bread maker. A reduction in the production will call for several other changes such evaluation of the raw material required to produce 25000 units of bread maker. This is called material requirement planning. A material requirement planning can provide the following benefits; reduced purchasing costs, reduced manufacturing costs, improved productivity and improved efficiency. Furthermore, material requirement planning will drive capacity planning. Capacity planning may involve determining the number of personnel and equipment needed to perform the job. Ultimately the schedule will ensure that all the customers’ demands are met on time and that the company does not hold too much inventory. Again, the schedule will help avoid the situation where the company refuses customers order due to lack of supply of the product.

The action of refusing a customer’s order due to lack of supply of the product and accepting an order and failing to deliver affect the business in one way or the other. On one hand refusing a customer order due to lack of the product does not increase the ordering cost and cost of goods sold. However, such situations can adversely affect the business because it introduces shortage cost. Shortage costs include opportunity cost of not making a sale. For instance, although the action is lawful, in some cases a customer may decide to approach another business that offer them even a better deal. Such customer may decide to only be dealing with the second business even in future. The long run effect is a reduction in sale and thus reduction in revenues. Besides, if the business does not explain well to the customer why they are refusing their order, the customer might sue the company alleging its “refusal to deal”. And even if the claims are unfounded, and the business is found innocent, there are costs involved in defending such claims. Moreover, the shortage costs also include late charges and loss of customer’s good will.

On the other hand, accepting an order and refusing to deliver increases the inventory costs as each order incurs an ordering cost. Therefore, as the number of orders increase the ordering cost increase, and so is the cost of goods sold. An increase in cost of goods sold reduces the profits. Again it is important to note that accepting an order and refusing to deliver without notifying the customer is unlawful. A business that accept an order and fail to deliver can be sued for injunctive relief, monetary civil penalties and consumers redress. Besides, the business can be fined for violating consumer’s protection laws. The fines and penalties are unnecessary costs that reduce the profits of a business. Furthermore, failure to deliver a customer’s order may adversely affect the business by losing customer’s trust thus discouraging repeat purchases. The long term effect is therefore reduced sales and revenues (Bozarth and Handfield, 2012).

From the order of figures provided by marketing manager jacks Jones, the weekly demand is over 20000 units. If the company reduces its production from 40000 units to 20000 units, it average inventory will also reduce. Also reducing production from 40000 units to 20000 unit’s means that the company will not be able to meets its demand. Some of the customer’s order will take more than a week to supply and the excess order will be supplied in the second week. With time the excess orders will overwhelm the production by far meaning some orders will not be delivered within three week as promised to customers. Ultimately, the scenario will introduce shortage costs, which reduce its profits.

It is conclusive that master scheduling can improve the efficiency of a production process. The process specifies what items will be manufactured and in what quantities. Master scheduling process drives material requirement planning which in turns drives the capacity planning which compare the work load to the available personnel and equipment. The end result is an efficient production process. Regarding the case of The Realco Breadmaster, the company can improve the efficiency of it production process by implementing the master schedule in figure one above. The plan if well implemented will reduces the ending inventory from 7000 units to 750 – 2250 units. This will considerably reduce the costs of holding inventories. The schedule also suggests a reduction in production to 25000 units per week to match the demands forecasts. A reduction in the production will call for several other changes such evaluation of the raw material as well as number of personnel and equipment needed to perform the job. Ultimately the schedule will ensure that all the customers’ demands are met on time and that the company does not hold too much inventory. Most importantly, the master schedule will help the company avoid two situations. That is, a situation where the company refuses customers order due to lack of supply of the product or a situation where the company accept an order and fail to deliver. The two situation increases costs such as shortage costs, opportunity costs of not making sales or

PART TWO

Case Study 13: Supply Chain Challenges in Post-Earthquake Japan

Japan is one of the few countries that dominate the auto industry. In fact, other than finished cars, Japanese companies produce majority of car components including dozens of electronic components found in typical cars. Such components are transported by container ship to various destinations. The automobile sector plays a key role in the Japanese economy. However, on March 11 2011, the sector was disrupted by massive earthquake and tsunami. The impact of the disaster led to the closure of several nuclear plants which affected the supply of electricity in many car manufacturing plants. In fact, Toyota had to suspend productions of car parts that were intended to be shifted oversee. Furthermore, most Japanese auto motive assemble plant were closed for months. These impacts were not only felt in Japan but also in other part of the world. Automobile manufacturers such as general motors, halted production due to lack of parts from Japan. This paper highlights the automobile supply chain before the March 11 earthquake and tsunami. In particular the paper highlights the advantage and disadvantages of the supply chain used by Japanese supply industry before March 11 incidents. The paper also highlight the Toyotas plan for fool plain supply chain and provide recommendations that protect the automobile industry from wide spread disruptions

The automobile industry is complex and so is its supply chain. There approximately 20000 parts in a car and if one of the part is unavailable, then a finished product cannot be supplied to the markets. Normally, there are many supplies specializing in particular parts of a car. These suppliers then deliver the parts to automakers. In other words, the motor vehicle supply chain is normally composed of layers of manufactures who produce car components to be delivered to automakers. The Automakers, also known as original equipment manufacturers (OEMs) main’s work is to manage the final assembly into vehicles. Typically, there are about five levels in the auto motive supply chain (Waters, 2013). Managing such a complex global supply network spread over several countries in a wake of crisis is challenging.

As Grant, Trautrims, and Wong (2013) note that most vehicles are built in regions in which they will be sold. In other words automobile Assembly and part production is regional and near major markets. Therefore, most of the auto makers have supplier in close proximity. This unique element of auto supply chain has implications for final auto assembly in case of parts disruptions. For instance, the effects of March 11 earthquake, tsunami and electricity interruptions that resulted from nuclear plants shutdown had a significant impacts on Japanese car part suppliers in earthquake regions. Due to global interconnectivity of automobile supply chain, the resulting shortage of some critical car component was felt not only in Japan but also in other part of the world (Bozarth and Handfield, 2012).

It is worthwhile noting that, the automobile manufacturing firms in Japan were located in same region in close proximity. Indeed, Japanese motor vehicle manufacturing facilities are concentrated in the main Japanese island of Honshu, perhaps this is the reason why the impact of March 11 disaster we widespread. Auto makers such as Toyota who were most affected, operates assembly part in Fukushima and Miyagi region which were directly affected by the earthquakes. In addition the closure of Chubu nuclear plant disrupted power supply in the Japanese automobile manufacturing region southwest of Tokyo. Companies such as Toyota which produce 45% of cars used in Japan had most of their plant closed for a month. There are two advantages for close proximity between the suppliers and the auto makers in the automobile supply chain. First, it reduces the transport costs. The main parts used to make automobiles such as engines, seats and bodies are large, heavy and sometime fragile. Transporting them over large distances is therefore very costly. The second reason is the need to implement the lean production techniques (just in time production strategy- JIT). JIT is a an inventory management strategy where raw material or components are delivered from the supplier immediately before they are needed for manufacturing to reduce cost and waste in the production process. Its main objective is to reduce wastage in production process. Lean production strategy has many advantages to the producer. For instance, a well-functioning JIT system operates with fewer inventories, meaning it has less wastage. Also, JIT reduces the number of suppliers for each component which result in significant economies of scale. The system has seen some auto makers reduce suppliers of some component to one. For example, a Japanese firm called Somic was the sole supplier of Toyota’s steering linkages. However, one of the main disadvantages of this is that when a critical supplier is unable to deliver a component, the entire system breaks down.

That notwithstanding, close proximity has its own shortcomings, whereby a regional disruption may affect the entire supply chain. For instance, due to close proximity, the March 11 calamity affected not just one supplier. Rather, it affected dozen companies in northern Japan which makes hundreds of car components. Also the closure of Chubu nuclear plant disrupted power supply in the Japanese automobile manufacturing region of southwest of Tokyo. The implication of this was that, the production of some cars model were heavily disrupted that it only resumed after six months.

Clearly, the auto makers must come up with strategies to deal with large scare disruptions of their supply chains. In response to the event of March 11 disaster, Toyota management begun putting up a plan for what they called foolproof supply chain that would enable them to recover from such disaster in just about two weeks. The plan is largely consistence with the main principle of lean production. It was well designed to reduce different type of wastes. For instance, it involved increasing standardization of auto part so that car makers can share the parts. Such as a move would greatly reduce handling waste also known as the waste of “time on hand”. Also, the plan involved making car parts in several locations to ensure stable supply. This would eliminate transportation and movement wastes as well as the waste of waiting. Also making global regions independent of each other in term of part supply will help to reduce the waste of movement and transportation. Ultimately, the plan will make the production process very efficient which is the objective of lean production.

However, there are parts of the plan that seem to compromise the philosophy of lean production. For instance the plan to encourage the suppliers to hold larger inventory will introduce the waste of holding product for longer time. Again, the plan to increase the number of suppliers of a particular component would reduce economies of scale thus reducing efficiency of production process. This is against the philosophy of lean production.

Other than the plans proposed by Toyota, there are several other avenues which can be exploited to improve automobile production including; one, encouraging the suppliers to have alternatives sites of production where they can relocate in the event they are unable to produce at their main plant. Two, eliminating sole suppliers cases by encouraging additional companies to supply a particular components. However, this must be done with care to maintain the economies of scale. Therefore, because having too many suppliers will reduce economies of scale, a good strategy would be having a primary and a secondary supplier. A primary supplier would supply 80% of the components and a secondary supplier probably located in another country, would supply 20% of the components. Three, limiting the number of suppliers of critical component located in geographically high risk areas. Fourth, auto makers should also consider taking contingent business interruption policy that insures the business against losses that may arise due to inability of the supplier to deliver(Grant, Trautrims, & Wong,2013).

It is conclusive that, automobile industry is complicated. Its supply chain is normally composed of layers of manufactures who produce car components to be delivered to automakers. The Automakers, also known as original equipment manufacturers (OEMs) main’s work is to manage the final assembly into vehicles. It follows that, when a critical supplier is unable to deliver a component, the entire system breaks down. Thus, managing such a complex global supply network spread over several countries in a wake of crisis is challenging. However, management strategy such as lean production can assist the industry cope with such widespread disruption.