Logistics and Operations Management - Assignment Example

Chelladurai P., B.s.m.e.d., April 2, 2006 "Logistics and Operations Management" Q1. Despite the fluctuating demand, holding high levels of finished goods enables Multico to fulfill the customer's demand of 100% service level however, this can give rise to other problems. Discuss what the problems, disadvantages and potential costs are that the company may encounter due to this strategy. Problems Quality Management Problems Material Wastage and scrap Increased analysis and repair More working process inventory More Inspection and testing hours Increased cost of goods/services More Process Bottlenecks Delay in shipment of materials Cash flow problems Overtime - Labor Problems Machine Maintenance (Breakdown and deterioration) Problems Inventory Problems Disadvantages Slows down the inventory turnover Depletes valuable storage space Reduces return on investment. Low profitability, low revenue Low productivity Decline in market share Lower Customer satisfaction Potential Costs Inventory Costs Inventory Holding/Carrying Cost including cost of money, cost of insurance, warehouse occupancy costs, additional handling costs and repairs caused by crowding will be on the rise Purchase or Production cost becomes significant when availing price discounts. The cost per unit held in inventory will suffer a loss due to high price discounts that the company has to provide its buyer to move its products Capital cost is the opportunity cost that a company foregoes in maintaining inventory. The cost incurred in maintaining inventory could be invested elsewhere to make a profit. Ordering or procurement or acquisition or Replenishment cost including Transportation costs. This takes into account all costs incurred from calling the quotations to the point at which the items are taken to stock. The cost of placing an order varies from one organization to other. Shortage cost includes back order costs, Loss of future sales, Loss of customer goodwill. In this case, this is absent. Increase in Labor Cost due to Overtime High Operating Cost leading to low profits Profit = Revenue - cost. Here if cost increases, Profit decreases. Gross Margin Return of Inventory is an effective measure to keep track of Inventory. It indicates the benchmark figure of a particular company's Inventory level. Replacement Costs on the rise due to poor quality Quality Costs Cost of control Prevention costs include Quality planning and Engineering, New product review, Product and process design, Process control, Cost of Burn in tests, Quality training and workforce development. Appraisal costs include Testing and Inspection. Cost of Failure of control Internal failure costs include Scrap, Rework, Retest, Failure Analysis, down time, Yield losses and down grading. External failure costs include Warranty Charges, Complaint adjustment, Returned product/material and Liability costs. Q2. In consideration of your response to part 1 and your experience in Aerials, i. Propose and explain what options a business and/or a supply chain has to cope with fluctuating demand. Options 1. Make or Buy decisions The most popular decision that a Business takes to cope with the fluctuating demand is whether to Make or Buy. A business must analyze their various costs of production involved in producing a product and compare it with cost of buying the product from an external supplier. If the cost of buying is less than cost of producing the product, then companies can opt for buying the product. This could be extended to each phase of the production cycle. 2. Forecasting Demand Companies plan and forecast the demand according to the future needs of the market. Forecasting demand assists in decision making with respect to investment in plant and machinery, market planning and future sales. Some of the popular forecasting methods include Time series methods Judgmental Techniques Causal methods (Econometric forecasting) 3. Quality management Companies strive to achieve quality standards like ISO 22000:2005, Six sigma, Deming awards etc. Total quality management along with Japanese techniques is widely practiced ensuring the continuous delivering of quality products. Nowadays a product without quality cannot exist in the market i.e. if a company is surviving, then quality is inbuilt. Quality forms the basis of survival of a company or a business nowadays. Quality audits and a lot of quality management practices are a means to ensure that the customer receives good quality product. 4. Inventory Control Inventory control is a planned approach of determining what to order, when to order and how to order and how much to stock so that costs associated with buying and storing are optimal without interrupting production and sales. Safety stock is an important measure to be calculated regarding inventory. This ensures efficient purchasing, storing, consumption and accounting for materials. This also ensures that there is no shortage of product and there is adequate supply of product to customers. This improves delivery time and increases the reliability measure of a company. 5. Enterprise Resource Planning ERP is the recent buzz word in all Manufacturing and Production organizations. ERP is an extremely powerful tool, which provides seamless information system to support the various functional modules of an enterprise. ERP Packages like SAP, PeopleSoft etc. aim at integrating the various functions like Marketing, Logistics, R&D, Human Resource, Finance etc. Companies can leverage the application of information technology to their benefits. 6. Agile manufacturing Agile manufacturing is the ability to accomplish rapid changeover between the manufacture of different assemblies. Rapid changeover is further defined as the ability to move from the assembly of one product to the assembly of a similar product with a minimum of change in tooling and software. Rapid changeover enables the production of small lot sizes, allowing for just-in-time' production. 7. Computer Integrated manufacturing (CIM) "CIM is the integration of total manufacturing enterprise by using integrated systems and data communication coupled with new managerial philosophies that improve organizational and personnel efficiency." Association of society of Manufacturing Engineers Computer-integrated manufacturing (CIM) is manufacturing supported by computers. It is the total integration of Computer Aided Design / Manufacturing and also other business operations and databases This term has generally been replaced by Manufacturing Process Management in the wider field of PLM - Product Lifecycle Management. Some components of CIM are: CAD, CAPP (Computer Aided Process Planning), CAQ (Computer Aided Quality Assurance), CAM (Computer-aided manufacturing CAD: CAD implementations have evolved dramatically since 1974. Initially, with 2D in the 1970s, it was typically limited to producing drawings similar to hand-drafted drawings. Advances in programming and computer hardware, notably solid modelling in the 1980s, have allowed more versatile applications of computers in design activities. Key product for 1981 were the solid modelling packages - Romulus (ShapeData) and Uni-Solid (Unigraphics) based on PADL-2 and the release of the surface modeler Catia (Dassault). Autodesk was founded 1982 by John Walker, which led to the 2D system AutoCAD. The next milestone was the release of Pro/Engineer in 1988, which heralded greater usage of feature based modeling methods. Also of importance to the development of CAD was the development of the B-rep solid modeling kernels (graphics engines) Parasolid(ShapeData) and ACIS (Spatial Technologies) at the end of the 1980s beginning of the 1990s, both inspired by the work of Ian Braid. This led to the release of mid-range packages such as SolidWorks in 1995 SolidEdge (Intergraph) in 1996. Today CAD is not limited to drafting and rendering, and it ventures into many more "intellectual" areas of a designer's expertise. Software providers today This is an ever changing industry with many well known products and companies being taken over and merged with others. There are many CAD software products currently on the market. More than half of the market is however covered by the four main PLM corporations Autodesk, Dassault Systemes, PTC, and UGS Corp., but there are many other CAD packages with smaller user bases or covering niche user areas. Packages can be classified into 3 types: 2D drafting systems (e.g. AutoCAD, Microstation); mid-range 3D solid feature modellers (e.g. SolidWorks, SolidEdge, Alibre Design); and high-end 3D hybrid systems (e.g. Pro/ENGINEER, CATIA, NX (Unigraphics)). However these classifications cannot be applied too strictly as many 2D systems have 3D modules, the mid-range systems are increasing their surface functionality, and the high-end systems have developed their user interface in the direction of interactive Windows systems. The capabilities of modern CAD systems include: Wireframe geometry creation 3D parametric feature based modelling, Solid modelling Freeform surface modelling Automated design of assemblies, which are collections of parts and/or other assemblies create Engineering drawings from the solid models Reuse of design components Ease of modification of design of model and the production of multiple versions Automatic generation of standard components of the design Validation/verification of designs against specifications and design rules Simulation of designs without building a physical prototype Output of engineering documentation, such as manufacturing drawings, and Bills of Materials to reflect the BOM required to build the product Import/Export routines to exchange data with other software packages Output of design data directly to manufacturing facilities Output directly to a Rapid Prototyping or Rapid Manufacture Machine for industrial prototypes maintain libraries of parts and assemblies calculate mass properties of parts and assemblies aid visualization with shading, rotating, hidden line removal, etc... Bi-directional parametric associatively (modification of any feature is reflected in all information relying on that feature; drawings, mass properties, assemblies, etc... and counter wise) kinematics, interference and clearance checking of assemblies sheet metal hose/cable routing electrical component packaging inclusion of programming code in a model to control and relate desired attributes of the model Programmable design studies and optimization Sophisticated visual analysis routines, for draft, curvature, curvature continuity Q2) ii. Advice Multico as to what action they should take to fulfill their customer demand more cost effectively. Multico must adopt a problem solving approach to fulfill their customer demand more cost effectively. Given below are the problems that Multico faces and solutions to each problem. Problem 1: "The normal production process operates two eight-hour shifts, five days a week producing 1,500 to 2,400 units per shift, with a target output of 2,500. Over the last few months production has been failing regularly to achieve over 1,800 units per shift. A consequence of this failure is that overtime is frequently required". Solution: Considering the manufacture of pumps, it includes various phases of production cycle. Multico can adopt the 'Make or Buy' Concept here. Multico must analyze the various phases of its production cycle and arrive at the costs of each phase. From this analysis, Multico would be able to find which production phase reduces overall production and the cost associated with it. Now outsource this phase to a niche player, who is good at this part of production phase till the contract finishes. This would reduce the Cost of production for Multico considering Overtime Man hours, Machine breakdowns, Wear and tear, scraps, reduced development and production life cycle and minimizing Inventory, material handling and non-value added costs. Problem 2: "One reason for failing to meet production requirements is deterioration in the quality of the finished part. Scrap and rework levels have increased over these last months". To rectify this problem, Multico must go in for quality standards to ensure the quality of its products. Multico must switch to modernized methods of manufacturing to reduce scrap and rework levels. Problem 3: "The customer expects 100% order fulfillment every time. To try to ensure this happens, Multico have built up a high inventory level of these products." Solution: Inventory Control must be established to avoid huge accumulation of inventory. The Order level and Order quantity must be estimated prior to avoid shortages and reduce the customer lead time. These estimations in practical aspects are not accurate to the core. The estimations might be either higher or in some cases below the exact demand. To avoid this discrepancy, Safety stock is determined. Multico to ensure that they have additional stock to meet the customer demand can calculate the Safety stock level as per the following formula. Safety stock = (Maximum Lead time - Normal Lead time) * Consumption rate References: 1) Telsang, Martand. Production Management, S. Chand First Edition, 2005. pg. 70-75, 140-154, 218-228. 2) www.findarticles.com 3) www.furninfo.com 4) www.valuebasedmanagement.net 5) http://en.wikipedia.org/wiki/Computer-aided_design Read More