Purchasing and Supply Chain Management - Essay Example

Austin Wood Products (AWP) is a successful company located at Austin Texas and specializes in manufacturing custom made wooden doors. Its current turnover is $ 25 million per annum. Maximum sales take place during February to November but the productivity is hampered by unregulated inventory system. Sadly, until the inventory is physically checked at the warehouse, production is not certain of its availability. In half the cases the material required is unavailable and has to be ordered. This effects both production and delivery.

The company expects an increase in turnover by 20% in the coming year but with such erratic and uncontrolled inventory management, the production manager is apprehensive of meeting schedules and is worried about loosing customers. It is an established fact that the Just-in-Time (JIT) based System is the answer to manufacturing operations. JIT has lead to the development of what is known as Lean Manufacturing. It offers scope for reducing inventories and introducing ways and means to improve productivity by planning optimal use of resources.

Today manufacturing faces new challenges and has been offered a variety of solutions to manage these. Most prominent among them are the Material Planning Method (MRP) and Flexible Manufacturing System (FMS) adopted by many leading solution providers like SAP. But the Theory of Constraints (TOC) is the culmination of the above and a better answer to industry needs. MRP uses fixed lead times to calculate the Bill of Material, often resulting in surplus stock of raw materials. It does not take into consideration materials available in hand.

In other words the Purchase Process is built around orders in hand. There is little or no Production Planning and Production just follows availability of raw materials to plan its own executions. The focus is on orders in hand and essentially MRP plays safe ensuring that raw material is always available to Production. But this is both wasteful and ties up huge