Materials Requirement Planning MRP Calculations

¶ … Planning (mrp) Material Requirement Planning Selection of production has great impact on an organizational production process, and a production planning is critical to ensure smooth flow of production. Space Age Furniture is a company specializing in the manufacturing of cabinets and tables to hold televisions and microwaves. The paper analyzes the case of Space Furniture by exposing the implications of holding inventories within the company compared with the costs that the company incurs with overtime.

The paper also recommends the solutions for the operation manager to solve the problems she is currently facing in order to improve the company image and derive satisfaction from the company key employer as well as attracting more customers to the company. Introduction Space Age Furniture Company specializes in manufacturing of cabinets and tables used to hold portable televisions and microwave ovens. The products are manufactured in different sizes and features, and the manufacturing process follows the same production and operation process.

The subassemblies that the company uses in producing the Gemini and Saturn stands have the Part number 3079 made by a special lathe machines dedicated for the production process. Ed Szewczak is the company skilled machinist with a lot of working experience. Ed is dedicated in his work and the company rates him as a highly skilled professional machinist. However, the company has recently started using MRP system that assists in maintaining zero inventory record to avoid the costs of holding goods in the inventory.

To maintain zero inventory record, the company is obliged to force Ed Szewczak to work overtime continuously because of the increase and continuous demand for the Part (3079). The goal of the company is to adopt a zero finished goods inventory, however, the company now faces challenges on the next action to take because Ed Szewczak is unhappy and uncomfortable with persistence overtime work Ed is doing due to a great demand of Part 3079.

Coral Snodgrass, an operational manager is now considering next course of action to implement to protect the company from losing Ed. Based on the information in the case, the company has started using MRP system to assist in reducing inventories as well as improving on-time delivery. The system assists Space Age to transport finished goods straight to customer without necessarily incurring holding costs. Ed is working 8 hours in the regular working days and the company will be able to produce only 1,200 pieces of part per week.

Detailed study of demand for Part (no. 3079) must be study comprehensively to determine next course of action to do. The company must produce 2,000 units of Part 3,079 to meet the order of 1,000 sub-assemblies for Gemini 435 and 1,000 sub-assemblies for Saturn 257. The weekly master schedule for producing for Gemini and Saturn within the next six weeks is presented in the Table 1 Table 1:Master Schedule 1 2 3 4 5 6 Gemini Saturn The data in the Table 1 presents the weekly demand for the company products and the demand for Gemini is higher the demand for Saturn.

The company could employ many strategies to solve the problem faced by Coral. Recommendations to address Coral's problems Major problem that Coral faces is the worry of losing an experience and dedicated machinist like Ed Szewczak based on the need to produce the Part 3079. The increase in the production of the Part 3079 used in the production of the subassemblies for the Saturn and Gemini stands necessitate the company to introduce overtime for Ed.

The company needs to address the problem very fast because it will be very difficult to get a skilled and experience machinist such as Ed Szewczak. Using Forecasting Technique The first strategy is to employ sound production planning to manufacture number of units. The strategy will assist the company to efficiently allocate the resources and human labor. (Hill, 2003). The approach will also assist the company to eliminate the overtime since the company will only focus on the quantity demanded.

The strategy will assist the company to fix Ed Szewczak working hours based on the required limit. The company should use forecasting technique using the data in the Master Schedule for the production planning to estimate weekly demand of the company products. The strategy will assist the company to come up with appropriate product schedules. Demand forecasting involves using the past demand records to forecast the demand of the consequent weeks.

Based on the data in the Table 1, the average demand for the Part for the past 6 weeks are as follows: Table 2: Forecasting Technique Gemini Saturn Demand Moving Average Demand Moving Average Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Average Based on the past weekly demand for the Parts, it will be easy to forecast the demand for the consequently weeks. Thus, the paper provides the demand forecast for Gemini as 533.33 for the subsequent week based on the past data in the master schedule and 383.33 for Saturn.

Thus, the project manager should desist from using zero stock policy where there will be no stock in the inventory until customer makes a command. (Potamianos, 2006). The project manager should use the data presented in the Table 2 to store the part that will only be demanded in the subsequent week. Using this strategy, the project manager will be able to fulfil the subsequent demand of the Part without necessary inconvenience Ed Szewczak with overtime. As being pointed out previously, the company will face challenges to get another skilled machinist.

If Ed Szewczak decides to leave the company without notice, the production of the Part (3079) will be on the standstill and the company will lose large amount of money with inability to meet customer demand. Moreover, the company may lose its credibility from its customers and shareholder. (Potamianos, 2006). Moreover, the company should carry out a total product maintenance aimed to reduce the breakdown and downtimes of equipment during production process and which could escalate using Ed Szewczak for overtime when production starts.

To prevent the issue from happening, the company should carry out efficient maintenance of all the machines, conveyors, and other equipment used for the production of the Part. The maintenance decision will assist in ensuring smooth flow of operation in the production process. (Vieira, 2006). Moreover, the policy will assist the company to avoid the risks of delay in the production of the Part. Another best option opened to the company is to look for another skilled machinist as soon as possible to serve as assistance to Ed Szewczak.

Typically, it is very risky to rely on only one skilled machinist for the production process. Apart from the inconvenience produced by overtime, another serious problem is that Ed Szewczak may decide to leave the company. For example, Ed Szewczak may get another job from another company ready to pay higher wages. Another alternative left for the company is to train one of the staff to become a skilled machinist.

While this option is good, the new trainee might not turn out to be as efficient as Ed was because Ed has already acquired years of experience in the job making him to be highly skilled and efficient in the production process. The company should also employ a strategy to minimize costs. The company should look for more sophisticated technologies to make the flow of production process to become faster, which consequently increase the level automation that assist employees to work faster.

The strategy will make the company to avoid the cases of overtime thereby eliminating the overtime costs and inconveniences associated with overtime. Moreover, the company should employ additional staff or use subcontractor during the peak season for the production of Part 3079 to save the specialized employee from overtime. However, the company should only source for additional workers during the peak season, the strategy will make the whole production process to be economical.

The strategy will also boost the morale of the specialized employee, which will make the company to remain competitive. "Reducing the minimum quantities of subassemblies" One of the strategies to implement stock control is to hold minimum quantity of stock in the inventory during the production process. The company should keep the minimum quantities of subassemblies and certain quantities of stocks for the subassemblies to ensure that the company does not run out of stocks of subassemblies.

When the quantities of subassemblies have reached the minimum quantities, the reorder level of the stock is attained and it is crucial for the company to produce another batch of stock. Part 3079 is an important component of subassemblies and if there is a reduction in the quantities of subassemblies, the quantity of Part 3079 will be automatically reduced in the same margin. The implication is that the company will reduce the production process to meet the level of the minimum quantities reduced.

Thus, the company should depend on the Master Schedule of the week to reduce the minimum quantities of subassemblies. Using the data of the demand for Gemini and Saturn TV stands in the master schedule, the company will be able to forecast the two products in the subsequent weeks. The company can use the Mean (average) of the demand for the 6 weeks in the master schedule to make decision on the quantity of the product to be produced.

As being revealed in the Table 2, the Mean of the demand of the 6 weeks is 533.33 for Gemini and 383.33 for Saturn, the company can base on these data for the quantities of the subassemblies to lower overall total costs. The strategy will assist the company to reduce the quantity of subassemblies, which will make the company to maintain average level of inventory to reduce the annual inventory costs. (Potamianos, 2006).

Cost implications of Carrying excess items in inventory at each stage The costs of holding stock in the inventory will automatically increase if the company decides to carry excess items in the inventory. Excess items in the inventory will make the company to incur more holding costs. The holding costs are the costs associated with carrying items within the inventory; the holding costs are also the costs of storing items. The company will also incur costs of handling material and equipment in the warehouse.

Additionally, the company can incur additional expenses added to the holding costs. The costs may include costs associated to damage and theft or deterioration of the items. In the production of Saturn and Gemini TV stands, the company will require more storage space by keeping excess inventories of the Part 3079 and the subassemblies. Keeping excess quantities of these items, the company will incur other costs such as movement costs and additional staff will be needed to carry out the tasks. (Hill, 2003).

When adding these costs together, the overall operations will escalate the company cost of production. The storage costs of each Gemini is $1.25 per week while the company incurs $1.50 per week to store each Saturn not shipped immediately. The holding costs of any of the part in the company inventory from one week to the next are $0.25 per week while the costs of holding subassembly are $0.75.

To enhance a greater understanding of the inventory costs, the paper calculates the holding costs of storing each Saturn and Gemini using the data in the master schedule. Table 3: storage Costs 1 2 3 4 5 6 Total Gemini Saturn Costs Gemini $750 $600 $1,050 $750 $600 $900 $4,650 Saturn $450 $600 $600 $900 $450 $450 $3,450 Total $1,200 $1,200 $1,650 $1,650 $1,050 $1,350 $8,100 Part 1,500 Subassembly 4,500 Total $6,000 As being revealed in the Table 3, the company will incur $8,100 as inventory costs in six weeks if these products are held in the inventory and not sold. The costs incurred are approximately $1,350 weekly. The total holding costs for the Part 3079 and subassembly parts are $6,000.

The overall data reveal that the holding costs of finished goods are higher than the costs for each Part 3079 and the subassembly parts. The company should avoid holding excess items in the inventory and should ship the finished goods immediately after the production process ends. (Kabir, 2005). Analysis of the Trade-off between Inventory Costs and Overtime Costs Overtime costs could be expensive for a company during the production process.

In the case of Space Age Furniture, the costs incurred for the extra time carried out by Ed amount 50% premium of the overtime. Overtime should be in a reasonable limit and be implemented to meet seasonal demand of the company. Contrarily, inventory costs are the cost of storing finished goods or intermittent products. Inventory costs are applicable when a company decides to store enough products before distribution. Thus, inventory cost could increase overall expenses because products in the inventory carry holding and storage costs. (Potamianos, 2006).

The paper calculates the overtime cost to enhance a greater understanding whether it is costs effective for the Space Age Furniture to continue with the overtime based on the data in the Master Schedule. Regular pay of Ed Szewczak =$22 *40 hours Ed Szewczak Regular pay per week = $880 per week If Ed is working for 10 hours overtime in a week, the overtime cost will be as follows: With overtime, the pay of Ed will be ($22/hr x 10hr x 50% = $110.

Gross Wages of Ed =$880+$110 Gross wages =$990 Based on the calculation, the average inventory costs per week are $1,350 and overtime costs +wages are $990. The inventory costs of the company are higher than the overtime costs; however, this paper does not include the inconvenience costs on Ed Szewczak due to the overtime in the calculation. If the paper estimates the inconvenience costs, the overtime costs may be higher than the inventory costs.