Material Requirements Planning: Space Age Furniture Case Study

Introduction

Space Age Furniture Company specializes in manufacturing cabinets and tables used to hold portable televisions and microwave ovens. The products are manufactured in different sizes and configurations, and all follow the same production and operations process. The subassemblies used in producing the Gemini and Saturn stands share Part Number 3079, which is made on a specialized lathe machine dedicated to that production process. Ed Szewczak is the company's highly skilled and experienced machinist, widely regarded as a dedicated professional.

The company has recently adopted a Material Requirements Planning (MRP) system to help maintain zero inventory and avoid the costs of holding finished goods. To sustain this zero-inventory policy, however, the company has been requiring Ed Szewczak to work continuous overtime in order to meet the growing demand for Part 3079. The company's goal is to maintain zero finished-goods inventory, but it now faces a serious operational challenge: Ed is increasingly uncomfortable with the persistent overtime workload. Operations manager Coral Snodgrass must determine the best course of action to protect the company from losing this critical employee.

Based on the information in the case, the MRP system assists Space Age Furniture in shipping finished goods directly to customers without incurring holding costs. Working regular 8-hour days, Ed can produce only 1,200 parts per week. However, the company must produce 2,000 units of Part 3079 weekly to fulfill orders of 1,000 subassemblies each for the Gemini 435 and the Saturn 257. The weekly master schedule for the next six weeks is presented in Table 1 below.

Table 1: Master Schedule

Week 1 — Gemini: 600, Saturn: 300
Week 2 — Gemini: 400, Saturn: 400
Week 3 — Gemini: 700, Saturn: 400
Week 4 — Gemini: 500, Saturn: 600
Week 5 — Gemini: 400, Saturn: 300
Week 6 — Gemini: 600, Saturn: 300

Recommendations to Address Coral's Problems

The data in Table 1 show that weekly demand for Gemini consistently exceeds demand for Saturn. Several strategies are available to help Coral resolve the problems the company currently faces.

The primary problem Coral faces is the risk of losing an experienced and dedicated machinist like Ed Szewczak, who is being driven to work excessive overtime to produce Part 3079. Because Part 3079 is essential for both the Saturn and Gemini subassemblies, any disruption to its production would halt output entirely. Finding a replacement machinist of Ed's skill and experience would be extremely difficult, making it critical that the company act quickly.

The first recommended strategy is to employ sound production planning to determine the number of units to manufacture each week. This approach will help the company efficiently allocate resources and labor (Hill, 2003) and will reduce the need for overtime by aligning production closely with actual demand. It will also allow Ed Szewczak's working hours to be kept within reasonable limits.

Specifically, the company should apply demand forecasting using the master schedule data to estimate weekly product demand. Using a three-period moving average based on the six weeks of data in Table 1, the forecasted demand is approximately 533 units per week for Gemini and 383 units per week for Saturn, as shown in Table 2 below.

Table 2: Forecasting Technique (Three-Period Moving Average)

Gemini:
Week 1: Demand 600
Week 2: Demand 400
Week 3: Demand 700
Week 4: Demand 500, Moving Average 567
Week 5: Demand 400, Moving Average 533
Week 6: Demand 600, Moving Average 533
Average Demand: 533.33 | Average Moving Average: 544.33

Saturn:
Week 1: Demand 300
Week 2: Demand 400
Week 3: Demand 400
Week 4: Demand 600, Moving Average 367
Week 5: Demand 300, Moving Average 467
Week 6: Demand 300, Moving Average 433
Average Demand: 383.33 | Average Moving Average: 422.33

Using this forecast data, the operations manager should move away from a strict zero-stock policy and instead maintain a small forward inventory aligned with projected demand. Stocking only what will be needed in the following week would allow the company to meet customer orders without routinely requiring Ed Szewczak to work overtime (Potamianos, 2006). If Ed were to leave without notice, production of Part 3079 would halt entirely, putting the company at risk of significant revenue loss, missed deliveries, and damage to its reputation with customers and shareholders.

Reducing Minimum Quantities of Subassemblies

Additionally, the company should carry out preventive maintenance on all lathe machines, conveyors, and other production equipment. Unplanned breakdowns would further increase reliance on overtime to recover lost production time (Vieira, 2006). A proactive maintenance schedule would help ensure smooth, uninterrupted production flow.

Another important step is to hire or train a second machinist as soon as possible to serve as backup support for Ed Szewczak. Relying on a single skilled employee for a critical production component is a significant operational risk. Although training an internal candidate is an option, it is worth noting that a new trainee may not quickly reach Ed's level of proficiency given his years of accumulated experience. The company should also consider adopting more advanced machinery to accelerate the production of Part 3079, reducing the need for extended working hours. During peak demand periods, using subcontractors or temporary workers could further relieve pressure on core staff while keeping overall production costs manageable.

One practical strategy for controlling inventory is to establish a minimum stock level for subassemblies. Rather than allowing inventory to fall to zero before triggering new production, the company should define a reorder point at which a new production batch is initiated. Since Part 3079 is a one-to-one component of every subassembly, any reduction in the minimum subassembly quantity directly reduces the quantity of Part 3079 that must be held at any given time.

Using the six-week master schedule data, the company can base its minimum quantity decisions on the average weekly demand: 533 units for Gemini and 383 units for Saturn (see Table 2). Producing to these averages rather than to peak demand would allow the company to maintain a modest but sufficient buffer inventory, reducing annual holding costs without resorting to zero-inventory extremes (Potamianos, 2006). This balanced approach lowers the overall cost of inventory while still protecting the company's ability to fulfill customer orders on time.

Cost Implications of Carrying Excess Items in Inventory

Carrying excess items in inventory generates several categories of cost. Inventory holding costs include the direct costs of physical storage, equipment and material handling, and indirect costs such as losses from damage, theft, or deterioration. For Space Age Furniture, storing excess quantities of Part 3079, subassemblies, and finished Gemini and Saturn stands would require additional warehouse space, more handling labor, and increased movement costs — all of which raise the total cost of production (Hill, 2003).

The specific storage costs are $1.25 per unit per week for Gemini stands and $1.50 per unit per week for Saturn stands not shipped immediately. The holding cost per Part 3079 carried from one week to the next is $0.25, and the holding cost per subassembly is $0.75. Table 3 below presents the calculated storage costs for the six-week period based on the master schedule quantities.

Table 3: Storage Costs

Finished goods storage costs:
Week 1 — Gemini: $750, Saturn: $450, Total: $1,200
Week 2 — Gemini: $600, Saturn: $600, Total: $1,200
Week 3 — Gemini: $1,050, Saturn: $600, Total: $1,650
Week 4 — Gemini: $750, Saturn: $900, Total: $1,650
Week 5 — Gemini: $600, Saturn: $450, Total: $1,050
Week 6 — Gemini: $900, Saturn: $450, Total: $1,350
Six-week total: $8,100

Component holding costs (per week, constant):
Part 3079: $250 | Subassembly: $750
Six-week total: $6,000

As Table 3 shows, the company would incur $8,100 in finished-goods storage costs over six weeks, or approximately $1,350 per week. Component holding costs for Part 3079 and subassemblies add another $6,000 over the same period. The data confirm that finished-goods holding costs are higher than component holding costs, reinforcing the value of shipping products to customers as soon as production is complete rather than allowing them to accumulate in storage (Kabir, 2005).

Conclusion

The paper addresses the challenging problem that the operations manager is facing with regard to overtime that is becoming an inconvenience for Ed, the company's skilled machinist. The paper provides different suggestions to eliminate overtime, one of which is that the company should use effective production planning and draw on master schedule data for subsequent demand. Maintaining a forward inventory buffer aligned with forecasted weekly demand would eliminate the need for routine overtime. Additionally, the company should invest in more sophisticated machinery to improve production efficiency, hire or train a backup machinist to reduce dependence on a single employee, and implement ERP software to improve job tracking and scheduling. Following these strategies, Space Age Furniture will be able to eliminate unnecessary overtime, reduce costs, and enhance the well-being and retention of its most valuable workers.