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Farnray


1)

The materials requirements records (MRP) are filled as following:

Minimum order quantity: 500     Leadtime: 1

Part number           00289

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

 

300

200

 

400

 

500

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

300

300

300

0

300

300

400

400

400

400

Planned order release

 

 

 

 

 

500

 

500

 

500

 

 

Minimum order quantity: 1500     Leadtime: 1

Part number           10089

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

 

500

 

500

 

500

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

350

350

350

1350

1350

850

850

350

350

350

Planned order release

 

 

 

 

1500

 

 

 

 

 

 

 

Minimum order quantity: 500     Leadtime: 2

Part number           10278

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

1500

 

 

 

 

 

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

800

800

0

0

0

0

0

0

0

0

Planned order release

 

 

700

 

 

 

 

 

 

 

 

 

Minimum order quantity: 2000     Leadtime: 1

Part number           10062

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

3000

2000

 

2000

 

2000

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

0

0

0

0

0

0

0

0

0

0

Planned order release

 

 

 

3000

2000

 

2000

 

2000

 

 

 

Minimum order quantity: 400     Leadtime: 1

Part number           10077

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

 

500

 

500

 

500

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

50

50

50

0

0

0

0

0

0

0

Planned order release

 

 

 

 

450

 

500

 

500

 

 

 

Minimum order quantity: 700     Leadtime: 1

Part number           10023

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

 

500

 

500

 

500

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

350

350

350

550

550

50

50

250

250

250

Planned order release

 

 

 

 

700

 

 

 

700

 

 

 

Minimum order quantity: 200     Leadtime: 1

Part number           10316

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

 

500

 

500

 

500

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

0

0

0

0

0

0

0

0

0

0

Planned order release

 

 

 

 

500

 

500

 

500

 

 

 

Minimum order quantity: 200     Leadtime: 4

Part number           10992

19

20

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

500

 

500

 

500

 

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

30

30

0

0

0

0

0

0

0

0

Planned order release

470

 

500

 

500

 

 

 

 

 

 

 

Minimum order quantity: 2000     Leadtime: 1

Part number           10045

 

 

21

22

23

24

25

26

27

28

29

30

Requirements (gross)

 

 

 

 

1000

2000

1000

2000

1000

2000

 

 

Scheduled receipts

 

 

 

 

 

 

 

 

 

 

 

 

On hand inventory

 

 

400

400

1400

1400

400

400

1400

1400

1400

1400

Planned order release

 

 

 

2000

2000

 

2000

2000

2000

 

 

 

Based on the MRP as above, the insufficient inventory of item 10992 is the problem evident to Harish.  Item 10992 is a component of item 10316 to produce item 00289.  There is a requirement of 500 gross of item 10992 on period 23, it is obviously that Harish does not have time to order enough quantity as the leadtime for this item is 4 days.  Consequently, Farnray is definitely impossible to deliver the first order to Sellecks on period 24.

2)

Farnray adopts an ineffective system of calculating materials requirements as the resource of the operation is not available in the appropriate quantity, at the appropriate time.  Farnray will face two difficulties basically if they continue to use this system: (1) achieving performance objectives, and (2) planning and control. 

1.   Difficulty in achieving performance objectives

The existing system calculates exact materials requirements for most items and does not allow enough buffer inventory.  It is therefore difficult for Farnray to achieve the overall performance objectives.

Internal dependability is reduced as the insufficient inventory will affect the production of every micro-operation to run smoothly.  Production breakdown always happens and hence forecast is not reliable anymore.  Delivery dependability is also jeopardized.  This poor performance can lose future business from valuable customers.      

Speed objective is trade-off with this system.  Internally, the throughput time and inventory has been increased as the operations spend much time in the form of work-in-progress and waiting to be processed due to a lack of materials.  Externally, Farnray loses their direct competitive benefit because they are unable to be responsive to delivery changes (such as shorter delivery leadtime in Sellecks case).  This also has a detrimental effect to the long-term relationships with the customers.

Volume and delivery flexibility cannot be achieved as Farnray does not have the ability to cope with the turbulent trading conditions.  It is because any change to the level of aggregated output and planned or assumed delivery dates means a re-allocation of inventory, which is the weakness of the company.

The above objectives seriously affect the quality of the products and services.  The quality of the product is affected when the operations need to push the production out with insufficient time from the late arrival of materials.  Quality can also mean the perception and satisfaction from customers such as the delivery dependability and flexibility, which Farnray is failed to perform.

The ineffective of the overall performance objectives has increased the cost to the company.  The most significant is the increase of overhead cost.  It is because an order moves slowing through the operations results extra care such as controlling, checking and monitoring as well as heating, lighting and space.  A rush in production may also result possible extra costs to correct production errors.  To its extreme, a huge cost may arise when the customers ask for cancellation of any delayed orders.

2.   Difficulty in planning and control

Planning and control is crucial for Farnray as their operation is driven by dependent demand.  However, the existing system does not plan sufficiently to reconcile supply with demand.  Therefore, it is difficult for Farnray to plan and control their ongoing activities of the operation to satisfy customer demand.  

Farnray will face difficulty in long term planning to determine the scale of their operations.  It is because the existing system does not provide aggregated demand forecasts to determine resources in aggregated plan.  The resources include the working capital, capacity, staffs and materials, etc.  They cannot plan to meet the demands for its products at low cost with the advantage of aggregated supply, eventually affecting the competitive position of the company.  In addition, they are unable to respond to demand pattern to move their resources to react to any changes.  As they have no clear idea of the aggregated demand and supply forecast, they are also unable to identify the costs and revenue targets which seriously affect the major objective of the company.

Furthermore, Farnray will also face difficulty in medium and short-term planning.  The existing system does not allow enough reserve resources to support any contingencies that requires for slight deviations from the plans.  Hence, they are unable to react to short notice of changes from the customers.

Finally, poor planning dissatisfies customers and increases disruption to the operation.  Control is then ineffective with such poor planning.

3)

Peter Chan faces two practical problems in the operations: (1) improper capacity plan, and (2) lack of materials requirements planning.

1.   Improper capacity plan

Farnray adopts chase demand plan to adjust the capacity to reflect the fluctuations in demand.  It is not ideal for the company as it requires different resources to produce the extra quantities and a level of physical capacity to store the extra output each period.  Although Mike is employing extra staffs and using new supplier to meet the demand, Peter is required to face several problems from these solutions.  Firstly, the costs of hiring extra staffs are high, which include the cost of recruitment and the cost of low productivity as the new staffs take time to learn.  While when demand falls, these staffs are useless and may involve costs of layoff but this would seriously affect the morale of the staffs in the operation.  Secondly, it is risky to rely on a new supplier who is not fully familiar with the quality and delivery requirement of the company.  Hence, Peter faces how to adjust the capacity plan to its maximum utilization so that it can respond to the demands more effective and efficient.  

2.   Lack of materials requirements planning (MRP1)

The major problem that Peter faces is the lack of MRP1, and hence they encounter material shortages and delivery unreliability.  MRP is essential for Farnray as the operation is driven by dependant demand. 

Farnray does not have a proper demand management so they have problem to predict ahead over time of what customers will purchase.  Peter do has records about known orders of exactly what each customer has ordered, how many they have ordered and when they require delivery.  However, they do not forecast the likely future requirements to ensure they have raw materials available to satisfy customers¡¦ demands for delivery speed. 

The consequence of a poor demand management causes the failure of master production schedule.  The schedule drives the whole operation and is the basis of planning the utilization of resources to meet the demand.  The significant problem here is that Peter fail to determine sufficient buffer inventory to compensate for the uncertainties inherent in supply and demand.  Thus, Peter faces how to sufficiently plan resource demand and availability to reduce the problems of resource shortages or excesses, lack of coordination and reduced efficiency. 

Another major problem is the routine and heavy workload of Harish.  Harish spends most of his time to do the routine calculations to work out the volume and timing based on the bill of material to meet the master schedule.  After that, he has to check frequently on what inventory are available before issuing purchase order, materials plans and works orders.  As the product variety has increased due to the expansion of the business, it is easy to make calculation errors and is also time consuming to perform the repetitive inventory checking.  This also implies that the speed of getting information is rather slow and the information may be inaccurate for decision-making. 


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