basic problem that can be seen in (MRP) Material requirement planning
Material Requirement Planning for each part and Sub-Assembly
a. It has been done in the attached excel sheet.
The basic problem that can be seen in MRP is the decision that the company should take with respect to procuring a sub-assembly directly or manufacturing it by using the raw materials. It has been seen that even though the lead time of the raw material like rubber face is 10 weeks, it is economical to manufacture the product through it. This is because, there has been enough time given before the first set of demand is predicted by the company. Hence, it is useless for the company in both cases to procure handle assembly or face assembly directly. The standard cost of manufacturing with the given lead times has cost it lesser. Also, one has to keep track of availability of all the materials so that the final product can be manufactured. Hence, maintaining unnecessary inventory to the maximum is the biggest challenge in this entire MRP design.
Note: As procuring handle assembly directly costs more than making it through raw materials, hence handle assembly has been made with raw materials taking appropriate lead time and EOQ into account.Â The same concept has been used for face assembly as well in the MRP.
For any further problem that the company identifies, it is appropriate that it is able to analyse the costs of all the sub-parts and sub-assemblies even before the actual forecasting is done. This would not put on into a dilemma as to how to approach the same. Also, the company has given the starting week of sales from week 13 which is far too late. MRP should be done on a closer basis so that none of the days get wasted. Here, we can see that none of the sub-parts required the first or second week of work. At the same time, one has to maintain least possible inventory.
It has been done in the attached excel sheet
It is certain that the average inventory value of the company would increase with the imposition of safety lead time. The reason for the same is that initially it had been planned that while justifying the lead time of all the sub-parts, one would endeavour for least possible inventory. In all the cases, zero-inventory has been maintained over the exercise except for those occasions where there was initial inventory on week 1 itself. Even this has been used judicially so that the company is not left with the inventory once the sales proceeds as predicted by the company management of Psycho Sports. Hence, efficiency on this ground is certain to decrease this way hence raining the average inventory. Also, it is important to note here that while the safety lead time had been imposed, a number of sub-parts where procured to be remained in inventory without having any processing done. This also raises the cost of inventory for the company. But as it brings safety, there is lesser amount of risk involved in keeping the same. The exact values of the same have been shown in the attached excel sheet. This safety lead time only decreases the dependency on the sales department of the company on achieving the exact sales in the week specified.
The first action would be to be very strict with the predictions that have been made by the sales department of the company. If the company does not see the sales that have been predicted, it is likely that it would have to maintain inventory for longer periods of time which in turn would raise the costs by a large degree. Also, the company would need to follow the Japanese philosophy of KANBAN which pertains to zero inventory levels. Also, the entire manufacturing processes of the company would have to be managed under a ceiling so that the distance between different parts is least. This would decrease the transportation cost hence, decreasing the inventory by significant levels. Even the idea of imposing a safety lead time would have to be done away with. Already, there are parts that have lead times in double figures (weekly time). So, further increment in this regard would have to be stopped.
Production can be smoothened, if the company follows the MRP that has been designed. This is only possible if all the different management teams of the different sub-parts maintain a strong co-ordination amongst each other. Also, this would decrease the cost of inventory. The reason for the same is that once there is strong co-ordination, as soon as the company is able to manufacture one sub-part, it can immediately process it with other so that the product hierarchy can be established hence smoothening the business.
Why did Peter have such problems getting the relevant information?
Peter had problems with getting the information because its company never understood the importance of MRP. As a result of this, data was not stored in an integrated manner making it difficult to search in the entire system. This could also be the reason for the company paying much higher prices of inventory than it should.
Do you think he should now fully understand the MRP?
The reason is that now, Peter does understand the importance of MRP and its contribution to business processes as he has all data integrated in one place. This would help him achieve economical successes in the future.