Evaluation of the Effectiveness of the Implementation of MRP in the Production Process

Evaluation of the Effectiveness of the Implementation of MRP in the Production Process

Introduction

Space Age Furniture employs Materials Requirements Planning (MRP) in the management of inventory. Salaheldin (2019) contends that this technique is preferred due to its cost-effectiveness in production. The model comprises three sections: Master Production Schedule (MPS), Bill of Materials, and Net inventory (Miclo, Fontanili, Lauras, Lamothe, & Milian, 2015). The MPS lists the requirements of the finished goods the production department is expected to meet. The MPS system places only the net customer orders to avoid surplus finished goods inventory, given the cost of storing a unit of Saturn microwave stand, and the Gemini stand is $0.25 per week. Based on the 1000 batch processing, the MRP states that the net production requirements are 3200 and 2300 of Saturn microwave and Gemini TV stands, respectively. The production is expected to fulfill these orders. The bill of materials lists the raw material requirements in the production process. The Saturn microwave requires sub-assembly 257, while the Gemini stand uses sub-assembly 435. Each of these sub-assemblies uses one part of 3079. The firm has been facing challenges in its supply chain in spite of MRP installation. Space Age issues stem from the minimum 1000 order batch policy implemented in the organization, resulting in overproduction of part 3079 resulting in increased inventory costs and overheads, causing inefficiencies in the production process.

Development of MRP for Space Age Furniture Company

MRP

Finished Goods Requirements

Obtained by adding the total week’s requirement.

Gemini = 600+ 400+ 700 + 500+ 400+ 600 = 3,200

Saturn = 300+400+400 + 600+300+300 = 2,300

Allocation inventory: Release order + Available Inventory

Gemini = 1 000 + 3,200 = 4,200

Saturn = 1 000 +2,300 = 3,300

Net requirement = Allocation inventory – Total requirements

Gemini = 4,200 – 5500

=1,300

Saturn = 3,300 – 5500

=2200

(3,200 + 2,300 = 5,500)

Improvement in sub-assemblies lot sizes in resolving lumpy demand.

The 1000 minimum requirement has resulted in a lumpy demand for product 3079. This issue arises from the overproduction of part 379 since it exceeds the order requirement listed in the MRP. Overproduction adversely affects the firm, resulting in additional overheads to the company. At the same time, inventory holding costs increase, given it costs $0.75 to hold a sub-assembly. The company’s working capital is tied down in the additional stock held. Equally important, overproduction takes a toll on the company’s most valued employees, who work overtime to meet this requirement. In countering this issue, Space Age should realign the 3079 productions with the order requirement at hand. This way, the company will incur less inventory holding costs and minimize the chances of obsoleting the inventory at hand (Bertolini, Braglia, Romagnoli, & Zammori, 2013). Space Age should execute lean production in countering lumpy demand.

Rinehart et al. (2018) highlight that lean production is based on five principles: value identification, value integration, value stream, flow, pull demand, and pursuit of perfection. Value is obtained by assessing customers’ needs. Subsequently, the firm should develop techniques for fulfilling these needs in enhancing customer satisfaction. Therefore, the production process should focus on creating an established value. Any ambiguous processes that do not enhance customers’ value should be eliminated. In this case, Space Age has already established ways of creating value through producing Gemini and Saturn products and identifying the parts and sub-assemblies required in the process. Nonetheless, given the dynamic nature of the business environment, Space Age should continuously assess customer values from both the market and industry perspectives. Value stream entails a product’s life cycle right from raw materials to disposal. It entails identifying and eliminating wastes in the sourcing and production process. This process is quite important to Space Age, given it encounters lumpy demand from its sub-assemblies. Therefore, the production system exhibits weaknesses that result in waste through excess production.

On the same note, this principle requires firms to establish approaches to improving the identified weaknesses. Therefore, Space Age should limit production while minimizing inventory costs and overheads. Rinehart et al. (2018) contend that flow is the product’s movement from the supplier to the final consumer. So far, Space Age product flow is efficient, given the raw materials lead time is only one week. The production process is efficient in ensuring the timely delivery of goods. Nonetheless, the production process presents chances for improvement. The fourth principle is the execution of pull demand, which entails production from customer orders. Therefore, Space Age production should be restructured such that it’s driven by customer demand. Lastly, the technique vouches for pursuing perfection, which involves continuous implementation of quality in the processes. Space Age compromises quality through overworking Ed, who is usually fatigued. In such situations, the possibility of product defects is quite high as the employee is not alert. Therefore, the company should establish ways to reduce Ed’s workload to avoid compromising quality. Among the eight wastes identified by lean production at Space Age’s production process are inventory, overproduction, and labor wastes (Rinehart et al., 2018). The production of part 3079 is carried out in surplus, leading to wastage through lumpy demand of the required stock. Labor wastage manifests through Ed working overtime to meet the excess production.

Analysis of the trade-off between overtime costs and inventory costs

Overtime refers to expenses incurred due to working beyond the regular working hours of an organization. These costs stem from the additional production beyond the normal output (Jasti & Kodali, 2015). At times, this event results from an unexpected increase in demand. In this case, Space Age incurs overtime in the form of the additional premium wages remunerated to Ed in sustaining the massive output of part 3079. The processing takes approximately 0.03 hours per unit. In meeting the present requirement, the lathe has to continuously run even after normal working hours in the organization to meet the minimum sub-assembly batch processing requirement. Once set up, the machine does not require human labor, although Ed’s presence is necessary during operation. Therefore, the company incurs additional labor costs in meeting the target for part 3079 production, which increases the total overheads incurred in the production of Saturn and Gemini.

Inventory is termed a necessary evil, given its essentiality despite its adverse consequences to an organization. Companies hold stock to mitigate production disruption resulting from raw materials shortages (Jasti & Kodali, 2015). Moreover, inventory is held as a means of hedging against potential future price increases. Most importantly, inventory is held to overcome raw material lead times. Space Age has managed to eliminate finished goods inventory by executing pull demand, whereby production follows customers’ order requirements listed in the MRP’s master production schedule. At the same time, Space Age is forced to hold significant inventories due to the overproduction of the 3079 component. Moreover, the lead time for the 435 and 257 sub-assemblies is one week; therefore, the stock has to meet production requirements before the lapse of one week. Notably, the resultant inventory costs are $0.75 per unit of the sub-assembly held.

The trade-off between overtime and inventory cost results from the overproduction of 3079 in saving batch processing costs and ensuring the availability of the part in the Saturn and Gemini sub-assemblies production process. This production results in additional inventory, which gives rise to additional inventory carrying costs. The benefit of this trade-off is the availability of this component. The disadvantage is the additional expenses from excessive stockpiles. The costs associated with part 3079 overproduction outweigh the benefits, given that the firm incurs additional overheads (labor and carrying costs) and also encounters lumpy demand.

Calculate a New MRP That Improves the Base MRP

Item	Week 1	Week 2	Week 3	Week 4	Week5			Week 6
Gemini	600	400	700	500	400			600	3200
Storage cost  @ $1.25/week		$750	$500	$875		$625		$500	$750
Saturn	300	400	400	600	300			300	2300
Storage Cost @ $1.50/week		$450	$600	$600			$900	$450	$450
Total Cost 3079	900	800	1100	1100	700			900	5500
Storage Cost @ $0.25/week		$225	$200	$275			$275	$175	$225
Storage for Sub 435  and 257@ $0.75/unit/week		$675	$600	$825			$825	$393.75	$675

Table 1: MRP Schedule.

Item	Week 1	Week 2	Week 3	Week 4	Week 5	Week 6	Totals
Gemini	533	533	533	533	533	533	3198
Saturn	383	383	383	383	383	383	2298
3079	916	916	916	916	916	916	5496

Comparison Between Job Shop, Batch, Repetitive, and Continuous Processe

Job Shop

A job shop manufacturing process is a setup that is designed to produce a wide variety of small-sized lots. Todorova and Dugger (2015) explain that this process utilizes production areas rather than assembly lines. The batches produced are either made-to-order (MTO) or made-to-stock (MTS) (Todorova & Dugger, 2015). This design intends that products undergo different processes that take varying times before completion. A job shop aims at maximizing flexibility in the production process. This design is advantageous in that it facilitates better supervision of jobs and promotes the development of great skills in operation due to the repetition of the process. Most importantly, it enhances the utilization of machines. It is disadvantageous because it results in high material handling costs due to the contact between Work in Progress (WIP) and people. Also, given the product undergoes various processes, the level of work in process inventory is more significant. It also results in high lead times in the production process since the processes have to wait for the preceding processes.

Batch Processing

Batch processing refers to the sequences of processes carried out in more than one vessel in a definite order, resulting in a finished product. The advantages of this technique include control over the processing time, given production is carried out collectively rather than on an individual basis. Secondly, the process facilitates standardization as the products collectively undergo the same process. It enhances the reduction of setup times and resultant processing costs since production is done for the whole batch order. Drawbacks include delays resulting from data collection, storage, and processing (Todorova & Dugger, 2015). The operation costs are higher due to the multiple processes involved. However, The process is limited as it only supports processing one data type. Lastly, corrections can be executed in case of errors after completing the process.

Continuous Processing

Continuous processing refers to a technique whereby the production process is standardized in sequences to support the massive production of a single product or those exhibiting minimal variances. The processes are interconnected, and the facilities are arranged such that the production process is sequential. This design is advantageous because it facilitates the standardization of processes and products (Todorova & Dugger, 2015). Secondly, it supports the massive production of commodities. Thirdly, it facilitates the optimal utilization of the facilities. Lastly, material handling and resultant costs are minimized. The pitfalls arising from continuous processing include an error in the set that would ruin the whole batch involved. This technique is suitable for products exhibiting minimal variations.

Repetitive Processing

This production process follows an assembly line and is suitable for rapidly producing items. The advantages of this technique are that it requires minimum technical skills and is easier to schedule. Most importantly, it facilitates the effective utilization of resources in production. Pitfalls include inflexibility in case of variation in demand, and the technique is unsuitable for custom-made products.

Justification for Batch Processing Selection in Space Age Production

The design selection to use in a manufacturing setting depends on the product, product amount, feature variation, level of technical skills required, homogeneity, and the processing involved. In this case, the most suitable production process for Space Age is batch processing, given the production of Saturn and Gemini requires different processes. First, the sub-assemblies require the 3079 part, whose processing is undertaken through the lathe. Gemini and Saturn use 435 and 257 assemblies, respectively. Space Age undertakes three different processes in producing a finished good, making batch processing the most suitable process, given that it involves a set of processes.

Approaches to Keeping Track of Job Status and Location During Production

The only way a company can keep track of job status and location is through the accessibility of real-time information regarding the production process. This way, the management acquires precise information regarding the production process. Accessibility to real-time information is accomplished through the automation of the production process (Zhang & Sun, 2013). The inventory should be printed with barcodes recorded at the point of sale system. Once products move from the warehouse to production, the system is updated, showing the amount of raw materials and what’s remaining in the store. The point-of-sale system should be installed in both the warehouse and in each production process. This way, management can track the products’ movement from arrival at the warehouse to departure. Upon leaving the warehouse, the first production process should notify the entry of raw materials. Every process should be integrated to make a product’s real-time information readily accessible. The flip side of this strategy is that it requires significant investment in the automation of the production process in the organization. Secondly, management has to interpret different codes imprinted on the item, which is cumbersome. Lastly, the production department must be conversant with the software since they have to frequently update it. Nonetheless, the benefits associated with this strategy outweigh the costs incurred.

When the firm has insufficient financial resources to automate the process, it could formulate a policy that requires the supervisors and plant managers to present weekly production reports. These reports should indicate the amount of work in process, finished products, and those in the production process. They should be simplified such that they are easily comprehensible to the reader. Although they don’t provide real-time information, such reports would enable managers to keep track of the production system. This approach requires managers to frequently supervise the processes to ensure supervisors report precise information regarding the production process. These reports could be made weekly, daily, fortnightly, or monthly, depending on the production requirements.

Recommendation to Space Age in Enhancing Value Addition

Space-age should execute various strategies to enhance the quality of the final good to the consumer and also to improve the quality of the products and processes. Earlier on, the report recommended the implementation of lean production to reduce waste and eliminate surplus inventory. The firm should automate the processing to reduce labor costs and resolve inadequate labor issues. Space Age faces the issue of inadequate labor in undertaking lathe processing. Ed is the only employee who can manage the process due to his experience level. Since he is not required in the process, it should be restructured so that it runs in his absence. This solution can only be attained through research and development. The long-term solution to the over-reliance on Mr. Ed is automation through innovation. Alternatively, the firm should train other workers in the lathe process. Nonetheless, a feasibility test is necessary to establish the effectiveness of the strategy. The training costs should be less than the revenue benefit earned. If Space Age seeks expansion, it would be limited by the lathe processing, given that only one person is competent in the process. Therefore, the firm should empower several employees in the event of expanding its operations.

Precise forecasting lies at the heart of every profitable and effective organization. Space Age should enhance demand forecasting by executing statistical models, for instance, the Delphi method. Accurate forecasting mitigates over and under-production and ensures the company maintains the right amount of inventory. The company should execute the just-in-time technique to reduce raw material inventory costs. This approach involves delivering raw materials when required by the production department. This way, the lead time is eliminated, and no excess raw material is stored. This technique is vital in eliminating the lumpy demand experienced by the firm. Most importantly, this approach is the most flexible regarding changes in customers’ tastes and preferences in the market. Reducing inventory levels would enable the firm to concentrate on its core activity, which is the production of Saturn and Gemini stands.

In enhancing the production process and improving the quality of its product, Space Age should implement Total Quality Management (TQM). This approach is based on five principles: customer focus, continuous improvement, mutual respect and teamwork, quality product, and strategic approach in the implementation of quality. Customer focus entails producing goods that align with customers’ needs and values to enhance their satisfaction. This way, the firm gains a larger market share by producing quality goods. Continuous improvement entails constantly monitoring and evaluating the production process to identify defects and inefficiencies. Also, the process involves evaluating the finished goods to establish whether they meet customer requirements. Mutual respect aims to promote teamwork in the organization through effective leadership — a strategic approach to implementing quality and identifying strategies to improve quality. For instance, the implementation of JIT prolongs the shelf life of the materials under production.

Conclusion

In conclusion, Space Age is a company involved in the manufacture of Saturn microwave stands and Gemini TV stands. In controlling environmental costs, the firm has implemented MRP, which ensures production aligns with customers’ orders. Even so, the firm encounters high inventory costs arising from the lumping demand of the 3079 component. The company’s policy requires the production of 1000 minimum batch sizes, leading to the overproduction of the 3079 part. Consequently, the firm has been incurring additional overheads in the form of labor costs. To meet this massive demand, Ed has to work overtime, incurring the firm additional labor expenses. Not to mention, these parts have to be stored awaiting production. As a result, the company incurs additional inventory carrying costs. Although the firm seeks to save costs by processing sizeable batches, this approach increases overhead and inventory costs. This report recommends the implementation of lean production in overcoming lump demand. Consequently, inventory carrying costs and overtime costs will be eliminated. In enhancing process improvement, this report recommends implementing total quality management, which entails continuous improvement of both the products and the process. Most importantly, the firm should conduct research and development in the automation of the lathe process. Automating the entire production system would ensure that managers access real-time information regarding the production process.

References

Bertolini, M., Braglia, M., Romagnoli, G., & Zammori, F. (2013). Extending value stream mapping: the synchro-MRP case. International Journal of Production Research, 51(18), 5499-5519.

Jasti, N. V. K., & Kodali, R. (2015). Lean production: literature review and trends. International Journal of Production Research, 53(3), 867-885.

Miclo, R., Fontanili, F., Lauras, M., Lamothe, J., & Milian, B. (2015, October). MRP vs. demand-driven MRP: Towards an objective comparison. In 2015 International Conference on Industrial Engineering and Systems Management (IESM) (pp. 1072-1080). IEEE.

Rinehart, J., Huxley, C., & Robertson, D. (2018). Just another car factory?: Lean production and its discontents. Cornell University Press.

Salaheldin, S. I. (2019). Factors influencing the stage of MRP implementation: an empirical study. Management, 2(3).

Todorova, D., & Dugger, J. (2015). Lean Manufacturing Tools In Job Shop, Batch Shop and Assembly Line Manufacturing Settings. Journal of Technology, Management & Applied Engineering, 31(1).

Zhang, Y., & Sun, S. (2013, April). Real-time data driven monitoring and optimization method for IoT-based sensible production process. In 2013 10th IEEE International Conference On Networking, Sensing And Control (ICNSC) (pp. 486-490). IEEE.

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Evaluation of the Effectiveness of the Implementation of MRP in the Production Process

Space Age Furniture Company

Read “Space Age Furniture Company” in Chapter 9 of your text. Respond to the following and include any Materials Requirement Planning (MRP) calculations:

• Develop an MRP for Space Age Furniture Company using the information in the case including the production of sub-assemblies in lot sizes of 1,000.
• The lot size of 1,000 for sub-assemblies has produced a lumpy demand for part 3079. Suggest ways for improvements over sub-assemblies in lot sizes of 1,000.
  

  Evaluation of the Effectiveness of the Implementation of MRP in the Production Process

• Analyze the trade-off between overtime costs and inventory costs.
• Calculate a new MRP that improves the base MRP.
• Compare and contrast the types of production processing—job shop, batch, repetitive, or continuous—and determine which the primary mode of operation is and why.
• Describe ways that management can keep track of job status and location during production.
• Recommend any changes that might be beneficial to the company and/or add value for the customer.

The final case study should demonstrate your understanding of the reading as well as the implications of new knowledge. The paper should integrate readings, scholarly sources, and class discussions into work and life experiences. It may include explanation and examples from previous events as well as implications for future applications.

The purpose of the final case study is for you to culminate the learning achieved in the course by describing your understanding and application of knowledge in the field of operations management.

Writing the Final Paper

The Final Paper:

• Must be 10 to 12 double-spaced pages in length (not including the title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center.
• Must include a title page with the following:
  • Title of paper
  • Student’s name
  • Course name and number
  • Instructor’s name
  • Date submitted
• Must begin with an introductory paragraph that has a succinct thesis statement.
• Must address the topic of the paper with critical thought.
• Must end with a conclusion that reaffirms your thesis.
• Must use at least five scholarly sources.
• Must document all sources in APA style, as outlined in the Ashford Writing Center.
• Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.

Please use US scholarly sources