Andrew Jacobs and Company employs approximately 280 people in the manufacture of add-on appliances for residential heating and air conditioning units. The company began 15 years ago, producing a home humidifier, and has since expanded into dehumidifiers and air purifiers. It currently produces 30 different models, but because of heavy competition, engineering changes are constantly taking place and the product line is often changing . Each model is made up of between 40 and several hundred different parts, which range from purchased nuts and bolts and prefabricated subassemblies to internally manufactured components .

Antrew Jacobs purchases over 2500 parts and manufactures over 1000 parts and assemblies af its own. Many of the parts are used in several different models, and some parts such as nuts and bolts - are used in over 75 percent of the finished products.

The finished goods inventory is kept relatively small. Sales are forecast on a month-to-month basis, and production is scheduled according to actual sales orders and the sales forecast. For this reason, production lots placed in the final assembly line are usually for relatively small quantities.

Rather than producing manufacrured parts and subcomponents and purchasing other parts according to the sales forecast, parts, subassemblies, and purchased items are ordered on the basis of reorder point and economic order quantity. Since it is imperative to maintain accurate control of these rav materials and subassembly items, all parts and materials stored in the main supply area are controlled with the use of perpetual inventory cards, which are maintained by the scheduling department. Each card contains the reorder point, the economic order quantity, and the lead time for outside procurement or internal manufacture. Both receipt of new inventory into the main supply room and use of items from the supply room are recorded on the inventory card.

The scheduling department is responsible for checking the availability of inventory on the intentory cards. Approximately three weeks before a final assembly order is to be placed on the floor , the scheduler checks all the cards for parts needed in that assembly to determine whether issuing the number required to complete the assembly will reduce the inventory below the reorder point. If the scheduler determines that the projected final assembly order will result in hitting the reorder point, a production order or a purchase order is issued.

Physical inventories are taken very quarter, and usually a substantial number of small adjustments must be made. The quarterly physical inventory was suggested after a series of major inventory shortages occurred several years ago. The company's current policy allows any worker to enter the main supply area to remove needed parts. The workers are to fill out materials requisitions and to sign for all part removed, but they are frequently in a rush and fail to complete the inventory requisitions accurately. There have been several cases where parts staged for final assembly of one product were removed and used on the assembly of another item.

To adjust for many of these problems, the production schedulers often add a safety factor to the reorder point when placing orders, and they have typically increased the order quantity from 10 to 25 percent over the economic order quantity. Their justification is that "it is less expensive to carry a little extra inventory than to shut down the production facility waiting for a rush order."

Questions:

1. Evaluate and critique the existing system used by Andrew Jacobs and Company?

2. How might MRP work in a situation like this?

3. Beyond implementing a computerized MRP system, what other suggestions would you make to help alleviate Andrew Jacobs's problems?

Answer rating: 100% (QA)

The current system used by Andrew Jacobs and Company has several weaknesses First there is no system in place to track inventory levels accurately Physical invent ories are taken only quarterly and th... View the full answer