Case

Nick Talbot had a problem. As the master planner for Hardy Custom Engraving, he was responsible for ensuring that they meet the sometimes conflicting priorities of sales, production, and finance. Something has gone terribly wrong, and all Nick's plans have failed. Despite his best efforts to level production and still meet promised delivery dates, two customers will not be getting their shipments this week. Jim "Buster" Hush had just pointed out the obvious by declaring in front of everyone in the meeting that, "You should have seen it coming!!", but Nick couldn't see how.

Nick stared at the latest output from the MRP system on his desk for K-1010, the product that was ruining his career. How could things have gone so wrong in two weeks? When Leona Hardy had taken over the company from her father, she came with some new ideas, many of which were already paying big dividends, and the company was really starting to grow. One of these ideas was the introduction of wood products to the existing line of metal fabricated items. There is no arguing that the line is proving popular with customers (and the sales force) resulting in higher revenues and profits. Demand for K-1010 is a perfect example of this. Who would have thought that there was such a big market for laser engraved hardwood key chains? Well, the report told the tale.

Hardy had been selling the new key chains for the last 15 weeks or so. Demand started slow but grew steadily. Everything had been going according to plan. There had been no problems with the supplier of the oak stock from which the key chains were cut. The line had reported no problems. No shortages, no production problems, but no finished goods when the system was telling him there should be ample coverage for the current customer orders. They just weren't there.

When he first got wind of the problem, Nick had thought that sales might be up to their old tricks of booking new business inside the frozen zone. He had floated that in the meeting without giving it much thought. That had really lit Buster's fuse. Buster was adamant that no new orders were being booked inside the lead time for the key chains. He had already heard from Leona that those kinds of actions were not going to be tolerated. He remembered her distinctly saying, "This is a new product line and we wanted to make sure that we don't start off by making promises we can't keep." Buster knew it wouldn't be wise to test her on this (at least not right away), so he had instructed all his reps to pay very close attention to the available-to-promise values. He knew if there were any arguments down the line, he could claim he depended on the information system.

In looking at the MRP record, Nick wondered why there were no material shortages for the oak stock. He knew that there were occasional knots and offcuts that meant that there should have been some scrap or yield issues but there was no scrap factor for the key chains. How was it that no material usage variances were being reported? He reviewed the issues of the oak stock from stores over the last couple of months hoping that would give him some clue. While future products would use oak, the key chains are currently the only product to use it, at a rate of 15 linear feet per 100 key chains. The latest cycle count, taken this morning, showed 1650 linear feet of oak on the shelf.

questions:

• Is the MRP working correctly?Why or Why not? Hint: Does the Storeroom Transaction Report match the current raw material inventory?

1. From the Production Orders Report calculate the average scrap rate.

• Would you order more raw materials?If no, why not?If yes, how much and when?
• Would you consider safety stock?Explain.

1. Consider the following:

• What is causing the poor customer service?
• What can be done immediately to resolve the customer service issue?
• What changes can be made to the system to avoid these problems long term?

A detailed explanation of how the MRP is functioning

Discuss issues such as customer service, scrap rates, and safety stock

Should a raw material order be placed?

What is the main issue and what caused it?

What can be done right now to help improve the situation?

What can be done to fix the issues for the long term?

MRP Detail Output Printed Production Week #23 PART NUMBER: K-1010 Keychain - Oak LEAD TIME (WKS) : 2.00 Lot Size: 1000 ON HAND: 900 Scrap Rate: SAFETY STOCK: 0 LATE RELEASES : # RECOM EXPEDITE: #RECOM DE-EXPED: 4200 Production WEEK # Past Due 23 24 25 26 27 28 GROSS REQUIREMENTS 16500 0 14300 O 15400 12200 SCHEDULED RECEIPTS 4200 12000 0 0 0 PROJECTED AVAILABLE 5100 600 600 300 300 900 700 NET REQUIREMENTS 0 0 13700 15100 11300 PLANNED ORDER RECEIPTS 0 0 0 14000 0 16000 12000 PLANNED ORDER RELEASE 14000 16000 12000 0Production Orders Report Printed Production Week $23 PART NUMBER: K-1010 Keychain - Oak Order : Status Release Required Release Completed (PL/OP/CL] Week # Week Quantity to Date 03071 OF 07 09 4000 3450 03264 OF 11 13 6000 5300 03281 OP 12 14 9000 8150 03503 OF 14 16 9000 7975 03977 OP 18 20 10000 9325 04106 OP 20 22 11000 10600 04332 OP 21 23 12000 PL 23 25 14000 PL 25 27 16000 PL 26 28 12000 Storeroom Transaction Report Material Receipts and Issues Printed Week #23 Part# OA-150 - Oak Stock 1" x 0.25" Finished Grade TRANK# Week ISS/REC Order # Qty UM 213024 07 R P-08733 3600 Et 213135 07 I W-03071 600 Et 218070 11 W-03264 900 ft 221010 12 I W-03281 1350 Et 222907 14 R P-09076 3600 223006 14 I W-03503 1350 224813 I W-03977 1500 Et 226577 20 R P-09213 3600 Et 226641 20 T W-04106 1650 226792 21 W-04332 1800 Et TOTAL NUMBER OF UNITS ISSUED: 9150 TOTAL NUMBER OF UNITS RECEIVED: 10800