Premier Auto - Material Requirement Planning - Essay Example

Company Profile Premier Auto is a car manufacturer who is in the niche market of making sports cars and has one manufacturing unit. Although its planned capacity is 10,000 cars per annum yet it can deliver between 7 to 8 thousand units only. Its Order Book is always overbooked due to the specialized nature of its product. The company has 50 dealerships all over the American and European Market with fixed annual quotas. The Company produces 3 to 4 models and introduces one new model every 2 years. The company has One Assembly Line with 3 machine shops for various body parts fabrication. The engine and the accessories are all out-sourced from about 80 suppliers. The engine supplier is located about 100 Km away but the accessory suppliers are scattered all over the country There is a paint shop but the company uses a contractor to do the jobs with his own labour. The Problems These have been identified and listed as under. 1. Production is inconsistent from week to week. 2. There is either a shortage or excess of raw materials at Production Assembly Line as the company works on basis of Material Requirement Planning (MRP) and is dependant on supplier offering delivery dates 3. Movement within the plant is slow and not smooth. Apart from the main conveyor Belt there are few conveyor belts and component feeding is mostly manual. There are only 3 forklift trucks, one for each Machine shop. 4. The company works in 2 shifts of 8 hours each and still pays overtime. 5. There are frequent breakdowns. As a result of above there are Erratic Dispatches. The dealers complain of missing delivery dates for their customers. Despite having fixed quotas for 50 dealerships the company is unable to forecast its requirements. This shows complete ignorance of how to use data and information for production planning. There is no consistency in Production plan. It is made weekly as per demand pressure without considering availability of capacity or raw materials. The Material Requirement Planning (MRP) does not take into consideration the available capacity and schedules resulting in either excess raw materials or shortage of raw materials at production head and elsewhere. Resources are not adequately available for Production resulting in delays within the operation Many movements within same section and between sections are manual as there is a shortage fork-lift trucks. No attention has been paid to installation of conveyers within sections and adding more forklift trucks between sections. Despite the equipment being relatively new breakdowns occur due to non existence of Preventive Maintenance Plans and non availability of spares in time Supply chain is not synchronized with Production hence raw material arrival does not match Production requirements. The company works in 2 shifts but only 5 days a week or approximately 22 days a month. There is idle time in between production processes due to slow movement; as a result wages are paid without actual production. There is also unnecessary overtime. Wages are not linked to productivity. On top of it all, weekly and daily production plans are made based on dealer demands, without considering capacity available and raw material arrivals. This results in huge inventories of raw materials and WIP. There is no concept of PPC (Production Planning & Control). There is some amount of customer dissatisfaction due to delay. This can have a serious effect in company reputation and loss of orders. The overall effect is telling upon company finances and the bottom line. A huge amount of working capital is locked up in inventories. Higher wage bill is increasing the cost of cars and someday it might cause grave harm to the company Literature Review A variety of solutions are available today to meet the challenges faced by manufacturing companies. They differ between industries and for the automobile sector Lean Management has been found to be most appropriate. The foundations of lean manufacturing are found in the Toyota Production System developed by Taiichi Ohno (see Brown et al. 2000) after the Second World War. Most prominent among them are the Material Planning Method (MRP), the Japanese Just in Time system called Kanban, the offer from Israel that is named Optimized Production Technology (OPT) and the latest thinking the Flexible Manufacturing System (FMS) adopted by many leading solution providers like SAP. The Theory of Constraints (TOC) is the culmination of the above and a better answer to industry needs. Material Requirement Planning This is a push based system that and its base is that production starts on expected demand, while JIT, for example, is a pull system where production starts based on actual demand (Karmarkar 1989). MRP provides for raw material and parts planning for dependent demand (Brown et al. 2001). The focal point in this exercise is to optimize Purchase and it is Supplier centric. It provides for inventory or parts planning for the production department. It creates or explodes a Bill of Materials based on requirements of lots and sizes pitched against lead times. It attempts to cover the large variety of materials required and to have it in stock against possible demand giving a lot of weightage to supplier end issues of time and quality. The tendency is to overstock rather than fall short and to anticipate demand. The result is higher inventory but more accurate and timely delivery quotations. This will also result in better utilization of production facilities as materials will always be available on demand. Similarly the spare parts will also be well stocked and this will help reduce down time which is a very vexing factor for the industry. The downside is that it will lock up a huge amount of working capital in inventory and parts. Another issue is what will happen should there be a change in demand pattern or delivery schedules. Profitability is likely to take a hit in these events. Just in Time – Kanban JIT emerged in the Japanese shipbuilding industry in the late 1950s and early 1960s (Slack et al. 2001). As opposed to MRP this is a Pull Based system where the material required is pulled in by production and therefore required to be available Just in Time of requirement. According to Hill, “The idea is for all materials to be active in the process at all times, thereby avoiding situations of cost without appropriate benefit.” (Hill 1993) This calls for fine tuning of supplies in accordance with the Production Plan which becomes the focal point in manufacturing. In this case the Purchases or ordered according to requirement and suitable suppliers have to be located and organized to work according to lead times demanded by Production. This is suitable where lead times are short; there is stable demand and high repeatability of materials. There are immense benefits of JIT such as improved quality and productivity. This results in standardization and customer satisfaction. Inventories are low and working capital is more effectively used. JIT is useful in conditions where there is mass production and mass customization. Indeed Toyota has perfected this art and according to Hill, “Toyota can point to an inventory turnover of 70 times on purchased parts and work-in-process and 16 times if finished goods inventory is included.” (Hill 1993) Kanban was introduced by Toyota where Kan means the card and ban which means the signal. As soon as there is a demand a signal is created through light on the floor or a card or by any other software generated signal to highlight the need. The materials or parts are stored in bins and can be fetched on raising of signal. The central idea is to reduce time and improve productivity. Over a period of time both the Kanban and the bin quantities will get reduced as a result of higher efficiencies. Optimized Production Technology Optimized Production Technology is based on Flow Control. (Lundrigan, 1986). Essentially this depends on Production Planning but whereas there is a flow of materials in unequal quantities in the Assembly Line and a bottleneck is likely to occur at several places due to this disparate flow. This identifies the bottlenecks and organizes a check on how to regulate the flow of each component separately. It is a Lean Design but with emphasis on controls within the Production Lines and by extension controlling the flow of inventory in accordance with need. It is a variation of JIT and most useful for Automobile Industry where, for example, one large part may require several smaller ones for assembly and a batch is defined for that particular completion. All subsequent batches will be controlled by the designated flow to prevent any bottleneck. Flexible Manufacturing System (FMS) In cases where there are chances of a change in quantity, size or process, the JIT system will fail to address its requirements. Here the probability of change will rule the order and the ability to adapt is more central than inventory or production control. Midway the materials or accessories might change or the process or routing may require different machinery either automated or robotic, and this has to be done in the least possible time. Such flexible systems are more suited to industries like Fashion and Garments and are designed for them. This system also works best in a highly automated system where changes can be made easily and quickly. (Toni and Tonchia 1998) Theory of Constraints (TOC) The objective of the theory of Constraints is how to optimize the flow in the manufacturing process and to plan the takt. The German word takt means beat time, as in the orchestra, and is used as the time required to complete and operation or process. Therefore if the time is say 17 minutes to produce a product or a part then that is the takt that must flow through the bottleneck and off the assembly line. TOC is more useful than a JIT philosophy supported system in the case of discrete job manufacturing. In such cases there are huge bills of materials, several routings, variations in lead times and a product mix that results in different resources becoming the critical bottleneck at different times. The TOC therefore continuously works at identifying and resolving the constraints within the system. (Goldratt and Cox 1986). TOC is more applicable to ancillary industry that is supplying to major industry as it works better in made to order environment rather than the assembly line environment. Discussion The current system of relying on MRP alone is not suitable for Premier Automobiles as demand is not unpredictable and the materials required are largely known. MRP is useful where there are large, unpredictable demand variations (Karmarkar 1989) and material flows are complex (Krajewski and Ritzman 1993). It is most effective where there are varying order quantities, a product mix and a need for high-level coordination of material flow (Slack et al. 2001). It has been discussed earlier that there is a need to forecast and identify capacity requirements and determine long-term purchase contracts with suppliers. MRP believes in piling up inventory which is a waste and adds to costs. In contrast a pull-based (JIT) approach is most suitable for shop floor control. The JIT based system appears to be more suitable in the present scenario. However, Karmarkar (1989) also suggests that in a continuous flow and repetitive manufacturing setting, it is possible to combine both MRP and JIT methods (Karmarkar 1989). In such cases MRP does the material planning, coordination and purchasing while the shop floor operates on JIT. Therefore, MRP and JIT can coexist. In this event a master production schedule is made and purchases planned according to it and stored, but material is actually pulled through production using a JIT approach. . Major automotive manufacturers such as Toyota and Nissan use JIT principles for supplying components to assembly lines. At the same time a leveled master production schedule for cars and components exists separately from which material requirements information is fed to suppliers. Items like car seat sets, for example, are then delivered to a factory a few hours before they are required and pulled to the side of the line using kanban and delivered to the assembly lime under JIT system. Implementation Plan All the above good intentions will come to naught unless there is a solid Implementation program is in place. A well thought out Implementation plan will ensure that the invest we make in Lean Design will bear fruit in time. (Appendix 1) Implementation Strategy The implementation will be divided in several sections. The details of such sections will be submitted after approval of System Requirement Study (SRS). Implementation Steps The implementation will be divided in following steps. Namely: Installation Testing & approval Bug identification and removal Change requirement [If any] Testing & Approval Test plan specification document will be submitted by Esquire to WEC regarding plan for testing the various increments of the solution. Criteria will be identified to determine shortfall, if any in entering data. Customer implementation team will ensure timely data feeding in the system so that requirements can be determined and output reports are approved simultaneously. In case of delay in data feeding and approval, Solution Provider team will report to the co-ordination committee for timely action. The codes of new requirements will be tested on the basis of ALPHA test at Solution Provider lab so that the construction may be released for customer data entry, BETA testing and report approval at Customer site by Solution Provider. Bug Identification & Removal The Solution Provider implementation team will find and identify the bugs during BETA testing. The identified bugs will be communicated to the Solution Provider Lab over a prescribed bug removal format, as summarized, for correction. Change Requirement When the co-ordination committee finally approves change requirement, Solution Provider at their Labs shall do the same and deliver for Beta Test and Live run. Implementation Monitoring Implementation process will be divided in six increments or installments. Each has been described with details and time to be taken in implementing same. Implementation will include installing and training the people concerned in understanding and using the software techniques and to start using them in entering their data, later to be used by them for obtaining optimum results and benefits. (Appendix 2). Conclusion To sum up, the objective of the management will be well served by adopting and implementing the Lean Management as discussed above. However to make it a success there has to be a firm commitment from the management. It must be understood that this is a sea change and it starts at the top. There will be many a slip between the cup and the lip, but the plan has to be relentlessly pursued and the company has to remain focused on the changes required. The solution itself has been very comprehensively used over a vast spectrum of industry worldwide. There is no reason why the Company will not benefit from it as well. Bibliography Bragg S., (2004), ‘Software Solutions taking Lean Manufacturing to the next Level”, ARC Strategies, ARC, Dedham, MA. Brown, S., Lamming, R., Bessant, J. and Jones, P. (2000). Strategic Operations Management. Burt, D.N., (1989), “Managing Suppliers Up to Speed”, Harvard Business Review, July-August Fujita, K. and Hill, R.C., (1993), Toyota City: industrial organization and the local state in Japan. Japanese Cities in the World Economy Philadelphia: Temple University Press, pp. 175-202. pp.207 Goldratt, E. M. and Cox, J. (1986). The Goal, first edition. North River Press. Karmarkar, U. (1989). “Getting Control of Just-in-Time”. Harvard Business Review. September–October. Krajewski, L. J. and Ritzman, L. P. (1993). Operations Management, Strategy and Analysis, third edition. Addison Wesley, US. Hill, T. (1993). Manufacturing Strategy, second edition, The Macmillan Press Ltd. Basingstoke and London: 257. Lundrigan, R. (1986)., “What is This Thing Called OPT,” Production and Inventory Management, 26, 2–12. Slack N., S. Chambers and R. Johnston., (2001), Operation Management. (3rd Edition). Essex: Peason Education Limited. Toni, A.de, and Tonchia.S., (1998), Manufacturing Flexibility: a literature review by International Journal of Production Research, vol. 36, no. 6, 1587-617 Appendix 1 Appendix 2 Implementation Process Plan INCREMENT NO CONTENTS TO BE COVERED ALOTTED TIME TEST TIME ONE ITEM MASTERS EMPLOYEE MASTERS MACHINE MASTERS FINANCE MASTERS OTHER MASTERS 15 DAYS 4 DAYS TWO MATERIAL REQUIREMENT PLANNING 1. ORDER SPECS 2. BILL OF MATERIAL 3. LIST OF MATERIALS REQUIREMENT 4. BUYER ORDER 5. CONSUMPTION 6. BUDGET 7. ORDER PLANNING PURCHASE MANAGEMENT 1. QUOTATION 2. RATE CONTRACT 3. PURCHASE ORDER 4. APPROVAL REQUIREMENT 5. APPROVALS MATERIAL MANAGEMENT 1. OPENING STOCK 2. RECEIPT AGAINST PURCHASE 3. PURCHASE INSPECTION 4. MATERIAL ALLOCATION 20 6 6 4 4 4 THREE PRODUCTION PLANNING 1. JOB ORDERS 2. WORK ORDERS 3. PRODUCTION PREPATORY MATERIALS MACHINE MEN 4. MACHINE PLANNING MACHINE SETTINGS MAINTENANCE 5 ENERGY CONSUMPTION MACHINEWISE READING ENERGY COST SHEET MATERIAL MANAGEMENT 1. JOB ORDER ISSUE 2. JOB ORDER RECIEPT AND INSPECTION 3. DEPARTMENTAL ISSUE 4. DEPARTMENTAL ISSUE 5. WIP STORES 6. FINISHED GOODS STORES 7. REJECTS/WASTE STORES BILL PASSING 1. JOB ORDER BILLS 2. PURCHASE ORDER BILLS 15 6 2 5 2 1 FOUR FINANCIAL MANAGEMENT & CONTROL 1. BUYER ORDER DISPATCH 2. BUYER BILL RAISING 3. BILL CLEARANCE 4. VOUCHER ENTRY 5. CHECQUE PASSING AUTHORITY 6. CHEQUE CLEARANCE 7. LC DETAILS 8. LC MANAGEMENT 9. SALARY & LABOUR PAYMENTS 10. FINAL ACCOUNTS 10 3 FIVE HUMAN RESOURCE MANAGEMENT 1. EMPLOYEE ATTENDANCE 2. SALARY WAGES COMPUTATION 3. SALARY SLIPS & SHEETS 4. INCREMENTS, PROMOTIONS, SHIFT CHANGE ETC. 8 3 SIX ADMINISTRATION 1. USER ADMINISTRATION 2. AUDIT TRAIL 3. ANNOUNCEMENTS/REMIN DERS 4. INTRANET 5. ADJUSTMENT ENTRIES 6. MIS REPORTS 8 4 SIGN OFF TOTAL 96 26 TOTAL NUMBER OF WORKING DAYS 122 (4.2 MONTHS) WITH HOLIDAYS/DELAYS AND REST DAYS 6 MONTHS WITH A TEAM OF 4 MEMBERS, PLUS ONE PROJECT MANAGER. The plan will be monitored and recorded as per following format: Milestone Monitoring Format Milestones & Deliverables Monitoring Budgeted Date Actual Date Variance Reasons           Read More