Revision Notes for Introduction to Materials Management, 8th Edition

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Revision Notes for Introduction to Materials Management, 8th Edition - Page 1 preview image

1Stephen N. ChapmanJ. R. ArnoldAnn K. GatewoodLloyd M. CliveCasestudyteaChingnotes forintroduCtionto Materials ManageMent, 8eZ03_CHAP6323_08_SE_CASE_WEB.indd112/1/154:00 PM

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2Case studytable of ContentsFran’s Flowers–Chapter 1439Meridian Water Pumps–Chapter2441Williams 3D Printers–Chapter 2443Acme Water Pumps–Chapter 3444MasterChip Electronic–Chapter 3445Macarry’s Bicycle Company–Chapter 3446Apix Polybob Company–Chapter 4448Benzie Products–Chapter 4450Wescott Products–Chapter 5453Johnston Products–Chapter 6456Crofts Printing–Chapter 6458Melrose Products–Chapter 6459Let’s Party!–Chapter 7461Connery Company–Chapter 7462Northcutt Bikes: The Forecasting Problem–Chapter 8464Hatcher Gear Company–Chapter 8467Randy Smith: Inventory Control Manager–Chapter 9468Carl’s Computers–Chapter 11470CostMart Warehouse–Chapter 12473Metal Specialties, Inc.–Chapter 13475Cheryl Franklin, Production Manager–Chapter 14476Murphy Manufacturing–Chapter 15476Accent Oak Furniture Company–Chapter 16478Z03_CHAP6323_08_SE_CASE_WEB.indd212/1/154:00 PM

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Teaching Notes for Introduction to Materials Management, 7e3fran’sflowersChapter 1 Case Study Teaching NotesFran’s Flowers is a good case to use early in a course of study, because it illustrates twoimportant areas (service design and operations strategy) in a case format that is com-pletely qualitative, and therefore less threatening to some students as they make their firstentrance into materials management. It can also be used to start students thinking aboutthe quantitative aspects of materials management, both from a data gathering and dataanalysis aspect, as one of the direct case questions (#2) asks students to consider the datacollection needs as well as how they would suggest using this data. This presents a goodopportunity (usually at the conclusion of the primary analysis) to have an open, “brain-storming” discussion. This can be used not only to start student thinking about quantita-tive analysis, but can also be used as an “icebreaker” to allow students to feel comfortableabout open class discussions.the ProblemFran clearly stated that she intended to focus on the specialty make-to-order flower arrange-ments. Clearly, in such a business, the major operational focus should be on artistic capabil-ity, flexibility, design, and close communication with the customer. The volume would befairly small, but the margin on each order would be fairly large. The order-winning aspectsof such a business would clearly be availability, design, and flexibility.Once those characteristics have been developed, a discussion of the importance oflocation can be initiated. In the make-to-order business, location could be expected to beinsignificant, as the case indicates when it discusses how Fran and Molly usually visit theclients to obtain the order, rather than the other way. In such a situation it really doesn’tmatter where she locates as long as she has space to store the flowers and make thearrangements.Some student will immediately jump on the now-obvious mistake that Fran made.She selected a location in a highly visible strip mall. In such a location it should be ex-pected that people will walk in a flower shop with the idea of making spot purchases offlowers. In other words, she selected a location without considering the strategic impacts.It might have worked out without a problem if she would have just turned away the cus-tomers wanting the spot purchases, but the financial benefits of such an apparently easysale was too appealing.As soon as Fran started accommodating those walk-in customers, she had evolved intotwo separate businesses with two separate operational strategy models. The walk-in busi-ness was, of course, a make-to-stock business with all the typical characteristics of such abusiness. The contrasts are summarized in the following table. Such a table can be easilydeveloped during the class discussion to enable all students to clearly see thecontrast in theservice businesses:Make-to-orderMake-to-stockPriceNot SensitiveSensitive—Order WinnerLocationNot SensitiveCriticalDesignOrder WinnerStandardizedSkill LevelVery HighFairly LowVolumeVery LowHigherVariety of DesignEach One DifferentMore StandardOperational FocusClose Customer ContactStandardized, Low CostInventoryCan Order as NeededHigh—Standard ArrangementsNot only has she gotten herself into a dual business situation (of which she origi-nally had no interest in and has minimal managerial skills to run), but now customersin the make-to-stock business are trying to force her to move even more away from herZ03_CHAP6323_08_SE_CASE_WEB.indd312/1/154:00 PM

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4Case studycore. The consideration to have the shop open for a longer duration, open a second loca-tion, and become part of a national delivery service will pull her away from her centralbusiness focus even more.approachesThere are really three basic approaches that appear to make sense, although some studentswill come up with logical variations on these three:Do nothing—This is always an alternative, and is frequently the least desirable onefor a number of reasons. It would continue the problems outlined in the case and quitelikely cause erosion of her business, as it appears she cannot give proper attention to eitherbusiness under the current circumstances.Expand the make-to-stock business—Given that she apparently has a good loca-tion, this business could be attractive if run effectively. Fran, however, does not con-sider the business as the one most attractive to her. She just prefers to use her designtalents on the make-to-order. One method to allow for effective expansion is to hire afull-time, experienced person to completely take over the make-to-stock business. Thisperson could be evaluated on a profit basis, but be given almost free reign to expandthe business in any direction that will prove profitable. Fran could then concentrate herefforts on the make-to-stock, and it is highly likely that both businesses would becomesuccessful, allowing for at least some synergistic effects as customers for one businesswould, under the right circumstances, buy from Fran if they had a need for flowers foranother purpose.Eliminate the make-to-stock business—One potential problem with the expansionof the make-to-stock business is the requirement for a large amount of capital (this,in fact, should be one of the data items students should mention for case question #2).Eliminating this business would allow her to concentrate on her core business, withless need for capital. The largest problem with this is the potential loss of profitabilitywith the make-to-stock business, and she still has the location issue. If she wants tomaintain the present location, she should take steps to clearly identify the nature of thebusiness to possible walk-in customers. Given that the strip mall is popular, however,the lease costs may be higher than that she would have to pay given that location is notvery important to the make-to-order business. She might be better off financially toseek a location with a lower cost. Location, again, is not critical in the make-to-orderbusiness.ConclusionAnother opportunity for discussion is presented as students debate these options, or may,in fact, create others. This discussion can be again used to bring in the data questions. Youmay wish to ask the students the criteria they should use to make the final decision. Muchof these criteria will probably be dependent on gathering certain information.You may or may not wish to spend much time on the implementation question. Sucha discussion tends to be less interesting to students and more “mechanical” in nature, butif you wish to use the case to have students think about the detailed design issues for aservice business, you may want to spend some time with it.This case was based on a real situation in a real flower shop. You may wish to informthe students that the real “Fran” decided to use her skills and desires to concentrate on themake-to-order business, but the potential for the walk-in business was too attractive toeliminate, especially given her location. She hired an experienced retail manager to man-age the walk-in business as a profit center. The manager was given permission to managethat business in any fashion he or she wished, but part of his or her compensation wasbased on profit sharing, giving the manager plenty of incentive to make the store profit-able. Fran and Molly worked in the back room, but could serve as advisors to the walk-inbusiness as requested by the new manager. Fran and the new manager would meet ona regular basis to discuss the overall business and look at flower needs, constantly try-ing to evaluate the possibility of different approaches to combine needs for flowers andminimize the overall cost of purchasing stock. As of the writing of this case the approachappeared to be working.Z03_CHAP6323_08_SE_CASE_WEB.indd412/1/154:00 PM

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Teaching Notes for Introduction to Materials Management, 7e5Meridianwater PuMPsChapter 2 Case Study Teaching NotesThis case is a fairly simple case to work on analytically, yet can provide the basis for agood discussion about the trade-offs involved with making a good production plan orSales and operations plan. While there are clearly differences in the financial results ofthe possible plans, there are clearly nonfinancial issues that can and should be discussedin order to give students a better overall perspective involved with this important planningprocess. Here are sample solutions to the assignment questions:1.Developing a level production plan is fairly easy. The total demand for the six months is4650 units. Since the current inventory is 50 and the target inventory for the end of thesix month is 25, we reduce the required production for the six months to 4625 (4650–25).Dividing the 4625 by the six months, we would be required to make 771 pumps per month.Dividing the 771 by 25 (the number of pumps one worker can make in one month), wewould need 30.8 workers. Rounding that to 31 workers, we have the following result:■■We need to hire 11 workers (there are currently 20, and we need 31)■■There is an upfront cost of $1100 ($100 hiring cost for each worker)■■The monthly production will be 775 (31 workers × 25 pumps per worker)■■The inventory at the end of month 1 will be 225 (production of 775 plus existinginventory of 50 = 825, then subtract the production of 600)Month123456Demand6007501000850750700Production775775775775775775Inventory22525025–50–2550Inventory cost$1125$1250$125$0$0$250The total inventory cost is $2750The total hiring cost is $1100The total extra cost of the level plan is $2750 + $1100 = $3850There are several qualitative issues that can and should be discussed here. Threeof the more important ones may be as follows:■■There are two months when shortages appear. There is no indication how custom-ers will react. For example, if the customers are willing to wait for one to twomonths, then certainly there will at least be some loss of goodwill. There is a highprobability that customers would not be willing to wait if they could obtain theproduct from a competitor (given that water pumps are a common product, this ishighly likely). In that case a real financial cost is the loss of profit from those lostsales, and potentially some permanent loss of those disappointed customers. At aminimum, there is likely to be some cost in filling the backorders.■■As indicated in the case, such shortages also require sales people to make addi-tional visits to customers to calm their anger. Such visits might cost some realdollars and also create some anger and discouragement within the sales staff.■■There is an assumption that the newly hired 11 people will be able to producea full production (25 pumps per month) immediately. Most production jobsentail a learning curve, implying that the production of 775 total pumps inmonth 1 may be overly optimistic.2.The chase plan is also fairly easy to develop. To create it, the assumption is made thatthe target inventory of 25 can be accomplished in the first month. To obtain the num-ber of people needed each month, the demand for that month is divided by 25 (thenumber of pumps one worker can make in one month). The only exception is the firstmonth, when we assume that 25 units of demand can be taken from inventory to get tothe target level immediately.Z03_CHAP6323_08_SE_CASE_WEB.indd512/1/154:00 PM

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6Case studyMonth123456Demand6007501000850750700People Needed233040343028People +/–3710–6–4–2Inventory252525252525Hire/Layoff Cost$300$700$1000$600$400$200The total hire/layoff cost for the six months is $3200. The inventory cost for eachmonth is 25($5) = $125. For the full six months the cost for inventory is $750. Thetotal cost for the chase strategy, then, is $3950. That is only slightly higher than thelevel strategy ($100). As with the level strategy, however, there are qualitative issuesthat should be discussed. Included should be the following:■■From a customer perspective, this approach is clearly better than the level planthat represents at least two months of inventory shortages. One might argue (andin a real situation even calculate) that this approach is financially better, in that thepotential cost of lost profitability was not included in the level schedule analysis.■■The largest qualitative cost in this chase plan is the constant movement of peoplein and out of production. This ignores several potential “hidden” costs, includingthe following:■■The learning curve impact of the new people. The analysis assumes thata new person can produce at the same rate as an experienced one. Thisis seldom the case.■■The issue of employee loyalty. The production people will likely get theimpression (rightly so) that the company has little or no loyalty to thefeelings and needs of the workers. In that case, it would be likely that theemployees will also have little feeling of loyalty. That can impact not onlymorale, but also productivity improvement efforts.■■A little recognized issue is the impact of employee “guilt.” In some casesemployees who escape a layoff will feel guilty. While often relieved thatthey kept their job, they will sometimes express the feeling of “why didI survive—I feel guilty that I have my job while some of my friends onthe production line lost their jobs.”3.The following represents a hybrid plan. It has a level schedule for the first threemonths (until the demand grows to the point where shortages would occur), then hasa level schedule for the next two months, then starts to reduce employees as the lowerdemand part of the cycle again starts.Month123456Demand6007501000850750700People Needed233040343028People +/–1200–20–1Production800800800750750725Inventory2503001000025Hire/Layoff Cost$1200$0$0$200$0$100Inventory Cost$1250$1500$500$0$0$125The total cost of this plan (inventory plus hire/layoff costs) is $4875. From thispurely financial analysis of these two extra costs, this plan would not be preferable.If, however, all the qualitative costs discussed above (and their potential associatedfinancial implications) are to be considered, this approach may be preferable andselected. Specifically, it has a reasonably small impact on layoffs and also preventsshortages that could impact customers.Z03_CHAP6323_08_SE_CASE_WEB.indd612/1/154:00 PM

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Teaching Notes for Introduction to Materials Management, 7e74.There is only one hybrid approach presented. This question presents a great opportunityfor students to present their own plans and discuss the pros and cons of each. A gooddiscussion here can leave students with a much stronger perspective of the issues andadvantages of developing good production plans.williaMs 3dPrintersChapter 2 Case Study Teaching NotesThis case has an advantage in that it can be used for discussing the strategic issues oftensurrounding the development of longer term S&OP planning, where additional capacity ispossibly needed. But if students are not at a level where that is appropriate, then the casecan be more simply used as a discussion of some of the options available for a companyin this situation to use, and some of the pros and cons of each. You may find that even forstudents not familiar with strategic thinking that some may move in that direction basedon their experience and basic logic.The environment described and the issues facing the company are fairly common for astart-up organization in a rapidly growing market typical of the introduction phase of a prod-uct life cycle. You may wish to point out that often in such a market many small companiestrying to enter the market is typical, but over time most will fail, either because of an inferiordesign, a lack of flexibility to understand the market, or the inability to find ways to growin the market. As successful companies in the market grow, they are able to gain from theadvantages of growth, including economies of scale. You may wish to point out that sincethe entire market is growing at this point, individual companies may experience growthwithout experiencing a lot of competitive pressure. This is because growth can occur withoutactually growing market share (assuming the company grows at the same rate at which themarket grows). Later on in the life cycle when the market growth slows considerably, thecompetition between survivors will tend to increase as the only way they can obtain growthis through taking market share from another company. How much of a discussion of this youfeel appropriate should be based on the background of the students. You can also refer themto the first few pages of Chapter 14 where the product life cycle is briefly discussed.The case can be discussed without this life cycle discussion, focusing primarily on thekey issue of dealing with longer range sales and operations planning (S&OP) in this kindof environment. It certainly can bring out many of the trade-offs inherent with the devel-opment of any S&OP process that almost any company has to go through, although in thiscase inventory does not seem to be a major problem (again somewhat typical in what ap-pears to be a make-to-order environment). The key trade-offs here appear to lie within theconcepts of how to best manage rapidly growing sales forecasts. Specifically, they need toplan for longer range resources and how to pay for them.Certainly, one alternative is for them to maintain their current size and only take or-ders that they can produce within their existing facility and staffing. Some students maywish to take that option, and could justify it by stating that it would allow the facility toonly take orders with the highest possible profit margin. Given that the design for eachorder is apparently not standard, the price is likely not standard either. If they do negotiateprice, it gives them the option of taking or not taking a particular order. Some compa-nies in this type of market will elect to take this approach, and it can work as the marketmatures if the company can successfully identify and defend a specific niche where theycan provide good products and services. It is not clear that this would be the preferred ap-proach here, and certainly it would appear that the sales and marketing manager, at least,would need to be convinced. Also, if they stay small as the market matures, they may faceother problems—the design of a product tends to become more standard as the market ma-tures, and also price becomes more sensitive. This type of discussion may be too advancedfor your students, but asking them to consider what has happened in recent years to theproduct with which they may be familiar with may help—consider “smart” televisions,cell phones, and almost any other electronic device.If the growth option is taken, then Pamela’s concerns need to be addressed. The deci-sion to grow the business needs to include a good plan as to how. As Pamela points out,Z03_CHAP6323_08_SE_CASE_WEB.indd712/1/154:00 PM

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8Case studygrowth in the production area may need to appear something like a “step function,” wherelarge “chunks” of production capacity are added. Smoothing out added production capac-ity would seem to be difficult here, although it should be pointed out (and some studentsmay suggest) that sometimes smoothed addition of capacity can be obtained by subcon-tracting the work. If the discussion goes in this direction, student should be aware that inthose cases, it is more difficult for the company to control the work, especially in terms ofquality, but also cost and delivery. Still this may be a very attractive alternative for somestudents.If they decide to grow internally with the “chunks” of capacity, they need to addressthat likely at first they would have an excess of capacity since the sales are less likely togrow in matching “chunks” of orders. Options possibly exist, however. One would be tooffer other companies some of the added capacity for short-term subcontracting work.Another would be to build some inventory of more standard parts of the printers. Theinventory option would mean even more added cost up front, but could allow them topostpone the next needed “chunk” of capacity assuming the market continues to grow. Ifthe students are at a level where discussion of this option evolves some strategic points,you may wish to point out that addition of capacity in this early life cycle market oftenshould lead the growth of demand. While that option tends to cost more in the short term,products in this type of market tend to be much more sensitive to delivery than they areto price, and the excess capacity (especially in a product with lots of design options)can help make delivery reliable, and they also tend to provide good margins (not beingparticularly price sensitive). On the other hand, facilities producing products in a moremature market tend to allow the addition of capacity to lag demand growth, preferring touse techniques such as working overtime and subcontracting as much as possible beforeturning to acquiring more capacity. The main point against adding a “chunk” of capacityis cost and the impact on profitability. Certainly, the concerns of the financial managerneed to be considered, and it would be an important decision if the company wishes toforgo a profitability position for some time in the future to pay for the added capacity.Some students may point out that this may make them much more profitable in the futureas they can serve more of the market. While that can be true, you need to point out that ifgrowth continues, the company is likely to face a similar issue about adding even morecapacity sometime in the future. Students should be made aware that these kinds of deci-sions must be made considering the overall strategy of the firm. They should be able tounderstand that even if you elect to forgo any detailed discussion around the life cycleand its characteristics.aCMewater PuMPsChapter 3 Case Study Teaching NotesThe following is a master schedule using the case data. It is important to note that theprojected balance ignores the forecast data for the first three weeks (because the demandtime fence is 3 weeks), and from that point on the balance is computed from the larger ofcustomer orders or forecast.Period123456789101112Forecast901201108085951001109090100110Cust. orders1059793729872532117625Proj. Balance (25)22012330250152572571475726716757MPS300300300300ATP3058209287The order request for week 5 of 45 units should be no problem, as the ATP of 58 forweek 4 covers it nicely.At this point it might be helpful to teach students about ATP by challenging themwith additional questions about future orders. For example,Z03_CHAP6323_08_SE_CASE_WEB.indd812/1/154:00 PM

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Teaching Notes for Introduction to Materials Management, 7e9What if the new customer order is for 70 in week 5? Still no problem. You couldpromise the 58 produced in week 4 and the additional 12 from the 30 ATP in week 1. Keypoint here—it is not important for the customer to know when the item is produced, onlywhen they get it (an exception is an item with a short shelf life).What if the new customer order is for 100 in week 5? Now the issue is more complex.You could promise 88 (58 in week 4, 30 from week 1). For the rest of the request, thereare three options:1.You could ask the customer if you could give them 88 in week 5 and the rest in week 7.2.If that option does not work for them, you could work with sales to ask if the othercustomer orders could accept some of their pumps at a later time, so you could splitthe shipment of their orders.3.If that does not work, you need to check if you have the material and capacity toincrease production by 12 units sometime during the next 5 weeks.If none of those options work, the only alternative is to tell the customer that you candeliver only 88 for them in week 5.the MasterChiPeleCtroniCs CoMPanyChapter 3 Case Study Teaching NotesSally is confronted with a relatively common environment. Her product line is competi-tive, somewhat delivery time sensitive, variable in demand patterns (volume and timing),option-oriented, and made with components that have fairly short life cycles. The unioncontract is certainly a constraint, but she should be able to manage around it more ef-fectively. The measurement system focused on efficiency and utilization is also clearlya problem. This customer environment is one with variable orders in terms of size andoptions, and clearly the customers are sensitive to delivery reliability, especially whenplanned for something like a planned promotion. One could make the argument that atleast part of the solution would be to “educate” the customers to provide more of theirown planning information to MasterChip. That could very well help Sally’s own plan-ning, but that should be viewed as a long-term approach at best. Essentially, this envi-ronment sounds like at least an assemble-to-order (ATO) environment, a quite possiblya make-to-order environment for at least some of the products, and should be managedaccordingly.First, it appears that Sally is relying on mostly short-term capacity planning (reallyreaction rather than planning) by using weekly layoffs and callbacks. The problems thatappear in this environment are clear—excess capacity in parts of the facility and capacityshortages with lots of late orders in another part of the facility. Given that the demandpatterns are somewhat erratic, you could assume that these capacity shortages and ex-cesses have a tendency to move from area to area over time. She could avoid a lot of thisif she had more flexible workers (where she could move them from one area to another),but this would require a change in the union contract and also a comprehensive trainingprogram to give workers more transferable skills. She also would be helped if she couldchange worker hours with more flexibility than weekly. That, too, could be an issue fortheir next union contract negotiation. This implies that it may be very difficult to do andcertainly will not help in the short term. Additionally, one could argue that the issuesshe faces with short-term capacity is really symptomatic of other parts of the planningsystem.The major problem here is that the company does not appear to do any effective longerrange planning, as would be accomplished with a well-run sales and operations planning(S&OP) process and a well-managed master scheduling program. As it appears now, thesales force seems to take any order they can get with little regard for how well that order fitsinto a managerial agreed to long-range S&OP. Students should be made to realize that withan effective S&OP, where the timing, cost, and quantity of resources are taken into account,the “target” sales for a period may not represent the unconstrained forecast demand forsales, but instead be representative of the sales the company should obtain to best maximizeZ03_CHAP6323_08_SE_CASE_WEB.indd912/1/154:00 PM

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10Case studyprofits. Taking any order that comes along and blindly quoting a standard lead time clearlyshould not be done, especially in this type of volatile assemble-to-order environment.Because of the ATO environment, the master schedules should likely be developedat the option level. This will allow two very important activities to be done for the com-pany. First, the overall capacity can be managed at the rough-cut level to fit within theconstraints established in the S&OP. Second, the master schedule can be established withavailable-to-promise (ATP) logic. It can be very powerful in this environment, especiallyif the sales force is trained what to look for in the ATP logic. A quick look, for example, inthe situation described in the case, should have told the sales manager that he could prom-ise at most 200 of the A77 units in the standard lead time, but also could tell him when therest of the order could be shipped—and this could be done without having to check withanyone from production. The final assembly schedule would be developed from the actualcustomer order based on the options selected, but if the S&OP is managed effectively anda rough-cut capacity plan developed from the master scheduling activity, then the chanceof any major mismatch in capacity should be minimized.This case can be used for three different types of student groups. If the students arestill at a fairly basic level in their understanding of planning systems, it can easily be usedjust to emphasize the value of S&OP and ATP logic, as well as the need for longer-rangecapacity planning and how this is done in S&OP and master scheduling.If the case is to be used with more advanced students, it could serve as an effective“launch” into discussion of two-level master planning, and “super planning” bills of material.Finally, the case can be used to initiate discussions about operations strategy (if ap-propriate for the level of students), using the understanding of the environment to influ-ence almost every aspect of the organization, including measurement systems (clearlya problem here) to planning systems, to priorities the organization should be putting onvarious aspects of union agreements if they exist, as they do in this case.MaCarry’sbiCyCle CoMPanyChapter 3 Case Study Teaching NotesThis case works well to allow students an opportunity to practice their skills on developing mas-ter schedules and also to practice using them to effectively promise orders. You may notice thatwithout specifically stating so, this case is a typical approach using two-level master scheduleswith essentially a “super bill” approach that is often used in such an assemble-to-order environ-ment. In this case that approach was not specifically mentioned, but at the conclusion of thediscussion in the case, you may wish to take the opportunity to introduce the generic concepts ofsuper bills, two level master planning, and even option of overplanning to your students.You will likely note that while the planning time fence is defined as 20 weeks, there isno defined demand time fence and the master schedules are developed assuming demandtime fence does not exists. Once the initial discussion of the questions in the case has beencompleted, you may wish to ask your students how, if at all, their solutions would change ifa demand time fence is set. They will likely gain good insight on the use of the time fence ifyou set a couple of different time fences for discussion—say one time at 2 weeks and thenat 5 weeks. If this option is taken, it may be instructive to have the students summarize thepros and cons of using demand time fences.The completed master schedules are as follows:Common parts (Frame, etc.).Existing inventory 40Week123456789101112Forecast505560626565687075758085Cust. Orders5652453370503560202000Projected Inventory.1841296971377241345918410419Master Prod. Sch.200200200200ATP5445120180Z03_CHAP6323_08_SE_CASE_WEB.indd1012/1/154:00 PM

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Teaching Notes for Introduction to Materials Management, 7e1118-speed gear optionExisting inventory 25Week123456789101112Forecast353942444646484953535660Cust. Orders37384033502025405500Projected Inventory.1389957131136719120671410848Master Prod. Sch.150150150150ATP2755100150Straight handlebarsExisting inventory 20Week123456789101112Forecast151718192020212123232426Cust. Orders1618205152215205800Projected Inven.44626747254432057337Master Prod. Sch.60606060ATP41783552Head and tail light setExisting inventory 5Week123456789101112Forecast101112131313141415151617Cust. Orders2121081597112100Projected Inventory2513118522824924821Master Prod. Sch.303030303030ATP11714172930The solutions to the order inquiries:a.A customer is asking about an order of 32 of the bicycles for week 3. All 32 are to be18-speed, 12 are to have straight handlebars, and 14 are to have the light set.While the order has no problem from the standpoint of the frame and commonparts, only 27 of the 18-speed are available for week 3 and only 11 of the lightset are available. There are enough handlebars for the order. The customer shouldbe told that they can have 27 of their complete order for week 3 (the major con-straint is the 18-speed, where they are 5 short—they are only 3 short of the lightset). The remaining 5 bicycles can be delivered for week 5, when the next MPSis scheduled for the 18-speed. The light sets will be available in week 4, but thelast 5 of the order needs to wait for the 18-speed option. Of course, in this and inany similar situation the sales people always have the opportunity here to attemptto convince the customer to accept a different option in order to get their ordercomplete in week 3.b.A customer is asking about an order of 60 of the bicycles for week 6. Fifty ofthem are to be 18-speed, 12 are to have straight handlebars, and 5 are to have thelight set.There are plenty of frames and common parts (while only 45 are in ATP forweek5 and all can be used, the remaining 15 can be taken from the ATP inweek 1). This situation is a good opportunity to emphasize to students that in thetype of environment where items have long “shelf life,” the customer often doesn’ttend to care when the item is made—they are only concerned about when theycan have it. The 18-speed option is also no problem, for the same reason. Thesame is true for the handlebars and light set. The customer should be told “sure,no problem.”Z03_CHAP6323_08_SE_CASE_WEB.indd1112/1/154:00 PM

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Revision Notes for Introduction to Materials Management, 8th Edition - Page 13 preview image

12Case studyc.A customer is asking about an order of 20 of the bicycles for week 2. All are to be18-speed, all are to have straight handlebars, and all are to have the light set.Again, there is no problem with the frames and common parts, the handlebars, andthe 18 speed. The problem is the light set. Only 11 can be delivered with the light setin week 2, with 7 more delivered in week 4 and the last 2 in week 6.d.A customer is asking about an order of 110 of the bicycles in week 7. Sixty are to be18-speed, 22 are to be straight handlebars, and 15 are to have the light set.There are only 99 frames and common parts available by week 7. The remaining willneed to be promised in week 8. The 18-speed option is not a problem, the straighthandlebars are not a problem, and the light sets are not a problem. The customershould be promised 99 in week 7 and the remaining 11 in week 8.At this point in the discussion you may find some students still confused. If that is thecase, you may wish to create a few hypothetical orders of your own and have the studentscome up with solutions.Question 3Suppose Macarry Bicycle managers discover that a major competitor has had to shutdown its production for the next three months due to a major fire. The Macarry managersfully expect that many of the competitor’s customers will turn to Macarry Bicycles to filltheir orders during this critical time. In fact, one of the competitor’s customers has alreadyasked about an order of 250 of the models for delivery in week 5. What actions shouldMacarry take in this case? Be as specific as possible.Students need to realize that there are important reasons why planning time fencesexist. They may be quick to realize that this situation represents an opportunity to getlots of unexpected orders, but to take those orders without the ability to deliver themthreatens to alienate lot of potential new customers as well as existing ones. They willbe tempted to add lots of MPS orders within the time fence. This presents the oppor-tunity to discuss why adherence to the planning time fences is so important. Point outthat they might be able to evaluate component inventories and existing capacity andpossibly squeeze a few more added to production, but by no means should they assumethat because they can put a number in the master schedule that it will really happen.Certainly, they have more freedom outside the planning time fence, but the impact oncomponent suppliers and internal production capacity still needs to be evaluated beforeadding lots of new production requirements immediately outside the planning timefence. You may also wish to initiate a strategic discussion—for example, with theirexisting ATP orders, should they take orders from one of these potential new custom-ers before they consider the needs of their regular customers? The danger is, of course,that as soon as the competitor recovers from the fire, its old customers may return to thecompetitor as a supplier. In the meantime, if Macarry Bicycles has alienated its regularcustomers by failing to be able to cover their regular orders, they may find that some ofthose regular customers may also leave them.aPix PolybobChapter 4 Case Study Teaching NotesIntroductionThis is a relatively basic case used to discuss the issues of managing dependent demandinventory, specifically using the concepts of MRP. The case starts with a discussionsurrounding the problems using EOQ with reorder points. Not only is the reorder pointinappropriate for dependent demand inventory in most cases, but they actually also seemproud that the inventory accuracy levels are “at least 80%.” Most people familiar withmaterials management will recognize that an 80% level is hardly acceptable for effectiveplanning.Z03_CHAP6323_08_SE_CASE_WEB.indd1212/1/154:00 PM

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Revision Notes for Introduction to Materials Management, 8th Edition - Page 14 preview image

Teaching Notes for Introduction to Materials Management, 7e13Most of the rest of the first part of the case deals with a description of some of thetypical symptoms that one would expect when dealing with the kind of conditions devel-oped in the case. While these symptoms should not be the major focal point of the case,they should be discussed. Many students will gain insight by being challenged to explainwhy the symptoms described are likely to occur in such an environment.At this point the MRP calculations can be brought out. The MRP solution is presentedat the end of this note. One of the first issues that should be mentioned is how the rela-tively “regular” production levels end up in quite “lumpy” demand for lower level compo-nents, brought on by lot sizing as the demand cascades down the bill of materials. In othercases, the ability of MRP to look ahead can show many other points that students can (orshould) notice. For example, the scheduled receipt for item F is not needed in week 1, andcan be de-expedited.Casediscussion QuestionsThe first two questions have been mentioned above. Others include the following:Question 3MRP assumes an accurate database and also is (by itself) capacity insensitive. Theseissues should be pointed out to students (in case they fail to bring them out) as criticalpoints that must be considered. In other words, the MRP solution will likely provide littlebenefit with only an 80% inventory accuracy, and will do little to prevent sales from over-promising orders unless the system is coupled with a good master schedule and capacityplanning approach.Question 4If there were only 250 of item E on hand instead of the 400 listed, the gross require-ment could not be met for week 2. This would cascade up to the final product (a goodopportunity to discuss the concept of pegging). Where MRP could help is in at leasttwo ways. First, it could point out the potential problem with enough time to poten-tially expedite the delivery of parts, thereby possibly preventing a problem condition.If, on the other hand, expediting is impossible, the nature of the shortage can be calcu-lated and customers notified with hopefully enough time to plan around the expectedshortage.Question 5One of the great values of MRP is the “look-ahead” capability, and this question addressesthat capability. Often the phase-in of a new design will occur when the impact on existinginventory is at a minimum. A look at the MRP shows that perhaps the best time for the newdesign phase-in would be after week 10, when the inventory of the old part is very low.Some students may argue that the best time would be the order for week 2. That is not anincorrect conclusion, and gives the opportunity to discuss the pros and cons of phasing outsmall versus large amounts of old inventory designs.Question 6This is a rather “open-ended” question that will allow students to be creative in their anal-ysis. Some items they may come up with are changes in the labor force, vacation planning,promotions, and planning for equipment maintenance.Question 7While students may come up with actual numbers for this question (based on severalassumptions), the primary purpose for the question is to generate thinking about thefinancial implications of the differences between the two approaches. What can clearlybe shown is that for many of the items there would be serious shortages using the reorderpoint. In some cases (item E, for example), the reorder point would generate order beforethey are actually needed, increasing inventory holding costs. The part shortages willclearly produce expediting activity, and generate some of the symptoms discussed in thecase as well.Z03_CHAP6323_08_SE_CASE_WEB.indd1312/1/154:00 PM

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