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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.

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.

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Space Age Furniture Company, known for manufacturing tables and cabinets for microwave ovens and portable televisions, operates in a manufacturing environment characterized by customized order production and a mix of repetitive and batch processes. This case explores the application of Materials Requirement Planning (MRP), production strategies, and operational efficiencies within the context of a specific part—part 3079—and its associated subassemblies.

Introduction

Effective operations management is essential for manufacturing firms to meet customer demands efficiently while controlling costs. The case of Space Age Furniture illustrates the complexities involved in planning production, managing inventory, and optimizing workforce utilization, especially when dealing with custom parts and lumpy demand patterns. The focus on part 3079, a critical component in two subassemblies, exemplifies challenges in balancing inventory levels, lead times, and labor costs through MRP techniques.

Development of the MRP System

The primary objective in developing an MRP for Space Age Furniture involves calculating the net requirements for part 3079 and its subassemblies, considering the scheduled demand from customer orders. According to the case, there is a scheduled order of 1,000 units for subassembly 435 (used in the Gemini TV stand) and 1,000 units for subassembly 257 (used in the Saturn microwave stand) in week 1. Both subassemblies have a production lead time of one week and are ordered in lot sizes of 1,000 units.

Since part 3079 is used in both subassemblies, with one unit needed per subassembly, the total demand for part 3079 in week 1 is two units per final product, scaled based on the demand for the subassemblies. The demand is then aggregated across the planning horizon, considering the scheduled orders for the subassemblies and the production lead times. The lot size of 1,000 units introduces a 'lumpy' demand pattern, leading to potential inefficiencies and increased holding costs.

An initial step involves calculating gross requirements, offsetting lead times, and then net requirements by subtracting on-hand inventory. As per the case, there are no current inventories or open orders for part 3079, simplifying the calculation. The requirement for part 3079 in week 2 matches the batch demand of 1,000 units for each subassembly, resulting in a planned order release of 1,000 units, scheduled to be produced in week 1.

The calculations extend across the planning horizon, ensuring that subcontracting or internal manufacturing meets the forecasted requirements. Additionally, safety stocks and order quantities should be factored into the system to prevent stockouts, especially considering the critical role of part 3079 and its impact on production continuity.

Suggestions for Improving Lot-Size Strategies

The current lot size of 1,000 units for subassemblies creates s of demand 'lumps' which cause inefficiencies. To improve, the company could explore reducing lot sizes through techniques like economic order quantity (EOQ), which balances the costs of inventory holding against ordering costs, or transitioning toward a just-in-time approach that reduces inventory levels and smooths demand. Implementing smaller batch sizes, such as 200 or 500 units, can decrease storage costs, reduce obsolescence risk, and improve responsiveness to demand changes.

Another approach involves flexible manufacturing systems (FMS) that enable rapid changeovers and smaller lot runs while maintaining efficiency. Additionally, adopting vendor-managed inventory (VMI) or collaborating closely with suppliers can help synchronize supply with demand, diminishing the need for large batch orders.

Trade-off Analysis: Overtime vs. Inventory Costs

In the case, Ed Szewczak's overtime work has become a significant variable costing the company extra payroll expenses. Overtime costs are computed at 1.5 times the regular hourly wage, equaling $33 per hour. If Ed works 10 hours of overtime weekly, the additional weekly labor cost exceeds $330. Conversely, producing extra units in advance to avoid overtime incurs inventory holding costs, which are $0.25 per week for parts like part 3079 and $0.75 for finished or subassemblies.

From a cost perspective, increasing inventory levels to meet demand without overtime can lead to higher holding costs, but reduces the need for overtime pay. Conversely, excessive overtime can diminish employee morale and work quality, potentially leading to delays or defects. Optimizing this trade-off involves identifying an ideal balance point where the combined costs of overtime and inventory are minimized.

Implementing an improved MRP that schedules production based on demand forecasts and safety stocks can reduce overtime by aligning work schedules with actual requirements. For example, planning production runs during regular hours or expanding capacity through additional shifts or machinery could lower overtime reliance.

Revised MRP and Comparative Analysis

Based on the initial MRP, potential improvements include incorporating safety stock levels, reducing batch sizes, and implementing flexible scheduling. A revised MRP might schedule smaller, more frequent production runs of subassemblies, aligning closely with demand, thus reducing inventory holding costs and overtime costs. This could be achieved by calculating lot sizes that approximate EOQ or by adding safety stock buffers to account for variability.

The revised plan involves ordering 500 units per week instead of 1,000, with safety stocks maintained for critical components like part 3079. This strategy results in some increase in setup times but decreases average inventory and overtime costs. The balance achieved leads to lower overall costs while maintaining high service levels.

Production Process Types and Operations Management

Production at Space Age Furniture demonstrates characteristics of a batch process, where similar products or components are produced in groups. The manufacturing of micro- wave stands and TV cabinets involves repetitive tasks, with some customization involved. Given the mix of batch and repetitive processes, the primary mode of operation appears to be a repetitive process, supporting high-volume production with some flexibility for customization.

In contrast, a job shop would involve highly customized, low-volume work, which is not evident here. Continuous processing is unlikely since the production involves discrete products with batch operations. Efficient tracking of job status can be achieved through digital manufacturing execution systems (MES), barcoding, or RFID technology, allowing real-time monitoring of work-in-progress, machine status, and job locations.

Recommendations for Enhancing Operations and Customer Value

To further streamline operations, management can adopt lean manufacturing principles, such as Kaizen continuous improvement initiatives, to identify waste and inefficiencies. Implementing lean tools like 5S, value stream mapping, and kanban can improve flow and reduce lead times. Moreover, investing in flexible manufacturing systems (FMS) can support smaller lot sizes without sacrificing productivity.

Enhanced tracking systems and data analytics can help anticipate bottlenecks, manage capacity, and optimize workforce scheduling, reducing reliance on costly overtime. Additionally, closer supplier collaboration, possibly through VMI or integrated supply chain systems, can ensure timely delivery of components, supporting a move toward leaner inventory levels.

Conclusion

Space Age Furniture’s operations demonstrate the importance of integrating detailed MRP planning, efficient batch management, and strategic workforce utilization. Moving towards smaller lot sizes, leveraging flexible manufacturing, and adopting advanced tracking systems can reduce costs, improve responsiveness, and enhance customer satisfaction. The balance between inventory costs and overtime expenditure must be continually monitored, with the goal of establishing sustainable and scalable production processes that align with customer demand and strategic objectives.

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