Case Study Farnray Tools
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Transcript of Case Study Farnray Tools
CASE STUDY ON FARNRAY TOOLS
Introduction:
Farnray Tools is an organization which produces different types of garden tools. The
company started its production by making small wooden handled garden tools such as
trowels and hand forks. But later the company diversified its products to building and
DIY tools and also larger garden tools like spades and hose. With the expansion of the
company it moved to a new location which has more space and its organizational
structure was as follows.
The company has two main suppliers, one for timber handles and the other for forged
metal blades. The timber supplier was a local supplier and delivered the required quantity
at a reasonable price. But the forged blades were bought outside and it required more
time and rather expensive. Other accessories were purchased when they noticed that the
stock was reduced.
The company was doing all its business activities such as accounting, purchasing,
material ordering, marketing & sales activities and administrative activities manually.
They have no proper information flow and no organized system to run their business
effectively.
Farnray Tools has increased their orders due to new market penetration and they have
identified the existing inappropriate and time consuming manual data manipulating
system is reducing their efficiency and the management has decided to implement
computer based system to handle accounting, sales, inventory and payrolls. But even
though the manufacturing department has suggested, the top management has refused to
incorporate PC base technology to Manufacturing Planning.
Questions:
1. What problem evident to Harish?
2. What are the likely difficulties that Farnray will face if they continue to use their
existing system of calculating material requirements?
3. What practical problems will Peter Chan faces?
Analysis:
The above questions arose with the new order received for “Spades” by the client
“Sellecks” which can be considered as twenty times larger than Farnray’s ordinary
clients. The order was spread over several weeks as follows.
Period Quantity
24 30025 20027 40029 500
Since this is a new order for Spades, BOM has to be created by Tony – Managing
Director and he has to establish the economic order quantity (batch size) and inform the
Manufacturing Division, including the planner.
Following figures will illustrate the components required for Spade Manufacturing with
their required quantities, economic order quantity, lead time and available stock.
Level Part Number Description Quantity Order Qty Lead Time On hand (Economic) (Weeks)
0 00289 Spade 1 500 1 3001 10089 Handle Assembly 1 1500 1 3502 10278 Handle 1 500 2 8002 10062 Nail 2 2000 1 01 10077 Shaft 1 400 1 501 10023 Connector 1 700 1 3501 10062 Nail 4 2000 1 01 10045 Rivet 4 2000 1 4001 10316 Blade Assembly 1 200 1 02 10992 Blade 1 200 4 302 10045 Rivet 2 2000 1 400
By considering all above facts, material requirement plan can be estimated as follows.
Part Number - 00289 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 0 300 200 0 400 0 500 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 300 300 300 0 300 300 400 400 400 400Planned order release 0 0 0 500 0 500 0 500 0 0LT
- 1
Wee
k fo
r 50
0 un
its
Part Number - 10089 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 0 500 0 500 0 500 0 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 350 350 350 1350 1350 850 850 350 350 350Planned order release 0 0 1500 0 0 0 0 0 0 0
Part Number - 10278 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 1500 0 0 0 0 0 0 0Schedule Receipts 0 0 500 0 0 0 0 0 0 0On hand inventory 800 800 300 300 300 300 300 300 300 300Planned order release 500 0 0 0 0 0 0 0 0 0
Part Number - 10062 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 3000 2000 0 2000 0 2000 0 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 0 2000 1000 1000 1000 1000 1000 1000 1000 1000Planned order release 2000 2000 2000 0 2000 0 2000 0 0 0
Part Number - 10077 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 0 500 0 500 0 500 0 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 50 50 450 350 350 250 250 150 150 150Planned order release 0 400 400 0 400 0 400 0 0 0
LT -
1 W
eek
for
1500
uni
tsLT
- 2
Wee
k fo
r 50
0 un
itsLT
- 1
Wee
k fo
r 20
00 u
nits
LT -
1 W
eek
for
400
units
Part Number - 10023 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 0 500 0 500 0 500 0 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 350 350 350 550 550 50 50 250 250 250Planned order release 0 0 700 0 0 0 700 0 0 0
Part Number - 10045 21 22 23 24 25 26 27 28 29 30Requirement (gross) 400 400 400 2400 400 2400 400 2000 0 0Schedule Receipts 0 0 0 0 0 0 0 0 0 0On hand inventory 400 1600 1200 800 400 0 1600 1600 1600 1600Planned order release 2000 0 2000 0 2000 2000 2000 0 0 0
LT -
1 W
eek
for
700
units
LT -
1 W
eek
for
2000
uni
ts
Part Number - 10316 21 22 23 24 25 26 27 28 29 30Requirement (gross) 0 0 0 500 0 500 0 500 0 0Schedule Receipts 0 0 0 0 0 0 0 200 0 0On hand inventory 0 200 400 100 300 0 200 100 100 100Planned order release 200 200 200 200 200 200 200 0 0 0
Part Number - 10992 21 22 23 24 25 26 27 28 29 30Requirement (gross) 200 200 200 200 200 200 200 0 0 0Schedule Receipts 200 200 200 200 0 200 200 0 0 0On hand inventory 30 30 30 30 30 30 30 30 230 230Planned order release 200 0 0 0 200 0 0 0 0 0
LT -
1 W
eek
for
200
units
LT -
4 W
eek
for
200
units
Answers:
1. Major Problem which evident to Harish:
Peter Chan & Manufacturing team need 200 units of forged Blades, continuously from 21st,
22nd, 23rd, 24th, 26th and 27th Weeks. If these materials not available on time, Farnray Tools
cannot deliver the product on time.
Countermeasures - Short Term
Steve Barker & Team can ask the existing Blade supplier - Brierley Forgings to deliver
this additional quantity from their existing stock.
They have to find another Blade Supplier, who can provide blades immediately in the
same quality, even though the price is somewhat higher than the existing.
Sales & Marketing team including Steve Barker, can negotiate with the Client -
Sellecks, and ask for extension of the delivery date. This task would be possible since
Sellecks has also identified and shocked by the existing information flow of Farnray.
Countermeasures - Long Term
Tony can increase the batch size of the blades to 1000 units at the same lead time by
considering the capability & the capacity of the Brierley Forgings, hence they have
committed on their capability on handling the extra orders.
Sales & Marketing team can negotiate with the blade supplier and ask them to reduce
their lead time without affecting the existing cost, since 4 weeks lead time is too long
compared to the lot size and it is difficult to meet the delivery dates of new orders.
Farnray Tools is recommended to implement Computerized MRP System since this
will enable to adjust , update and prepare for orders in advance and also enhance fast
decision making.
Other Problems:
1. Peter Chang & the Manufacturing team need to produce 200 extra units of Blade
Assemblies and delivered in the 28th Week.
Countermeasures - Short Term
They can use extra manpower, which was available to cater the extra demand and
produce in a secondary assembly line located in the additional space available in the
facility.
The Farnray Management can outsource Blade assembly Process for a short period to a
outside supplier, who has the capability, machinery and workforce. They can be paid
per piece base.
Countermeasures - Long Term
They can increase the batch size of the Blade Assembly to 700 units at the same lead
time by allocating one more assembly line with trained staff.
2. They need 500 units of Handles in the 23rd Week.
Countermeasures - Short Term
They can ask the existing timber supplier to deliver this additional quantity from their
existing stock.
They can negotiate with the new national firm to deliver this additional quantity, at the
same quality and cost, since they have a lead time of 2 weeks
Countermeasures - Long Term
They can increase the batch size of the handles to 1000 units at the same lead time and
can split the order to the two suppliers.
2. Difficulties that Farnray will face if they continue to use their existing system
of calculating Material Requirements.
When considering the calculation of Material Requirements, Farnray Tools has problems
in following areas.
Lot size calculation
As for an example, to produce 500 units of Spades, 500 units of Hand assemblies
are required. But the optimum order quantity is 1500 units. This requires 1500
units of handles and 3000 number of nails. To accomplish the requirement, lot of
order placing, several transactions, additional transportations as well as huge
inventory level to be maintained. This will add extra cost to the company if the
demand is low. Another example is to produce 500 units of Spades, 500 units of
blades required. Since the lead time of the blades is 4 weeks and the optimal
quantity is calculated as 200 units, there will be frequent stock out situations
which lead to delay in delivery dates.
Improper communication and Manufacturing data Updation
For new products, BOM and the Manufacturing data is created by Tony – the
Managing Director who taking care of entire Manufacturing of Farnray Tools. But
he hasn’t considered the new capacity of the existing supplier as well as the
capabilities of new suppliers who was found by the Sales & Marketing
Department. Therefore no proper information flow is available and it affects the
accuracy of the Manufacturing data BOM and MRP.
Safety Stock
It was evident that the safety stock for each and every item was not defined and
maintained. Even though Farnray Tools has mentioned that they are maintaining
an adequate Safety stock for each item, we would see that no stock available for
Nails and Blade Assemblies. Blades has the longest lead time and small order
quantity compared to other items, the stock was only 30 units. They have to
define the stock and maintain that stock level.
Manual Inventory Management system with Bin Cards
Harish was manually updating the inventory of each item by referring the relevant
bin cards every week. But when the demand is increased considerably, this
process cannot be done easily. Depending on the product category, the type and
the quantity of items will vary and this will lead to calculation errors and stock
out situations.
3. Practical Problems that Peter Chan faces
The company has one Production Planner - Harish Patel, under Peter Chan and
performing following job functions.
- Calculating the purchase requirement
- Inventory Management
- Production Planning
- Raise Work Orders for the Shop Floor
- Raise Purchase orders
His job was quite routine, but he has no assistant staff. He did all the calculations
manually and planned production accordingly. In absence of Harish, for an
example, when he participated for the external training on inventory management,
Peter Chan has to play his role and found difficulties. There was no alternative
or any other trained staff member to replace Harish on his absence.
Even though the Sales & Marketing Director has committed that there were no
capacity issue in Farnray Tools, we found that there is an issue in Blade Assembly
process. As the Manufacturing Manager, Peter Chan has to face this problem and
have to manage it.
With the increase of the demand, Mike has stated that he would provide additional
staff for the manufacturing. But these people are new to the company and Peter
Chan has to give more effort on training them.
Mike – Joint Managing Director, who looks after the Customers, has stated that
they have adequate space for the extra demand. But he has not considered the
adequacy of the machineries and other utilities like power supply, welfare
facilities, plant layout including proper material flow, etc. Peter has to face these
problems.
When the production orders increases, available machineries have to be
continuously used for manufacturing and it is obvious that there may be several
machine breakdowns. Peter Chan has to allocate trained maintenance member/s,
to do the repairing activities quickly and should establish a proper preventive
maintenance schedule with adequate spare parts for the machines.
Peter has to face problems regarding the quality of the final product. Since orders
become higher, quality level of the product get deteriorate with the huge work
load on members. Therefore close follow up, frequent training, work
standardizing are required to maintain the quality standard. And also when new
suppliers are providing materials, their product quality is affecting the final
product. Hence Peter has to manage this issue as well.
Conclusion:
After considering all the problems which Farnray Tools has to face, we found that they
all associated with the existing high documentary, less user friendly manual system.
Farnray Tools can overcome these problems by following short term & long term
alternatives which we have suggested and some problems will be solved with the
computerized system which Farnray is willing to implement.
Hence it is advised to implement a computerized MRP system, to eliminate all the
problems related to production planning and control. If properly implemented, it will
reduce cash flow and increase profitability. That MRP system will provide ability to be
pro-active rather than re-active in the management of inventory levels and material flow.
Following are some benefits which Farnray Tools can obtain by implementing
computerized MRP system.
Reduced Inventory Levels
Reduced Component Shortages
Improved Customer Service
Improved Productivity & Efficiency
Simplified and Accurate Scheduling
Reduced Purchasing Cost
Reduced Manufacturing Cost
Reduced Lead Times
Higher Production Quality with Less Scrap and Rework
Improved Communication
Improved Supply Schedules
Improved Calculation of Material Requirements
Improved Competitive Position