A-CAT) was a mid-sized manufacturer and distributor of domestic electrical appliances, catering primarily to the price-sensitive rural population in India. The firm operated two medium-sized

supply chain case study

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S w W12868 MATERIAL REQUIREMENTS PLANNING AT A-CAT CORP. Dr. Jitendra Sharma and Tinu Agrawal wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright ? 2012, Richard Ivey School of Business Foundation Version: 2012-04-11 Sunita Menon was sitting at her desk considering a perplexing problem. She was supposed to meet with Shirish Ratnaparkhi, her operations manager at A-CAT Corp., and discuss her ideas for curbing production costs. As a post-graduate of an inventory management course, Menon had thought of many avenues to cut costs. June 10, 2011 was her first general meeting since she had joined the company 12 days earlier. For five days, she had been crunching numbers, trying to find some new way through the techniques she had learned at business school. Though the task at hand had seemed very simple to her when it was assigned, it was only during these last few days that she had come to understand the real implications of various trade-offs. Menon now worried that this seemingly straightforward task could result in significant profit or loss for A-CAT Corp. COMPANY BACKGROUND A-CAT Corp. (A-CAT) was a mid-sized manufacturer and distributor of domestic electrical appliances, catering primarily to the price-sensitive rural population in India. The firm operated two medium-sized facilities in a remote district in Vidarbha, a relatively undeveloped region in Maharashtra, one of Indias most progressive states. Rather than compete with large-scale operations prevalent in the industry, A-CAT preferred to focus on the rural segment. Management believed there was more scope for success within this segment of the market and in the past, this belief had been proven right. A-CATs manufacturing units had been in operation since 1986. Currently, the company had annual sales of Rs6,000,000 US$120, 000 and had about 35 employees. A-CAT manufactured a wide range of electrical appliances for household use, including television signal boosters, transformers, FM radio kits, electronic ballasts, battery chargers, voltage regulators, etc. The companys broad range of products catered to rural, low-income customers in and around the district. For the exclusive use of V. Cheung, 2023.This document is authorized for use only by Vance Cheung in Operations planning and control 22-23 taught by Enar Tunc, California Polytechnic State University – San Luis Obispo from Nov 2022 to May 2023.
Page 2 9B12D003 BACKGROUND OF THE PROBLEM Menon was assigned the task of preparing the operating plan for the next eight weeks for the product P0110, which was a regular order. P0110 was an assembly of two P0X units and two P0Y units. Each P0X unit required four P1X1 units and three P1X2 units. The final product had a unit price of Rs200. When Menon checked the store inventory, she found 240 P0110 units already in stock. The requirement for the first week was just 400 units, which was easily manageable based on current stock. However, the basic problem Menon faced was not deciding how much to produce to be able to meet the requirements, but deciding how to produce economically, taking into account the forecasted demand of the product. Menon knew that in order to decide, she would have to depend on some techniques and systems that she had learned as a business student. MATERIAL REQUIREMENTS PLANNING The primary goal of the material requirements planning (MRP) system was to develop a detailed time-phased plan for when to place purchasing orders for raw materials and to determine how much material to order. The systems effectiveness depended on the inventory position and policies, the bill of materials and the demand requirements for finished goods and components. Bill of Materials Menon prepared the bill of materials, which was a relatively simple task as there were only two components in level one and two more in level two. The final product at the top of the structure is always leveled zero. The level number increases as we move down the product structure. The final product P0110 has three levels of assembly. (see Exhibit 1). As P0110 was a regular product, she did not have to worry about the design aspect. She knew that one unit of P0110 required an assembly of two P0X units and two P0Y units. Each P0X was, in turn, assembled by putting together four units of P1X1 and three units of P1X2. Product Structure Diagram To better explain the product structure diagram she had created, Menon included the levels zero, one and two to indicate the three stages involved in manufacturing P0110: the product assembly department, the sub-assembly section and the machine shop (see Exhibit 2). She added the manufacturing lead times to the diagram required to produce the components; she tried to include the processing time, set-up time, transit time and wait time while computing the lead times. Master Schedule After clearly outlining the product cost structure, the next job at hand for Menon was to prepare the master schedule. This schedule would indicate the number of P0110 units required to be assembled for the next eight weeks. By following the pattern set in earlier master schedules and studying market demand forecasts in detail, Menon was able to finalize a master schedule (see Exhibit 3). For the exclusive use of V. Cheung, 2023.This document is authorized for use only by Vance Cheung in Operations planning and control 22-23 taught by Enar Tunc, California Polytechnic State University – San Luis Obispo from Nov 2022 to May 2023.
Page 3 9B12D003 On Hand Inventory A-CAT had witnessed a significant decrease in sales owing to a number of factors that had occurred just before Menon joined the company. This was reflected in higher-than-normal levels of on-hand inventory. As a student of inventory management, Menon was able to relate this element of the problem. She decided to align the on-hand inventory with the demand forecast and develop the method needed to optimize production (see Exhibit 4). Costs Associated With very little time at her disposal, Menon could not calculate the optimum carrying or set-up costs. She instead went to the accounts department and collected records of the current inventory carrying and set-up costs (see Exhibit 5). DILEMMA After collecting all the necessary data and working on the task for five days, Menon reached different solutions by applying different techniques. For every lot-sizing technique that she applied, she reached a different answer. Finally, she decided to send all of her work to a colleague who was skilled in operations management; Menon was now waiting desperately for his call before she received the receptionists nod to enter the boardroom for her meeting with her operations manager. For the exclusive use of V. Cheung, 2023.This document is authorized for use only by Vance Cheung in Operations planning and control 22-23 taught by Enar Tunc, California Polytechnic State University – San Luis Obispo from Nov 2022 to May 2023.
Page 4 9B12D003 Exhibit 1 BILL OF MATERIAL ITEM NO PART NO QTY LEVEL LEAD TIME ON HAND INVENTORY LOT SIZES 1 P0110 1 0 2 240 613 2 POX 2 1 1 500 1,226 3 POY 2 1 1 340 1,839 4 P1X1 4 2 1 500 2,452 5 P1X2 3 2 1 600 1,839 Source: A-CAT Corp. and case authors. Exhibit 2 PRODUCT STRUCTURE DIAGRAM Source: A-CAT Corp. and case authors. Exhibit 3 MASTER SCHEDULE WEEK 1 2 3 4 5 6 7 8 WEEKLY NET REQUIREMENTS 400 350 300 450 300 450 225 525 Source: A-CAT Corp. and case authors. P0110P0XP1X1P1X2P0YFor the exclusive use of V. Cheung, 2023.This document is authorized for use only by Vance Cheung in Operations planning and control 22-23 taught by Enar Tunc, California Polytechnic State University – San Luis Obispo from Nov 2022 to May 2023.
Page 5 9B12D003 Exhibit 4 INVENTORY LEVELS OF COMPONENTS ITEM INVENTORY P0110 240 P0X 500 P0Y 340 P1X1 500 P1X2 600 Source: A-CAT Corp. and case authors. Exhibit 5 COSTS ASSOCIATED ITEM COST PER UNIT (RS) SET UP COST (RS) P0110 200 500 P0X 65 400 P0Y 35 350 P1X1 05 430 P1X2 15 400 Inventory carrying cost = 0.5 per cent. Source: A-CAT Corp. and case authors. For the exclusive use of V. Cheung, 2023.This document is authorized for use only by Vance Cheung in Operations planning and control 22-23 taught by Enar Tunc, California Polytechnic State University – San Luis Obispo from Nov 2022 to May 2023.

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