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Case Study (A CASE IN PRODUCTION HOLD-UPS & DELAY DUE TO SHORTAGES & NON AVAILABILITY OF PARTS & COMPONENT MATERIALS IN TIME) BEEL is a large manufacturer in the private sector of a complete range of earthmoving equipments like tractors, excavators, dirt-movers, shovels as well as heavy & light-duty cranes and fork lifters, with a considerable amount of capital outlay and foreign collaboration. It has manufacturing facilities for almost all the parts & components used in the equipment, barring a very few items. Its production controller, who has joined the company, very recently, shortly recognized that shortages and non-availability of parts and component materials in time of the assembly line is a major problem in the production & control department. It is not only the main reason for the production hold ups & delays, but also costs the company thousands of rupees in terms of excessive labour costs, which account for idle labour and machine downtime costs. In an attempt to shoot out the problem, he decided first to get a probe into a procedure for make or buy of the company. Enquiries made at the costs of parts & works accounts department revealed that actual costs of parts & components varied greatly from one production run to another for many reasons, the chief one thing that during the assembly time many parts & components needed were either in short supply or not available at all consequently, rush orders on machine shops for manufacturing these parts were made, which upset the production schedule. A further probe revealed that marketing department of the company usually forecast sales of parts & equipment sufficiently in advance, which varied from 10 to 12 months in advance. The production control department prepared a bill of detailed parts & component requirements, adding a percentage allowance for spoilages: 1.5% for major parts, 2% for intricate parts and 2.5% for minor ones. Quantities on inventory were then compared with this bill and in order to bring the inventory of each item to the required level, the balance quantity was either purchased or manufacturing orders issued. Costs and works department had so far followed a practice of allowing excess labour costs due to shortages of parts & components on the assembly line to be included in the budget labour cost. On the receipt of a report from the new production controller, the management of the company requests you to devise a suitable inventory control system so that this excess labour cost and resultant production hold ups or delays due to parts & component shortages on the assembly line can be eliminated. Can you recommend a solution balancing inventory carrying costs & costs of the idle labour, time & production delays?
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