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




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



LT -

1 W

eek

for

700

units

LT -

1 W

eek

for

2000

uni

ts



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.


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.


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.


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


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

Case Study Farnray Tools

Documents

Transcript of Case Study Farnray Tools