Realco
Johnny Chang has a typical supply chain management problem in his hands. The only silver lining in his dilemma is that he has a steady stream of orders coming in. But apart from that he has no clear grasp of the other aspects of the supply chain management component of his business.
This was brought about by sudden and unexpected success of his company when it began to manufacture and sell Realco’s Breadmaster. The orders kept pouring in for the past two years. Apparently Johnny was busy focusing on marketing and perhaps the technology within them that he did not have time to look into the manufacturing and supply issue of the business.
Two years later the company seemed to be operating on the basis of the demand made during the boom years – it was the time when was a novelty item and the market was not yet saturated with them.
However, in the present time when Johnny Chang studied the inventory levels for this particular item, he was correct to be alarmed when he discovered that there are 7,000 units left in their warehouses. In his opinion this number is too high and the company has to find a much reliable method when it comes to manufacturing only the required units and create an oversupply of the said equipment (Proud, 2007, p.49).
Facts of the Case
The current production cycle is based on the idea that orders are estimated to be around 20,000 units of Breadmaster per week. This is the reason why the manufacturing facility has been churning roughly 40,000 Breadmaster every other week. This is equivalent to 80,000 units per month.
But upon closer examination of the orders that were already listed for the upcoming month Johnny discovered that for the first week the order was 23,500 units. For the second week, the order was 23,000 units. For the third week the order was 21,500 units.
For the fourth week the order was 15,050 units. For the fifth week the order was 13,600 units. For the sixth week the order was 11,500 units. For the seventh week the order was 5,400 units. For the eight week the order was 1800 units.
There are two implications here. First of all, if the estimated order was 20,000 units per week and by deciding to manufacture 40,000 units every other week, the eight week cycle is projected to yield 160,000 units of Breadmasters.
Assuming that on the first week of the eight-week cycle the company was able to produce 40,000 units and still have 7,000 units inventory then at the end of that particular cycle the company has 167,000 units ready for delivery. But the actual demand is less than that. It is clear that there is an oversupply of Breadmasters.
However, there is another problem, on the fourth week the orders began to decline in a significant manner. Thus, using the current production cycle, the company cannot created a significant oversupply in the next five weeks of the production cycle.
Master Scheduling
There are two ways to look at the changes in the demand for Breadmasters. It can be a mere fluctuation and that in the next few months it goes back to the previous levels. In this case the company has no need to modify the master schedule and Johnny can rest easy because it is business as usual.
However, this can be a new trend altogether. It can also be a sign that the company has already saturated the market. Regardless of what happens in the next few months it is important to use master scheduling tools to determine how the company can correctly respond to current supply and demand trends.
The following table would help Realco eliminate guesswork and determine once and for all how to manage their supply chain. In this manner, the company can eliminate waste because it is obvious that if there is excess production, Realco pays for the cost of storage and obsolescence if the same items are not delivered on time.
As predicted the projected available balance is way beyond what the management expected when it comes to surplus. There is an excess of 51,650 units at the end of the eight-week production cycle and that is not a good thing. This is not the proper way to manage the company.
This means added cost when there is no need to spend for additional Breadmasters. In addition, the company spends more money in terms of storages costs. And if the Breadmasters will not be sold in the next few months then the company is also expected to spend an extra amount to cover obsolescence or potential damage to the equipment.
The critical factor here is the tremendous number of units made every two weeks. It was made clear that 40,000 units should not be the base number of units that has to be produced in one production cycle. Based on the actual demand even changing the master schedule to 20,000 units per week would still result in the significant oversupply of Breadmasters in eight weeks.
However, the high demand for Breadmasters in the first three weeks justifies the change to 20,000 units per week. However, management must reduce the number of units that must be manufactured after the fourth week. After the fourth week the number of units must be reduced to 15,000 units per week and then the reduction continues until it matches the actual demand.
Supply Chain Management Techniques at Realco
The strategy to make a promise to deliver a particular number of goods at a particular time frame is a good way to increase customer satisfaction, improve brand image, and most probably enhance customer loyalty. This is good on one condition alone and that is, Realco would be able to deliver on the promises made.
However, an error in estimating actual demand and forecasted demand can create in shortages. The inability to deliver as promised can easily hurt the company’s image. This can even lead to the cancellation of orders.
In the case of Realco the company cannot afford to make this mistake. Based on data given it is best to assume that the company has already saturated the market. It is not the time to damage the business relationship established in the past and endanger the orders placed in the present.
With regards to the question concerning which one is worse: to refuse an order or to make a promise and not deliver, both are pitfalls that must not be avoided. However, if forced to make a choice it would be best to make a promise and not deliver on time.
This is assuming of course that the delay is a matter of days or a few weeks. In this regard the company can offer a discount and other freebies that can repair the damaged reputation of the organization and can lessen the frustration of the customer. But both scenarios are bad for business. A business leader must do his best not to make a pledge to deliver an item and then turned around and fail to do so.
This is disastrous for a company if it keeps failing to deliver. On the other hand an oversupply of Breadmasters can force the company to bankruptcy because it is being made to produce a product in excess numbers and yet the demand is no longer the same as previous levels. This not the prudent thing to do and thus, aside from master scheduling Johnny Chang must hire experts to anticipate future demand for Breadmasters.
Toyota
Toyota is a globally known brand. It is a company with production facilities scattered all over the globe. It has announced its presence to the global market when it debut in the United States in 1957. After that time there was no turning back for Toyota as its core leaders vowed to become the best automotive company in the world.
A few decades later they were able to deliver their promise. From a fledgling manufacturing organization in Japan it has grown to be a dominant force, producing cars, trucks, SUVs, vans and hybrids. At its highest level of success, Toyota has invested billions of dollars into the U.S. economy and there seems to be no sign of stopping although a slowdown has been noticeable as of late.
In difficult times, such as those that is being experienced by Toyota Motors – only those who are ready to adapt to a changing world can expect to compete and win. The challenges and opportunities brought about by globalization is easy to understand and made obvious in news headlines and changes that can be seen happening all around us.
In the business world, especially in the automotive sector, the use of technology to lower production costs has increased the level of competition. This is exacerbated by the needs to lower energy consumption and the sophisticated tastes of consumers.
The giant auto-manufacturing companies in the United States and Europe knew this very well when they discovered that ability of a Japanese upstart company to take away the global dominance that they had been enjoying since cars became an indispensable commodity in the 20th century.
However, the rapid ascension of Toyota to the top has been threatened as of late. The company that revolutionized production systems and has grown itself to take down the global leader in auto sales has realized the difficulty of sustaining tremendous growth.
Recommendations
It has become apparent that Toyota’s success is in the use of lean-management principles as well as just-in-time management strategies (Bell, 2006, p.38). This has been enhanced by their knowledge of Manufacturing Resource Planning or MRP2 and Enterprise Resource Planning or ERP.
The goal of these different systems is to increase efficiency while at the same time reducing waste. There must be an economy of effort as well as the economical use of resources to produce a high-quality product that can be delivered on time.
These are tough standards to follow but Toyota was able to deliver on it promises beginning in the 1980s up to the early part of the 21st century. But a survey of recent headlines gives the idea that the company is struggling to regain its dominance that it experienced two decades ago.
The use of computer-based technologies and even proven management strategies has been the hallmark of Toyota and this has resulted in their unprecedented success according to automotive industry standards. A fledgling Asian company became so successful it was able to influence the whole world when it comes to its revolutionary manufacturing techniques.
A closer look at Toyota’s production strategies would reveal that the company is well-aware of Enterprise Resource Planning and in their case it can be argued that it is simply an improvement of MRP2 (Rowbotham, Galloway, & Azhashemi, 2007, p.89).
This can be interpreted to mean that ERP takes the integration of different system even further, whereas MRP2 deals with the integration of system related to manufacturing and human resources, ERP aims to provide “…one integrated information system for the whole organization using one set of common data” (Rowbotham, Galloway, & Azhashemi, 2007, p.83).
Therefore, in the case of Toyota the following components were included into their ERP: a) customer relationship management; b) human resources; c) operations; d) supply chain management; and e) finance and accounting. However, in order for ERP to work it is imperative that the company has to initiate a company-wide system of training and education in order to prepare their management team to apply the principles of ERP.
The use of ERP techniques would enable Toyota to prepare for sudden increase in demand and yet provide the same level of flexibility when the demand for a particular product slides down. This means a more prudent approach when it comes to the constraints in the production cycle.
This gives the management team the ability to understand the requirements of a particular demand cycle and also prepare them for the unavailability of personnel and materials during the course of the production of a particular product.
If these principles are not taken to heart then Toyota becomes the organization that it has worked hard not to become. The organization can experience a negative transformation and instead of others companies copying their strategies, Toyota would end up copying their style (Shinkle & Smith, 2004, p.81).
It has been proven disastrous in the past and thus this organization has to find ways to rekindle the passion to demonstrate lean management principles, just-in-time management and the much vaunted Toyota way of doing things. It is commonly known as the Toyota Production System or TPS.
The linchpin and the one that keeps the system running is the midlevel Japanese manager commonly known as the coordinator. This was the time when computers are not as sophisticated as they are today. This is also the time when there was no over reliance on automated assembly lines.
Today robots do most of the work. Although Toyota made use of technology, without a doubt it was the masters of TPS that made everything work perfectly. The difficulty of replicating this atmosphere and the creation of a special team to emulate what has been done 20 years ago is the skill-level of the coordinator. A coordinator has 20 or more years of experience.
This is a tremendous challenge because in today’s marketplace it is difficult to have a loyal worker who stays with the company for more than 15 years, much more 20 or more years of dedicated service is rare.
Obviously the first step in the process is to develop an efficient human resource department that can take care of good workers. The HRM must make it their goal to retain the best worker and do what has to be done to make them a part of the Toyota team for many years to come.
The second strategy that can be implemented is to put together a system that can speed up the learning process. Using technology and other management principles it is possible to transfer knowledge and experience that can be had in twenty years of work and yet perform the same process in five years. The company cannot afford to wait another twenty years to mentor and develop top quality leaders or coordinators.
The next thing that Toyota has to do is to study the communication techniques used by coordinators. It has been said that these coordinators are the by-products of a particular culture and that this culture created a certain language that enable them to communicate beyond words.
This is the reason why machines and top executives was not the secret of Toyota but midlevel managers who are called coordinators. This means that these leaders were able to coordinate complicated tasks and inspire people to work closely and efficiently. These are the things that the company has to focus on.
References
Bell, S. (2006). Lean Enterprise Systems. New Jersey: John Wiley & Sons, Inc.
Proud, John. (2007). Master Scheduling: A Practical Guide to Competitive Manufacturing. New Jersey: John Wiley & Sons, Inc.
Rowbotham, Galloway, & M. Azhashemi. (2007). Operations Management Context. UK: Butterworth-Heinemann.
Shinkle, G., L. Gooding, M. Smith. (2004). Transforming Strategy into Success. New York: Productivity Press.