Operations Management Case Study
Murthy, vice president of manufacturing for ToysPlus, Inc., finished reading the weekly production report for the week ended January 27, 2012. Inventories were up once again, and service levels were lower than expected. Murthy wondered why these problems could not be solved once and for all. Last year he had installed a new IBM production and inventory control system on the company’s mainframe computer. While the system drastically reduced inventories and improved service levels at first, things had gotten worse over the last few months. Murthy took the report and walked to Asha’s office next door. Asha had received her M.B.A a few years ago from I.I.M. Bangalore and was now in charge of production control for the company. After exchanging the usual greetings, Murthy asked Asha why the latest figures were not better. Asha responded, “Murthy, we continue to get poor forecasts from marketing, and we have to carry more inventory than we would like in order to protect ourselves from unreliable vendor deliveries. The sales promotion that we ran last week on surplus toy trucks did not work as well as we expected.” Murthy interrupted, “Asha we can no longer afford to achieve these kinds of results. You have got to find a solution. I am counting on you to come up with something to improve the situation. Otherwise we may both be out of a job.” BACKGROUND
ToysPlus is a small, privately held company in the toy industry, with sales of about Rs. 10,05,000 a year. The company was started in 1951, manufacturing an innovative line of plastic toys and trucks that were very durable and low-priced. Over the years it has added several lines of toys and is now making 22 different toys, including games, dolls, toy vehicles, and novelty items. The company has a typical functional organization, as show below. Finance/Acct, Ramu
Quality Control, Priya
Production Control, Asha
Process Engr, Niaz
ToysPlus has had relatively poor financial results, as shown in the Financial Statement. Profits are only averaging 5 percent of sales, and return on assets is less than 10 percent. To improve the situation, the company has decided to make a major effort to reduce inventories and to improve customer service. In an effort to reduce costs, the company has begun to redesign the toys for manufacturability and automate its production process. The company feels that unit production costs could be reduced at least 5 percent per year by these efforts. The company also wants to achieve at least 15 inventory turns per year1 and a service level of 95 percent. Service level is defined as the percentage of orders filled within one week of customer order. The current service level is 90 percent. Manufacturing operations are organized around the different types of toys that are manufactured. Each type of toy has its own assembly line and its own dedicated workers. For example, three plastic toys – trucks, autos, and robots – are assembled on line 1. Only one toy can be assembled at a time on this line; then there is a changeover to the next toy. Currently, line 1 has 10 workers who engage in assembly, inspection, and packing of the toys. Some of the parts that are assembled into the finished toys are made on the company’s plastic-molding machines. Other parts are purchased from outside suppliers. Production control is based on the IBM MRP system. Every week a master schedule is prepared for the next six weeks. This master schedule specifies for assembly line 1, for example, the number of trucks, autos, and robots that will be produced in each week, as shown in Exhibit 1. Forecasts of weekly demand are received each week from marketing. Based on past experience, these forecasts are adjusted by Asha to reflect more realistic estimates of demand. She also utilizes the lot sizes shown in Exhibit 1 master schedule...
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