Case Study 8: Material Requirements Planning and ERP
Auto Parts, Inc.
Auto Parts, Inc., is a distributor of automotive replacement parts. With no manufacturing capability, all the products it sells are purchased, assembled, and repackaged. Auto Parts, Inc., does have extensive inventory and assembly facilities. Among its products are private-label carburetor and ignition kits. The company has been experiencing difficulties for the last 2 years. First, profits have fallen considerably. Second, customer-service levels have declined, with late deliveries now exceeding 25% of orders. Third, customer returns have been rising at a rate of 3% per month. Phil Houghton, vice president of sales, claims that most of the problem lies with the assembly department. He says that although Auto Parts, Inc., has accurate BOM indicating what goes into each product, it is not producing the proper mix of the product. He also believes it has poor quality control, its productivity has fallen, and as a result, its costs are too high. Treasurer Dick Houser believes that problems are due to investment in the wrong inventories. He thinks that marketing has too many options and products. Dick also thinks that purchasing department buyers have been hedging their inventories and requirements with excess purchasing commitments. Assembly manager John Burnham says, "The symptom is that we have a lot of parts in inventory, but no place to assemble them in the production schedule. When we have the right part," he adds, "it is not very good, but we use it anyway to meet the schedule." John Tolbert, manager of purchasing, has taken the stance that purchasing has not let Auto Parts, Inc., down. He has stuck by his old suppliers, used historical data to determine requirements, maintained what he views as excellent prices from suppliers, and evaluated new sources of supply with a view toward lowering cost. Where possible, John reacted to the increased pressure for profitability by emphasizing low...
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