Supply Chain Management: Inventory Management Paper

You work for a manufacturer in the automotive industry. The company has been in existence for
ten years and is not doing very well. You know if you can get a contract with Ford Motor
Company things will greatly improve from a financial stand point. However, before the company
can approach Ford about doing business you must take close look at your company and make
improvements to reduce costs and improve quality. You know you are losing money and your
outdated processes and management practices are contributing to your problems. You brought
in a management consultant to assess you situation. The consultant made the following
observations.
Inventory – The consultant found that you are carrying a 3 month supply of your most expensive raw material. You have two weeks supply of the shop floor, 2 weeks in the main warehouse and
2 month supply in a rented off site warehouse. He analyzed the inventory costs associated with
this raw material. Costs are as follows:
Annual Usage – 16,000 units
Ordering Cost – $50 per order
Carrying Cost- $2.50 per unit
Products and Manufacturing Processes – The consultant took a look at your product line and
your production process and made the following observations. The company produces one main
product for the automotive industry. That product is the aluminum luggage rack that are on the
top of certain SUV’s. No other products are produced. The plant is using simple metal bending
and stamping equipment. The fixtures used to create the product on this equipment are
inexpensive. The plant also has an anodizing tank where one of two colors, gold or bright
aluminum is applied. The plant operates one shift per day, five days per week. Productivity is low
due to the time it takes to change colors in the anodizing tank. The plant has been modified and
added on to numerous times in the past ten years. As business grew walls were knocked and
space added. Because of this the manufacturing flow is disrupted and excessive work-in-process
inventory is built up. This addition inventory is taken to storage by a forklift.
The company utilized an assembly like process in making the product. The workers are in a
union and there are tensions with management. The main source of this tension is due to the
unwillingness of the union to allow workers to be crossed train for other jobs in the factory.
Quality Assurance – The company has one person in quality control. This person is an Industrial
Engineer and has had training Statistical Quality Control methods. The most important step in the manufacturing process, coating thickness, uses control chart to monitor the process. This
process is in control and has a calculated standard deviation of .05. The process mean is .8.
Ford has set an upper specification limit of 1.0 and a lower specification limit of .7. Ford also
requires a Cpk value of equal to or greater than 1.33. This is the only process in the plant that
uses statistical process control. Other process including bending and hole punching are
experiencing defect rates of 1%. That equates to 10,000 defects parts per million produced.
YOUR ASSIGNMENT – You have been assigned the task of addressing the issues found by the
consultant. These issues must be addressed in the form of a report to management – just listing
answers to these questions is not acceptable. Charts can be inserted if necessary.
1. What is the most economical quantity of inventory to order? How many orders will you need to
place each year?
2. Are you carrying the proper amount of inventory of your main raw material? Why or why not?
3. How can proper inventory management save the company immediately?
4. What recommendation would you make regarding product mix? If you expand the line, what
type of product would you add and why?
5. What would you recommend to reduce the time it takes to change colors in the anodizing
process.
6. Where do you find waste that can be eliminated to make the process leaner?
7. What can be done to improve labor relations in order to allow management to redesign the
manufacturing process?
8. How would you improve the manufacturing process to improve productivity?
9. What quality tools area available to improve the defect rates at the bending and hole punching process?
10. As it currently stands can the company produce product that meets Ford’s specifications?
Why or why not?
Grading Criteria – Each item is worth a maximum of ten points. Be as detailed and specific as
possible with you answers.