Identification of Problems
The T facility has a single major customer to whom over 98% of its production is sold out. Shipments to this customer are covered by long term contract. As per the terms and conditions of this contract, facility requires virtually the same quantity to be shipped every production day. The remaining 2% of the business is opportunistically scheduled when time, materials, and facilities permit. Warehouse facility for incoming parts and materials is not arranged in the T & P facilities. In the P facility there is a single customer for the entire products. The shipments of products to the customer are covered by a long term contract. The long term contract and single customer is not favourable for expansion of the business. Due to the single customer for the entire products all the needs and expectations of the customer about the product have to be realised by the manufacturers. Pricing decisions on products cannot be independently taken by the facilities due to the single customership. Due to the lack of warehouse arrangement in T & P facilities, the incoming parts and materials related to these facilities are required to be warehoused in the S facility. Parts required by the T& P facilities are manufactured by the S facility. These factors necessitate shipments from the S facility to the other two facilities. The distance between the T & P facilities and the S facility results in higher cost of shipments between these facilities. On every operational day 8 semi-trailer load shipments are carried from the S facility to the T& P facilities. Thus the cost of shipments of materials to and from the warehouse in S facility results in increased cost of operation. In case of delay in transhipment of material it will badly affect the regular operations in the T & P facilities. The inventory control cannot be properly carried on by these facilities due to the warehousing and transhipment problems.
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Significance of Problems
Due to the single consumer for the product of T facility, 100% of the production capacity of the facility is not exploitable for them. 2% of the total production capacity is used only opportunistically. Total plant capacity should be effectively used for reducing the fixed operating cost per product. Transhipment of materials between the S facility and the T & P facilities lead to higher transportation cost and this increases the operating cost in the facilities. Reduction of operating cost is important for increasing the profitability of the business.
Due to the long term contract with the single customer for the product, the facility is not capable of increasing the product price corresponding to the increase in operating cost. Requirements of same quantity of products on all the days is not a favourable factor for the business. In case of deadlocks in the business operations, it will adversely affect the contract with the customer. Due to the distance between warehouse and the T & P facilities, transportation problem in the material transhipment would affect the entire operations in the T and P facilities.
“Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily and protects production if problems arise with supply chain.” (Stock Control and Inventory: Introduction).
Relative Benefits of Solving the Problems
Warehousing arrangement is required in the T & P facilities for reducing the need for transhipment between the S facility and the T & P facilities. Through this, inventory and materials management can be effectively carried on. ”In order to maintain control of plant materials, equipment, tools, and supplies, an inventory control system is needed. A plant material inventory system is designed to provide management with information for making managerial decisions regarding production, sales, and demand trends.” (Hall).
Warehousing arrangement near the facilities will be helpful for maintaining the flow of production uninterruptedly. Proper inventory control and management is possible through this arrangement.
- Hall, Charles L. Managing Plant Material Inventory. 2009.
- Stock Control and Inventory: Introduction. Business Link: Practical Advice fro Business. 2009.