Operations Management Lesson 7 Exercise
For this exercise I have chosen the the assembling of personal computers. Every computer is a mix of spare parts like memory, hard drive, processor, video adapter, mother board etc. Let's assume that we assemble two types of desktops: standard type, and special powerful computers for special orders.
First of all we can classify the spare parts by the type of demand. Those for standard type of PCs will have independent demand. At the same time some special powerful 3-D graphic accelerators will have dependent demand which will depend on the number of special orders for this special computers.
For the spare parts for standard type of computers we can use ROP system to reorder them when inventory level reaches some critical point. This system is sufficient enough for such kind of inventory due to the high turnover of such spare parts and low cost of it's purchase.
For the more complex and powerful specific spare parts MRP system should be used. This system should use a complex of statistical information to plan and forecast peak demand for special computers. Besides that MRP should have an access to the information systems of the suppliers to be able to minimise the costs by purchasing higher quantity and using special promotion programs of the supplier. Third dimension of the MRP should be the cost of keeping the inventory. The mixture of these three dimensions will give us the most appropiate procurement policy.
The mentioned above classification can be used in ABC analysis. Let's devide all spare parts into three classes:
Class A: The most often used spare parts like wires, memory etc. The inventory cost is not high. Inventory turnover is high. ROP system should be used.
Class B: Often used spare parts like CPUs, HDDs, Standard Video adapters. Inventory turnover is medium. Mixture of ROP and MRP can be used.
Class C: Rarely used spare parts like complex 3-D accelerators and powerful video adapters. MRP should be used due to the complex forcasting of demand and procurement planning.