Case Study U.S.

Strollers
A. Synopsis

B. Analysis or Answer to questions.
evaluate current system
find alternative methods
evaluate each alternatives
choose one of the alternatives
C. Terminologies
1.

Master Production Schedule (MPS, )

2.

MRP (Type I : Material Requirements Planning, )

3.

A minimal inventory control system that releases manufacturing and purchase

orders for the right quantities at the right time to support the master schedule.

Inventory TurnOver ()

4.

schedule (usually weekly) for the end item production.

4558
=

3.2
1424
3418
=

2.4
1424

EOQ (Economic Order Quantity, Economic Production Quantity)

maximum inventory level : Dx

total inventory cost = inventory holding cost + ordering cost (setup cost)

TC = iC
Q*

Dx
D
1 D / p
D
S iC
QS
2
Q
2
Q

2SD
iC (1 D / p )

For Regular stroller (Lotsizing rule is Lot-For-Lot)

setup time = 4.2 + 2.4 + 1.6 + 0.5 + 2.3 = 11 hour, setup cost = $15 * 11 = $165

manufacturing cost = $21, inventory holding cost = .25 / yr

weekly demand = 5400 / 52 = 1040,

EPQ for Regular =

weekly production rate = 2500

2 165 54000
2410.8
.25 21 (1 1040 / 2500)

1.

Safety Stock (s)

5.

GT (Group Technology, Cellular Manufacturing)

a manufacturing philosophy in which the parts having similarities are grouped

together to achieve higher level of integration between the design and
manufacturing functions of a firm

D. Answers
1

Current situation

U.S. Stroller is a manufacturer and distributor of a line of baby strollers.

3 types of strollers are :

regular model : $49, annual sales 54,000

deluxe model : $99, annual sales 24,960

shopping center model : $149, annual sales 27,040

sales can vary by 25%

market share 40%, Japanese companies have just entered the US market with a
low-priced stroller that emphasizes quality and reliability of design

Poor profit after tax (only 2% of the sales, 91/4558=.02)

2

6.

Currently the company uses an MRP system.

Now considers JIT and GT.

Explanation of EXHIBIT 7

a)

Shopping for Week2

average of setup times = 11 / 5 = 2.2 hour

available time = 5 (days) 1150 / 2000 * 5(days) 2(hours) / 8 = 1.875

scheduled production = 1.9 * 1800 / 5 = 684

b)

Shopping for Week 3 = 960 (EOQ) 684 = 276

c)

Regular for Week 3

available time = 5(days) 276 / 1800 * 5(days) 2(hours) / 8 = 3.98

scheduled production = 4 * 2500 / 5 = 2000

d)

Regular for Week 4 = 2400 2000 = 400

e)

Shopping for Week 4

available time = 5(days) 400 / 2500 * 5(days) 2(hours) / 8 = 3..9

= 4(days) 1150 / 2000 * 5(days) 2 (days)/ 8 = 0.875

scheduled production = 0.9 * 1800 / 5 = 324

Discuss pros and cons of the two options

Option 1 (JIT)

Three assembly lines. Each process divides equipment for dedicated use.

1 Tube cutting, 1 tube bending, 1 Tube drilling machine need changeover.

pros :

setup is not necessary. master schedule is frozen to 2 weeks

finished goods inventory from 80 days to 15~30 days

inventory cost $765,000 to $210,000 (765 x 22/80), savings $555,000

WIP inventory from 4 weeks to 2 weeks

inventory cost $322,000 to $161,000, savings $161,000

Raw materials from 12 weeks to 2 weeks

inventory cost $337,000 to $56,000, savings $281,000

reduced inventory : $997,000 (three quarter of current $1,424,000)

Holding charge = 997.000 * 0.25 = $249,250

lead time 2 weeks shorter response time better customer service

dedicated assembly line better quality

Layout : Exhibit 9
3

Storages for purchased parts and tube can be eliminated

7.

8.

cons :

purchase of 2 assembly lines ($200,000) == lose production during changeover

more training and management required, cooperation with supplies is needed

lose flexibility

Layout : Exhibit 9

1 Tube cutting, 1 tube bending, 1 Tube drilling, and Wood cutting still
needs changeover.

Option 2 (cell production)

One manufacturing cell for each product.

1 Tube cutting, 1 Tube bending, 1 Tube drilling machine need to be purchased.

pros :

same savings in inventory cost

visual control possible, takes less space

throughput might be even faster less lead time better service or further
savings

quality will be better

cons :

additional equipments ($150,000)

more training required

lose flexibility more

Impact on MRP system

pull system does not make MRP system necessary

MRP cannot control the shop floor (not perfectly agreed)

MRP is needed only for major events such as changes in demand or product design.
If the sales are stable as forecasted, we can think of a new system.

Which option to recommend?

proceed with option 1 and then move to option 2, if demand and product changes
are relatively stable

After implementing option 1, they will have time to evaluate whether a further
move to option 2 is also desirable.