Vinod Gupta School of Management

ERP MICSS
Assignment - 1
Swati Arora (09BM8032)
Piyush Anandani (09BM8035)
Current Position of the Company:

Marketing:

Marketing is the process by which companies create customer interest in goods or services. It
generates the strategy that underlies sales techniques, business communication, and business
developments.

The on time performance of products A1, B1, C1 of the company is quite high and the reputation is
100%. The sales follows a seasonal pattern which increases from April to October and then goes
down, from January to March there are no clients. Most of the marginal Profits are due to B1 and C1,
and that of A1 is negligible.

Production:

A typical production cycle is shown

alongside.

On an average raw material costs are about 50% of sales and contribute to 70% of the production
costs. Units consumed are about 10-20% when compared to the total units in the inventory. Idle
time of Machines is high, close to 70% in some cases. The processing times in some months are
down to about 20% which is a huge waste of resources. The Idle times for the machines are very
high, about 70% in some cases. C1 takes highest time to produce and A1 takes lowest time to
produce. The current raw material release policy is based on MRP. The current loss is $131,639.

Purchasing:

Purchasing is one of the most crucial activities as it is a significant cost driver for the firm.

The current Reorder point is almost half the maximum inventory of raw materials. Current
Purchasing policy is made to Stock. Lead time of Supplier 1 is 4 times when compared to Supplier 2.
The current production policy is made to Order. Planning is carried out on a weekly basis. The
production costs are 80% of the Sales. Indirect Costs are 27% of the Sales. The Work Order policy is
one of complete work order and to save the setups till it’s done and finish the entire work order
before moving on to the next one.
The Conflict: Production costs are very high around 80%. There are conflicting policies in Purchasing
and Production - made to stock in purchasing and made to Order in case of Production. Inventory
Carrying costs are also very high. Marginal Profit of A1 is 0.87%, which is very low when compared to
B1 and C1.

Strategy to make profit:

AIM : Decrease inventory costs, increase prices, increase machine utilization, make production more
efficient.

Marketing: In months of low demand, we will make to stock. The Quoted lead time (QLT) has been
reduced to 25 days to increase the number of orders which is perfectly in tune with the maximum
supplier lead time of 12 days. The marginal profits derived from A1 are measly and the price has
been increased to 510 which are just enough to prevent it from eroding the reputation of the
company.

Production: In months of high demand, WO acceptance is made partial to meet demand dates. The
Planning frequency has been kept unchanged but the batch size has been reduced to 45. The
Dispatch policy has been changed to EDD to make sure on time delivery. The frequency should be
reduced further for designing a more micro level strategy and generating more profits by adding
extra shifts where necessary and balancing the load on machines as required. To reduce the
Inventory carrying costs, the reorder points are reduced to half of their original values. B1 and C1
prices have also been increased to drive the profits up without changing the market share. The
contract shipments start date has been changed to 32 days prior to the due date. This allows us to
process more orders rather than getting stuck up on a single contract. The Raw Material release has
been changed to immediate release, as Inventory costs are not affected by this. This would also help
the company cater to the demands at the earliest due date.

Observations : After simulating the workings of the company for two year, we obtained these
results.

 The Idle times of the machines dropped drastically and the process times were all near
about 60% on an average.

 The Net profits increased to $155,565 from -$131,639.

 The production costs reduced from 80% to about 71%.