Chiang Kai Shek College

Faculty of Business, Arts and Science

In Partial Fulfilment

of the Requirement for the Course

of Production Management

Submitted to:

Professor Antonio Rowel

XYZ Product Company

Case Study

Submitted by:

  Hong, Emmanuel
Intia, Patricia Camille
Tan, Reyshel Joy
Tangpos, Celine Rose
Case Overview
           XYZ company is a supplier of gizmos for large computer manufacturer,
they produce 3 different models of gizmos namely X, Y and Z and they can
produce 100 to 300 units per month.  The demand for gizmos per month ranging
between 125 to 175 units per month.

Company information to consider:

● Scrap rate is about 10%
● Inventory turns twice yearly
● Employees turn-over is 25% per year
● Stable net income 5% per year

XYZ company also order from multiple suppliers that is about 80 vendors and
who delivers at random times. The manager of the company mentioned that he is
pleased with the high utilization of the equipment and labor yet  he is worried
about the idle time of milling machine.
The manager is planning to adopt an MRP system together with setting up a
rework line and hiring three inspectors to clean up quality problem.
Material Requirement Planning (MRP) is an inventory control, production
planning and scheduling system used to manage manufacturing processes. The
MRP systems are usually based on software but possible to conduct by manual
process or by human hand.

Functions of MRP:
● Helps plan in purchasing, delivering schedules, and manufacturing
functions.
● Ensuring the availability of the materials for production purposes, as well
as the products for customers.
● Minimizes waste by maintaining only the possible materials and product
level in stock.
I. Time Context
Present Time.
There was no time context stated in the case yet it was clearly stated that
the XYZ is supplying for a computer manufacturer indicating that technology is
already advanced and modern so the group assumed that it is in the present
time.

II. View point

          The group used the point of view of the operations manager of the XYZ
Company.

III. Statement of the Problem

How to improve the production system of XYZ Company?

IV. Statement of Objectives

Short Term:

1.   Increase profit by 5%

2.   Reduce scrap rate

3.   Reduce employee turnover rate by 10%

Long Term:
1. Continuously improve the company’s quality control
 V. SWOT ANALYSIS
      

Strengths: Weakness:
● High utilization of most of the ● High scrap rate. (0.25)
equipment. (0.4) ● High employee turnover. (0.25)
● Capable of satisfying the ● Idle time of milling machine. (.1)
 demands. (0.2) ● Steady Profit. (0.10)
● Location (0.4) ● Multiple suppliers(.15)
● No fix delivery schedule of raw
material.(0.15)

Opportunities: Threats:
● Technology Advancement. (0.6) ● Replacement by other product.
● Increasing demand of gizmos due (0.5)
to the increase number of ● Competitor's higher benefit(0.30)
computer manufacturer.(0.40) ● New competitors enters the
market. (0.20)

Internal
Strengths:
● High utilization of most equipment -  According to the manager, he is pleased
with the high utilization of most equipment and labor. High utilization of
equipment can result to lower cost per unit making the company more
competitive.
● Capable of satisfying the demands -  XYZ company can produce three different
products ranging from 100 - 300 units which is more than enough to satisfy the
demand of gizmos ranging to 125 - 175 units per month.
● Location of XYZ Company – XYZ company is located a few miles away from their
customer making it their competitive advantage. Due to its good location, quick
deliveries can be made and they can be cost efficient in their transportation cost.
Weaknesses:
● High Scrap Rate -  XYZ company has a 10% scrap ratio in each of their
production. This results to wasted resources like materials, time and labor.
● High employee turnover –  The employee turnover ratio of XYZ company is 25%
far from the average employee turnover of Metro Manila which is 10.88% only.
This means that XYZ company has a large number of employee who leaves
every year. Losing employees might lead to additional expenses due to the need
of training of newly hired employees. The company might also lose skilled and
well-trained employee. According to HR in Asia, 7.94% of employee quit their
jobs while 2.94% are terminated.
● Idle time for milling machine –  The milling machine set up time is 60 minutes
while the operation is only 20 minutes.  This process only involves product Z. If
supposed that the company is making X and Y, the milling machine will be idle
resulting to an unutilized time due to the long set up time it requires.
● Steady Profit - It was mentioned in the case that the company has a steady net
profit of 5% annually. It is an indication that the company is not growing. For the
company has a limited money for research improvement, advertising and etc. It is
also not attractive for investors for they want immediate or growing return of their
investment.
● Multiple Suppliers -  Multiple suppliers of XYZ company might result of
inconsistent quality of the product.
● No fixed delivery schedule of raw materials -  No fix delivery schedule of raw
materials might result in slowing the production process if the material needed is
not delivered on time.

External
Opportunities:
● Technology Advancement – Technology makes the company more competitive
since it can improve production and lessen the labor which can result to cost
 minimization. Advancement in technology gives you bigger share in the market
because the company meets greater demand.
● Increasing demand of gizmos due to the increase number of computer
manufacturer- As the time goes by the need for computer is also increasing thus
the expansion of a business generates a bigger profit. XYZ company can
produce more product for other computer manufacturers, since they exceed the
demand of their customers

  Threats:
● Replacement by other product - when companies find better opportunities with
other competitors, they could easily change their partners.
● Competitor's higher benefit- Employees who leave your company take with them
the knowledge, experiences, training, expertise that they get while working in
your company, this also means loss of money, time, and effort for the company.
● New competitors enters the market- the more competitors enters the market the
possibility of lesser market share also increases.

VI. Alternative Courses of Actions

1. Design and execute an effective MRP system by outsourcing

2. Hire and train quality inspectors
3. Adopt and implement an effective performance based employee reward system
 VII. Analysis of Alternatives

1.   Design and execute an effective MRP system by outsourcing

Advantages Disadvantages

● Better inventory control ● High implementation cost

● Proper schedule of inventory ● Time consuming
repurchases ● Low adaptability of employees
● Reduction of cost such as storage and
security cost

2.   Hire and train three quality inspectors

Advantages Disadvantages

● Quality assurance ● High cost

● Decrease scrap rate ● Time consuming
● Proper utilization of available ● Conflict among employees
resources
● Enhances worker effectiveness

3.  Adopt and implement an effective performance based employee reward system

Advantages Disadvantages
 ● Reduction of employee turnover rate ● High cost
● Reduction of training costs ● Reward or incentive focused
● Retention of skilled and knowledgeable rather than quality focused
employees ● Motivation issues or
dissatisfaction

ACA Practicality Cost Attainability Productivity Sustainab Total

Efficiency ility

W 10 W 20 W 20% W 25% W 25 W 100

% % % %

1. Design and .15 9 .10 17 .20 16 .25 23 .30 25 1 90

execute an
effective
MRP system
by
outsourcing
2. Hire and .10 7 .10 15 .30 14 .25 22 .25 17 1 75
train three
quality
inspectors
3. Adopt and .10 6 .10 14 .25 19 .30 20 .25 11 1 70
implement
an effective
performance
-based
employee
reward
system

VIII. Recommendation
           The group recommends the designing and implementing an effective MRP
system by outsourcing. As compared to the two alternatives mentioned, the MRP
system will be beneficial for the company in the long run. Though it the initial
implementation will be costly, it will help the company in terms of having a better
inventory control, proper repurchase schedule of raw materials, availability of raw
materials and proper schedule of production. Thus, there will be a reduction of
expenses such as storage cost and security cost.

IX. Implementation Program

Analyze the current production process of the company

Activities ● Analyze the overall production process of the company

● Analyze the data regarding the production process of the
company
● Analyze the system for designs
● Outsourcing or partnering up with a company whose expertise is
integrating MRP system into the company's existing system.

Objectives To determine the current problems in the system

Time Frame 1-2 months

Budget Data and 200,000 Php

Person Involved Operations manager and IT

Expected Outcome To have a better understanding of the company’s current process and
to determine the design for the new system
Production planning and scheduling

Activities ● Design the layout of the plans

● Design the budget for implementing the system

● Rescheduling the production process

● Design effective inventory management

Objectives To create proper planning and scheduling in line with the plan of
implementing the new system

Time Frame 4-5 months

Budget 200,000 Php to 300,000 Php

Person Involved Operations manager and IT

Expected Outcome Formalized production plan and schedule

Designing the Material Requirement Planning System

Activities ● Apply the plan and schedule done

● Create an MRP system that is suitable for the company

Objectives To ensure the compatibility of the designed system with the company

Time Frame 4-5 months

Budget Approximately 1 million Php

Person Involved Operations manager, IT experts and engineer

Expected Outcome Organized system with the application of the MRP system
Design training schedule for employees with regards to the management of the MRP
system

Activities ● Design the layout of the plans

● Design the budget for implementing the system
● Rescheduling the production process
● Design effective inventory management
● Schedule seminars to train employee
● Train employees regarding the management of MRP system.

Objectives To create proper planning and scheduling in line with the plan of
implementing the new system

To help the employees to adjust and use the system properly

 To equip employees with knowledge in terms of handling and

managing the MRP system

Time Frame 4-5 months

Budget 200,000 Php to 300,000 Php

Person Involved Operations manager and IT experts

Expected Outcome Employees will be knowledgeable enough in terms of handling and

operating the MRP system

Testing and evaluating the system

Activities ● Initial implementation of the MRP system

● Analyze how the MRP system affects the operations

● Dry run the system in order to ensure the compatibility of the

existing system with the MRP system

Objectives To improve the company’s current system with the successful

implementation of MRP

5-6 months
Time Frame

Budget 500,000 Php to 600,000 Php

Person Involved Operations manager, IT experts, engineers

Expected Outcome Able to identify processes that needs improvement

Implementation of the MRP system

Activities ● Implement MRP system

Objectives To see improvements in the production process

6-7 months
Time Frame

Budget Approximately 3 million Php

Person Involved Operations manager, IT experts, employees

Expected Outcome A more efficient and effective production process that will result to
reduction of scrap rates, idle time of machines, and optimized
production
Maintenance of the implemented MRP system

Activities ● Routine check up of the MRP system after its

implementation

Objectives To ensure that the system does its supposed function and that
any glitch in its system will be taken care of immediately in order
to avoid disturbance in company's operations.

Time Frame After the implementation of the MRP system; routine check up of
the system

Budget Approximately 500,000 Php

Person Involved Operations manager, IT experts, engineers, employees

Expected Outcome An efficient and effective MRP system that will help the company
in the long run in terms of reduction of costs and proper inventory
control. In addition, the system will be operating as it is expected
to be.

X. Other problem and recommendation

XYZ has a high rate of employee turnover therefore the group recommends that
the company implement a reward system based on their employee performance. By
implementing a reward system, the employees are now more motivated to perform their
very best in order to achieve the rewards that the company is offering. Through
receiving rewards, employees’ job satisfaction increases for they feel appreciated and
recognized. Thus, resulting to a decrease in employee turnover rate.  A decrease in
employee turnover rate causes the company to be more cost efficient due to lesser
training cost for newly hired employees.

XI. Management  Lessons Learned from the Case

● The company should consider having corporate social responsibility.
 ● Operations manager should think of a way of maintaining the good employees.
They have to be efficient with training cost.
● Proper management of your suppliers by coordinating your companies
production schedule with theirs will give a smooth flow of production process.

References:
http://www.hrinasia.com/general/philippines-highest-turnover-rate-at-metro-manila-in-the
-last-5-years/
https://squareup.com/townsquare/how-to-motivate-your-employees
http://www.decent-democracy.org/Negative-or-Positive-Competition.html
http://www.hrinasia.com/general/philippines-highest-turnover-rate-at-metro-manila-in-the
-last-5-years/
https://www.cleverism.com/conduct-profit-margin-analysis/
https://www.mikeonmanufacturing.com/mike-on-manufacturing/2010/01/how-much-does
-a-manufacturing-software-package-cost-.html