APIX POLYBOB COMPANY:

Ken Mack, plant manager for the Apix Polybob Company, was having a heated discussion with Jim
Gould, the production and inventory control manager. Ken was getting tired of frantic calls from Ellen
Uphouse, the marketing manager, concerning late orders for their Polybob customers and was once
again after Jim to solve the problem. Some of the discussion points follow:

JIM: Look, Ken, I’m not sure what more we can do. I’ve reexamined the EOQ (Economic Order Quantity
lot size) values and all the reorder points for all our inventory for all our Polybob models, including all
component levels and purchased items. I’ve implemented strict inventory control procedures to ensure
our accuracy levels to at least 80%, and I’ve worked with the production people to make sure we are
maximizing both labor efficiency and utilization of our equipment. The real problem is with those
salespeople. We no sooner have a production run nicely going, and they change the order or add a new
one. If they’d only leave us alone for a while and let us catch up with our current late order bank, we’d
be okay. As it is, everyone is getting tired of order changes, expediting, and making everything into a
crisis. Even our suppliers are losing patience with us. They tend to disbelieve any order we give them
until we call them up for a crisis shipment.

KEN: I find it hard to believe that you really have the EOQ and reorder point values right. If they were,
we shouldn’t have all these part shortages all the time while our overall inventory is going up in value. I
also don’t see any way we can shut off the orders coming in. I can imagine the explosion from Ellen if I
even suggested such a thing. She’ll certainly remind me that our mission statement clearly points out
that our number-one priority is customer service, and refusing orders and order changes certainly
doesn’t fit as good customer service.

JIM: Then maybe the approach is to deal with Frank Adams (the chief financial officer). He’s the one who
is always screaming that we have too much inventory, too much expediting cost, too much premium
freight costs from suppliers, and poor efficiency. I’ve tried to have him authorize more overtime to
relieve some of the late order conditions, but all he’ll say is that we must be making the wrong models.
He continually points to the fact that the production hours we are paying for currently are more than
enough to make our orders shipped at standard, and that condition has held for over a year. He just
won’t budge on that point. Maybe you can convince him.

KEN: I’m not sure that’s the answer either. I think he has a point, and he certainly has the numbers to
back him up. I’d have a real rough time explaining what we were doing to Ron Marrison (the CEO).
There’s got to be a better answer. I’ve heard about a systems approach called material requirements
planning or something like that. Why don’t you look into that. Take a representative model and see if
that approach could help us deal with what appears to be an impossible situation. I’m sure something
would work. I know other factories have similar production conditions yet don’t seem to have all our
problems.

Following is the information about Polybob model A that Ken suggested as a representative model to
use for the analysis:
 Component Lot Size Inventory Lead Time Scheduled Re-Order
Receipts Point
B 80 10 1 None 5
C 150 40 1 None 15
D 200 180 2 None 50
E 400 300 2 None 70
F 500 50 2 500 in wk 1 80

The following are the master schedule production lots for

Model A:

Complete 50 units, week 3

Complete 50 units, week 5

Complete 60 units, week 7

Complete 60 units, week 9

Complete 50 units, week 11

Upon seeing this information, Jim stated, “Look at how regular our production schedule is for this
model. The reorder points will more than cover requirements, and none have lead times that make it
tough to respond. This analysis should show that all the work I did on EOQ and reorder points was right,
and the real problem lies with those sales and finance people who don’t understand our production
needs.”

Discussion Questions

1. What are the key issues brought about in the conversation? What are the key symptoms, and what
are the underlying problems? Be specific in your answers.

2. Use the product information to develop an MRP approach to the problems. Would MRP solve the
problems? If so, show specifically how MRP would avoid the problems discussed by Ken and Jim.

3. Do any conditions bother you about the ability of MRP to deal with the problems? What specifically
are those conditions?

4. Suppose it was discovered that only 250 of component E were in stock instead of the 300 listed on the
inventory record. What problems would this cause (if any), and what are some of the ways that these
problems could be addressed? How would (if at all) MRP help you when other methods might not?

5. Suppose that the design engineer advises that he has a new design for component F. It won’t be ready
until sometime after week 2, but he wants you to give a date for the first supplier shipment to come in,
and you should be ready to tell the supplier how many to ship. Since the change is transparent to the
customer, the design engineer advises you to go ahead and use up any existing material of the model.
How will MRP help you to deal with this issue?
6. Can you think of any other “what if” questions that might be more easily addressed by a systematic
approach such as MRP?