ASSIGNMENT
Bumper Cars, Ltd. – Production Inventory Management & Control In 2003, Mr. Amusement created Bumper Cars, Ltd., a company whose main concern was the manufacture and repair of the exterior shells of bumper cars used in amusement parks. Although the company functioned on a small scale for a few years, it has recently expanded to some new areas, including larger-scale amusement parks like Coney Island. Despite the recent increase in business, Bumper Cars still operates as a small company with limited technology investments. Many departments run totally manual systems. Because of the expansion, however, Mr. Amusement has taken a serious look at the setup of his company and has determined that some problems exist. The most pressing problem is in the area of inventory management and control. Inventory Control Department At Bumper Cars, raw materials (RM) are stored in a warehouse until they are transferred to the production department for manufacturing. The inventory control department, which consists of three workers employed under the inventory manager, Ms. Coaster, works with the inventory at the RM stage. Each worker’s responsibilities include periodic inventory counts, along with the day-to-day jobs of storing and transferring inventory. Each day, when the workers transfer the inventory to work-in-process (WIP), they also attempt to keep track of the inventory levels in order to inform the purchasing department to reorder if the stock of materials becomes too low. However, in their attempts to achieve efficient and speedy transfers of RM to manufacturing, they workers find it difficult and inconvenient to constantly check for low levels of inventory. As a result, the inventory frequently runs out before the workers reorder, which causes a gap in RM needed for production. Production Department The production department receives the goods from inventory control, then puts them into production. Recently, Mr. Ferris, the production manager, complained to the president about the inconvenience caused by the lack of RM at crucial periods of production. As he stated at an important managerial meeting: “Each week, we have a certain number of orders that must be filled, along with an indeterminable and changing number of repair requests. When we receive these orders, we immediately start work in order to fill our quotas on time. Lately, however, my workers have been handicapped by the fact that the RM is not available to put into production at the times we need it. During these lags, production stops, workers become idle, and back-orders pile up. Although we inform the inventory control and purchasing department of the problem right away, it still takes time for them to order and get the inventory to the warehouse. Then, it takes even more time for them to get the inventory to us in production. As a result, when we finally receive the necessary materials, my workers are forced to work overtime and at an unreasonable rate in order to meet demand. This up-and-down method of working is bad for general morale in my department. My workers tend to become lazy, almost expecting a lag to occur. Also, request, for ACCY 310 Page 2 repairs become nearly impossible to fulfill because we never know if the materials needed to fix the problem will be available. Usually, we fall so far behind on regular production during these lags that we must concentrate all our efforts just to meet daily demand. As a result, our repair business has dropped steadily over the past year. I feel that these production lags are extremely detrimental to our expanding business, and we should get to work immediately on finding a solution.” Possible Solutions As a result of Mr. Ferris’ complaints, Bumper Cars realized that some changes must be made. Basically, the company determined that both the inventory control and production departments needed reorganization at a reasonable cost. Another managerial meeting of all department heads took place specifically to discuss this problem. Each manager came to the meeting with his or her own ideas for a possible solution. Mr. Flume, the controller, aggressively suggested that a new ERP be installed. This system would solve the inventory control problems by keeping up-to-date records of the inventory available at any given time. At the same time, the system could be set up to reduce paperwork in the accounting and finance departments. In addition, the ERP could link all departments and thus alleviate communications breakdowns. Finally, the ERP could be linked to the suppliers from which Bumper Cars orders its inventory, so that as soon as materials became low, it could immediately reorder before a problem develops. At this point in the meeting, the president, Mr. Amusement, jumped up and exclaims: “Wait a minute! This system would solve our problems. But as you all know, we are not a large company. The cost of implementing a company-wide ERP would be excessive. We would have to consider research, installation, maintenance, and repair costs involved in implementing a complex system such as an ERP. When you take everything into consideration, I’m not sure if the benefits would justify the costs. Let’s search for some other less costly, but still efficient, solutions.” Mr. Ferris, the production manager, then offered a second possible solution. After agreeing that an ERP might be too expensive, he went on to suggest: “My main problem is meeting demand after a backlog has occurred. Another possible solution might be to hire temporary workers to help alleviate the overload problem. These workers would not cost much because they would not receive benefits. Yet they would help solve the immediate problem. They could be trained for production, so if people leave the production department, it would be easy to find replacements. As a result, production could continue with a minimum of problems and lags.” The managers discussed Mr. Ferris’ suggestion for a few minutes. Then Ms. Coaster, the inventory control manager, stood up and offered a third solution for the inventory problems. She explained: “Although Mr. Ferris’ plan might work, I believe that the real cost of the problem lies in my department rather than in the area of production. It seems that the problem is that my employees have too many tasks to perform all at once. Therefore, what we really need are more employees in the inventory control department to continually check and recheck inventory levels. Then my other employees could concentrate solely on the transfer of RM to production. By this separation of tasks, I believe we could efficiently solve our inventory problems. Also, the cost of hiring a few more people would not be excessive.” ACCY 310 Page 3 By the end of the meeting, management still had not made a decision. They had identified the need to reorganize, but they could not decide which approach would be best for the company.
Required:
Using the information about Bumper Cars, Ltd., along with your knowledge of AIS, list each of the solutions presented in the management meeting and whether you agree with that solution. Discuss the reasons for your position regarding each solution. Finally, discuss what you believe is the best solution for the company’s inventory problem.