Murthy, vice president of manufacturing for ToysPlus, Inc., finished reading the weekly production report for the week ended January 27, 2012. Inventories were up once again, and service levels were lower than expected. Murthy wondered why these problems could not be solved once and for all. Last year he had installed a new IBM production and inventory control system on the company’s mainframe computer. While the system drastically reduced inventories and improved service levels at first, things had gotten worse over the last few months.
Murthy took the report and walked to Asha’s office next door. Asha had received her M.B.A a few years ago from I.I.M. Bangalore and was now in charge of …show more content…
The shop labor rate is Rs.100 per hour for wages, fringe benefits are 33 percent additional, and there is Rs.300 per hour charged for overhead. It costs 25 percent to carry inventory for a year. For parts and components that are ordered, it costs Rs.1250 to place each order. When the line is changed over, not only is a setup cost incurred for the labor to change the line but also an order is also triggered for each of the parts that are used to make the final product. The total setup cost of a line changeover is therefore the total of these costs.
Purchasing does not always buy the exact number of parts that are ordered by the production control department. Adjustments are made to take advantage of price breaks from suppliers or to achieve full-truckload shipments. As a result, some additional parts might be purchased in order to reduce purchasing costs. Also, suppliers do not always ship the component parts when promised. As a result, ToysPlus carries safety stock inventory to protect the master production schedule and to keep the assembly lines running, no matter what. About one week of safety stock is carried to protect for late supplier deliveries. Management has mandated that the assembly lines will not shut down.
Profit and Loss (in Rs.) Year Ending December 31, 2011
Balance Sheet (in Rs.) As of December 31, 2011