Table 4: Sample logic used in MPS
(LOM Module notes/exercise, 2018).
3. PREPARATION FOR NEGOTIATION WITH OEM:
According to a hypothesis, let the OEM in this scenario be Hyundai Motor Company who orders on a monthly basis. Here is the preparation made for negotiations for a meet with OEM to move from monthly to weekly deliveries.
3.1 Key benefits of moving to weekly deliveries:
? Less Inventory is needed for weekly demand, hence storage space is less.
By satisfying Hyundai Motor company’s needs on a weekly basis, we can make sure the aerial company’s stocks are moving.
If the stocks are stored for monthly deliveries, there are chances that any accidents in the plant will lead to huge loss for the products to be sold to Hyundai Motor Company. Weekly demand will assure delivery.
? As the commercial area is hired per square foot, monthly storing of inventories occupies maximum space limit and we ought to pay more for the occupancy.
? Labour control:
As our company is supplying goods for many other firms on daily and weekly basis, monthly delivery to Hyundai Motor Company requires employment of additional human resources for audit and inventory control.
? Insurance costs:
Insurance cost goes high with increased inventory stock and area. In case of disastrous event such as cyclone, earthquake, flood, etc., we had to pay higher premiums for losses due to the damage of whole lot of monthly dumped stock.
The selling price of the products will be inclusive of the insurance cost, moving to weekly deliveries will reduce the cost prize of your products too. For example, if the current pay for a Car antenna (Aerial company manufactured part) is $70/unit (monthly delivery) inclusive of the insurance cost, moving to weekly deliveries will reduce its cost price to $64/unit (Leonard, 2018).
? In case of any accidents as discussed above, monthly stocks at our warehouse for delivery will be undelivered and the penalty we pay for loss of goodwill (for undelivered goods) will be too high (12% of the sales value of each good). Weekly deliveries will be beneficial in several ways for both the organizations (As given in the Aerial manufacturing exercise, 2018)
TABLE 5: Comparison of monthly and weekly deliveries to OEM
Monthly (deliveries) Weekly (deliveries)
Product price As mentioned in the Aerial manufacturing exercise, the retail price of our XL model car parts is 55 pounds (inclusive of high labour charges and cost involved in modification of production line) which Hyundai Motor company pays currently.
Addition of these charges for all the monthly goods will multiply your cost to huge amounts. In case of weekly deliveries, we don’t require surplus labors and the selling price of your product will include primarily the manufacturing cost only.
Accidents Monthly deliveries stock will lead to wastage of surplus produce in case of chemical spill, electrical fires, etc. The damage is huge that it’s difficult to be recouped. Inventory management is easy in case of weekly deliveries. Aerial company will be easily able to supply with a replacement sooner even in case of losses
Loot age/Staff theft Say, there is a loot or damage during shipment of the products / staff theft, we will not be having time left for the current month to make arrangements for producing replacements. The possibility of allotting time during the succeeding month for additional produce requires more costs (Anderton and Kiely, 1988). As the number of weekly deliveries is comparatively less, we can quickly arrange for replacement the succeeding weeks (Anderton and Kiely, 1988).
Waste management Monthly deliveries require allotting shift for more human resources, paying insurance for additional warehouse storage (as commercial area is hired), maintenance cost, etc. leads to investment on non-value added operations (Leonard, 2018). Weekly deliveries will reduce all these costs and allows the company to invest more on Value-added operations; thereby reducing the retail price of the product Hyundai Motor company acquires (Leonard, 2018).
Long-term relationship / Bottom Line As the Aerial company and Hyundai Motor company had been in tie-up and marketing products on the long run, even before we got the proprietorship of the company, the reputation in the marketplace can be maintained at cost efficient ways. Monthly deliveries will not be cost efficient in the long-run due to the drawbacks mentioned before (Magee, 1999) (Hamlett, n.d.). Moving to weekly deliveries will allow the collaboration to shine in marketplace at cost-efficient ways.
In consideration of the long-lasting tie up and the advantages, the Aerial manufacturing is ready to supply an additional part cost-free every half a month, in case of weekly deliveries (Magee, 1999) (Hamlett, n.d.).
Formulating an appropriate sales forecast keeping the circumstances of the company in consideration should be the prime step in sales forecast. Secondly, laying down a Master Production Schedule (MPS) with preparedness of the possible difficulties would place the company at reduced risk as demonstrated by the example of Aerial Manufacturing plant. For a sample of 10 weeks, sales were met without any penalty and an obvious improvement was noticed in comparison to previous weeks (before week 33) where the company had to pay penalty for 3 weeks due to incorrect planning (LOM module, 2018).
Plan has been made to arbitrate with the OEM (Hyundai Motor Company), notifying the benefits in cost and reputation of both the companies in shifting from Monthly to Weekly deliveries. This paper clearly illustrates that the growth of a manufacturing company relies not only on forecasts but also on the formulation of team to make Forecasting Schedules, analyse the different factors affecting the forecast, making cost cutting in all the possible areas and ways. Consistent success of a company/firm in marketplace depends on all these factors.