Situations – The Wheel Pump Dilemma

The Wheel Pump Company was originally the Pump Company, but many years ago the owner had an opportunity to bid on a contract to produce steel wheels for one of the smaller automobile companies. The Pump Company was successful in its venture into this new field, and it became a supplier of wheels to the auto industry.

The Wheel Business:

The basic process for wheel production involved stamping hub parts from coil strip steel, rolling rim shapes from steel stock, welding the rolled stock into a circular shape, welding hub parts to the rim, and painting. The fabrication processes were connected by conveyor systems, and once set up for a given type and size of wheel the system ran smoothly. The main production control was in scheduling types and sizes of wheels to meet customer requirement schedules on two parallel line setups.

The Pump Business:

The original pump business was still flourishing. The company manufactured a line of water pumps used in variety of applications. There were 10 different models that had some common parts. There was a machine shop that fabricated parts, which were stocked as semi-finished items. Production orders were released for these parts based on a reorder with manufacturing lead times of from two to 6 weeks, depending on the item. The intention was to maintain a buffer stock of six weeks’ supply. A forecast of demand for each item was updated monthly, using an exponential smoothing system with α=0.3. The relatively large value of α was used to provide fast reaction to demand changes for inclusion in EOQ computation. Purchase parts were handled on an EOQ/ROP basis, again with a buffer stock of six weeks’ supply.

The basic schedule for the assembly of pumps was set monthly in a master schedule. The master schedule was projected for three months, with the first month representing a firm schedule. The most important input to the master scheduling process was a forecast for each model based on an exponential smoothing system merged with knowledge of contracts, orders, and sales estimates from the salespeople. The basic production rule was to produce one month’s estimated requirements for the four models with heavy demand and two months’ estimated requirements for the six models with smaller demand. These estimates were then adjusted for backorders or excess inventory. The intention was to maintain a buffer inventory of finished goods of two weeks’ supply.

Part shortage at assembly were common and it was the job of expeditors to get rush orders through the shop to keep the assembly of pumps on schedule. Nevertheless, it was often true that pumps could not be assembled completely because of part shortages and had to be set back in the assembly schedule, resulting in stock outs of finished products.

Material Requirements Planning:

The two product lines have always been operated as two separate businesses, both in sales and manufacturing, although the manufacturing facilities were located on the same site. The systems common to both product lines were in the accounting and finance functions. On the retirement of the original owner, the firm was sold to a conglomerate, and a professional manager was installed as president. The new president was satisfied that the manufacturing facilities for the two product lines had to be separate, but she felt that the functions of production planning and control could and should be merged. She attended seminars on MRP at a local university and was impressed with the integrative nature of the computer based systems available. She felt that the requirements generation system available as software for the company computer could generate material requirements for both the wheel and pump product lines. She believed that production order releases keyed to sales requirements would be beneficial to both product lines and that the use of the capacity requirements concepts would enable forward planning on the use of overtime and the prevention of finished goods stock outs.

The president called in the vice-president of production and suggested the use of the MRP concept. The vice-president of production had served under the previous owner for years and objected. They are two different businesses, so it won’t work, he said.

What do you recommend?

The Production planning team can be one but the computer software for MRP must be independent because of the nature of products and diversity in demand.