Optimizing Inventory Management at MKT Marketing & Merchandising
MKT Marketing & Merchandising: Optimizing Inventory Management
1. Company Overview
MKT Marketing & Merchandising Company LTD. is a Chilean company specializing in showroom and retail outlet services, including design, layouts, accessories, remodeling, stands, events, and promotions. With a decade of experience, MKT has built strong relationships with major national and international clients such as Ripley, Breden Master, Falabella Pro, and more.
MKT offers a comprehensive approach to project development, from graphic and industrial design to point-of-sale installation. Their in-house factory and qualified personnel provide a competitive advantage. However, inefficiencies in their manufacturing process are leading to high production costs.
2. Problem Description: High Production Costs
Several issues contribute to high production costs at MKT:
2.1 Factory
- Deterioration of Materials: Exposure to the elements and improper storage lead to material damage (e.g., open paint cans staining wood chips).
- Misuse of Resources: Inefficient use and sizing of materials during production result in unnecessary waste.
2.2 Manpower
- Training: Operators lack adequate training and experience, leading to lower productivity.
- Exploitation of Staff: Long shifts (10 hours with 1-hour lunch) contribute to fatigue and reduced efficiency.
- Breach of Safety Rules: Operators often neglect safety protocols, increasing the risk of accidents.
- Poor Safety Signs: Insufficient safety signage contributes to the potential for accidents.
2.3 Inventory
- Stock Shortages: Poor material planning leads to frequent stock shortages, halting production and requiring urgent orders.
- High Cost of Ordering: Frequent stock shortages necessitate more frequent orders, driving up costs.
These factors contribute to delayed deliveries, lower product quality, and increased repair costs.
3. Analysis of the Problem
Data analysis reveals the most significant contributors to high production costs:
- Bad endings in products
- Shipments not in line with customer requirements
- Product returns
- Poor product quality
A Pareto chart confirms these factors as the most urgent to address.
3.1 Waste Accumulation
Waste accumulation occupies a significant portion (36.6%) of the factory floor, reducing workspace and increasing the risk of accidents. This also leads to material degradation, with 19% of incoming materials and 10.3% of in-process materials damaged in August 2008.
3.2 Transportation Costs
Stock shortages necessitate frequent trips to suppliers, increasing transportation costs by $7,467 per project.
3.3 Damaged Inventory
27.7% of fixed inventory materials are damaged, further contributing to production delays and wasted storage space.
4. Proposed Solution: Material Requirements Planning (MRP)
Implementing MRP will allow MKT to:
- Schedule material requirements for upcoming projects.
- Maintain accurate inventory records.
- Reduce inventory costs by minimizing stock shortages and unnecessary orders.
- Ensure timely availability of materials.
- Optimize inventory levels without impacting production.
4.1 Feasibility Analysis
Assumptions for analysis:
- Materials with similar characteristics are grouped.
- Average unit prices are used for each material group.
- Demand is calculated based on the sum of individual material demands within each group.
Analysis indicates that MRP can significantly reduce monthly purchase and ordering costs by 39.38%.
5. Implementation
Implementing MRP involves:
- Classifying materials and establishing unit prices.
- Identifying materials used for each product.
- Determining lead times for each material classification.
- Calculating material requirements based on weekly demand.
- Analyzing requirements and optimizing order timing.
Implementation is estimated to take approximately 18 days and is highly feasible due to low deployment costs and minimal training requirements.
6. Conclusion
Implementing MRP offers a viable solution to MKT’s high production costs. By optimizing inventory management, MKT can reduce waste, improve efficiency, and enhance profitability. The proposed solution is cost-effective and can be implemented within a reasonable timeframe, leading to significant long-term benefits for the company.
References
- Quality Management Book by Claudio Aedo V.
- Basic method for the process management PDCA cycle
Annexes
- Corrective Action PDCA
- Basic Method for the process management PDCA cycle
- Implementation of the alternative solution by letter Grattan.