Question 1.
The Buy Grid Model is the combination of buying phases. Explain how does it useful in analyzing the buying phases over various buying situations.
Question 2
You as a Marketing Executive for a textile manufacturer, that is new in textile industry. Your Managing Director need you to make survey regarding the following matters:
a) Who would likely to be your customer (s).
b) How do you segment your market?
c) Whets are the target marketing approaches you want to choose?
d) How you position your product?
Question 3
Purchasing department plays an important role in the company. It has to make sure all activities in that department are run effectively and efficiently. There are some approaches applied by organization in order to achieve it. Below are some of the approaches normally used and you need to explain each of the approach by giving the definition, advantages and disadvantages of using this approach and in-depth explanation for each approach ( can use examples & diagram).
a) Material requirement planning.
b) Just In Time.
Question 1.
The Buy Grid Model is the combination of buying phases. Explain how does it useful in analyzing the buying phases over various buying situations.
Organizational buying activities center on the level of experience and information that firms have in purchasing certain products and services. Routine purchases do not require the buyer to possess much information since he can rely on past experience. If a purchase decision is new , however , the buyer must obtain extensive information because of the firm’s lack of experience with the product , service and the suppliers. When buying a new computer, for example, the buyer would have to know his needs to match the computer’s characteristics, its programming capabilities, the need for any peripheral equipment, maintenance services availability , and the supplier’s reputation and its capability to provide those services . With the intense interdependence that exists among firms today, the importance of long- term relationships becomes of paramount concern.
Buying activities also consist of various phases of decision-making. Depending on the type of buying situation, whether it is routine or new, these phases will vary in their degree of importance. Effective business marketing strategy , then, requires that marketers focus their attention on the buying situation , the phase of its decision- making process, and what criteria various influencers will emphasize in the final purchase decision.
The concept of business buying behavior can be simplified by dividing the process into its various phases , which can then be analyzed in different buying situations . this process aids the seller in identifying the specific decision phases, the information needs of the purchasing organization , and the criteria that buyers may be considering when making the purchase . A conceptual model called the buy grid model is useful for visualizing the different combinations of buying phases and buying situations
The buygrid model incorporates three types of buying situations the new task , the straight rebuy , the modified rebuy, in addition to eight phases in the buying decision process . the model provides an easy reference for dividing the complex business decision buying process into distinct segments that are useful in recognizing critical decisions and specific informational needs.
Buying situations
Since business buyers have different levels of experience and needs for information, the same purchase in two different organization could evoke markedly different purchasing strategies . one firm may see the purchase of a new computer as a new task because of the firm’s lack of experience in this area, whereas another firm may see the same situation as a modified rebuy. Therefore , marketing strategy must begin with identifying the type of buying situation the buying firm is facing.
New Tasks in the new task buying situation the buyer must obtain the greatest variety of information to explore alternative solutions to his purchasing problem because of his lack of experience. These problems may have developed because the buyer’s customers may have be increased as a result of new or changed competition. Frequently, this type of buying situation is handled by a buying center comprising representatives of various department working as a team. They must quickly expand their knowledge to cope with these new purchasing uncertainties. Products perceived to be complex by the buyers will most likely be subjected to a group decision-making process rather than left to the sole discretion of the purchasing agent.
Modified rebuy Decision –makers enter into a modified rebuy situation when they believe that significant benefits such as quality improvements or cost reductions may be derived from reevaluating workable alternatives . often well-defined criteria may be used in this situation, but some uncertainty may exist concerning the switch to a new supplier because of unhappiness with a current supplier . Usually this purchase situation is handled by an individual purchasing agent, except where large expenditures are involved and approval of a buying center or a top executive is required.
Straight Rebuy Straight rebuys are the most common situations generally performed by a purchasing agent. The buyer-seller relationships will exist as long as delivery is prompt, quality is consistent , and view among many purchasing agents ; hence alter native solutions are seldom evaluated . The seller attempts to reach this level of partnership with his customers by providing the needed service and more. However, change is a constant that the seller must face as new individuals are involved, new and different problems appear , and competitors attempt to unseat established business relationships with better service ,lower prices , and superior products .
Buy Phases
New Task
Modified Rebuy
Straight Rebuy
1.
Anticipation or recognition of problem (need) and a general solution.
Yes
Yes
Yes
2.
Determination of characteristics and quantity of needed item.
yes
Same as phase 1
3.
Description of characteristics and quantity of needed item.
Yes
Yes
Same as phase 1
4.
Search for and qualification of potential sources
Yes
Same as phase 1
5.
Acquisition and analysis of proposals
Yes
6.
Evaluation of proposals and selection of suppliers.
Yes
yes
7.
Selection of an order routine
Yes
Yes
8.
Performance feedback and evaluation.
Yes
Yes
Phase 1 : Anticipation or Recognition of a Problem (Need)
The purchasing decision process is triggered by the buying organization’s recognition of a problem , need, or potential opportunity to improve the company’s efficiency and bottom line. This recognition may originate within the company, i.e., outmoded , equipment, break down, unsatisfactory in quality or availability , new managers insist on change, or present suppliers do not perform to desired quality levels. The need recognition may originate outside the buying organization with a marketer who recognizes a company need and convinces the buying organization that the seller can improve the company’s operating performance by buying a given product or installing a given service.
Research has shown that new product ideas frequently originate with customers therefore; early involvement in the new task/problem recognition phase offers the marketer a differential advantage over competitive suppliers. Given the movement to concurrent engineering in many firms, this phase is an absolute must for sellers to penetrate early or be left behind when companies are invited into a discussion about a new product development with a potential customer. All the information which follows is based upon this first phase since it is the most critical of all eight phases in the buying process.
Phase 2: Determination of characteristics and quantity of needed items
Problem recognition provokes the buying organization into resolving the problem with precise, analyzed alternative actions that will seek answers to such questions as; “What performance specifications need to be met?” “What are the application requirements?” “What types of goods and services should be considered?” and “what quantities will be needed?”
Technical product specifications such as punch presses, drop forges and conveyer belt systems are prepared by either the engineering department or the user department. When nontechnical products such as lubrication for a section of the production line are involved, the user department (production /operations) might determine that products currently on the markets could solve the problem. While influencers from outside the department may be used, or insist on being used, as in the case of the purchasing department providing price information, critical decisions and information needs at this phase lie chiefly within the user department.
Phase 3: Description of the Characteristics and Quality of the Needed Item
Many suppliers do not become aware that a buying situation is in progress until the firm begins its outside search for information about products, sub components, and prices. Here a define advantages accrues to the marketer who helped to trigger the need in the first phase of the buying process. A partnering position at this stage is even better. Because here the vendor would be consulate as the expert to provide the characteristic and quantity of the needed item without the hassle of competing with other vendors. During this phrase, the company prepares the products specifications that will determine who will eventually receive the order. If concurrent engineering has been determine who will eventually receive the order. If concurrent engineering has been determine who will eventually receive the order. If concurrent engineering has been followed, the lucky supplier would have already been involved in this determination.
Phase 4 : Search for and qualification of potential sources
Once the specifications and workable solutions have been determined and precisely described, the buying organization searches for alternative sources of supply . Here the purchasing department can exercise much influence as it provides most of the data for possible vendor sources. Other departments may provide information , and hence influence, about costs, vendor reliability, and the feasibility of JIT operations with a vendor. Obviously, the decision makers have determined which suppliers will be considered as potential vendors . if a strong partnership relationship existed between the buyer and seller, this phase would not be necessary since the vendor have helped to establish the specifications in the first place and would become the anointed supplier.
Phase 5 : Acquisition and analysis of proposals
Request for specific proposals are made to qualified vendors in this phase. In a straight rebuy situation, the buyer may simply contact the chosen vendor to obtain up-to-date information about prices, delivery times, and mode of shipment, so phases a 4 and 5 may appear as the same step . For modified rebuys, more time would be spent on the analysis of the proposals submitted . New task buys probably would take the most time and months may expire before a final decision is made, Quality of both product and service , and the vendor’s past efforts, could be the hallmark identification for the winning vendor.
Phase 6 : Evaluation of proposals and selection of suppliers.
The various proposals are weighed and analyzed to determine which vendor or vendors can match the product or service specifications and the desired price and delivery requirements subsequent negotiations may be needed to produce the desired finite results relative to prices, delivery and long-term commitment or other aspect of the vendor’s proposal.
Personal tastes and personalities cannot be ruled out, but the company that is well liked and can give the customer the best overall product and service will generally win the order , plus the strong possibility of a long-term partnering relationship.
Phase 7 : Selection of an order routine
Orders are forwarded to the vendor and status reports are sent to the user department . the inventory levels will be established, and the JIT routines will be determined, if such a possibility exists. The user department views this phase as just the beginning . Delivery, setup, and training , if necessary, will transpire next.
Phase 8 : Performance feedback and evaluation
Similar to the first phase, this last phase in the buying process is also critical . the customer has had his aspirations raised as the result of the need analysis, product specifications , and proposal submitted; now the vendor must deliver on his promises . this phase involves a determination by the user department as to whether the purchased item has solved the original problem. Because this time can be a difficult phase for the vendor (since some of the variables are not completely controlled by him), it behooves the buying organization to analyze the performance and provides feedback to all the interested parties for further evaluation. Feedback that is critical of the chosen vendor can cause the various members of the decision-making unit to reexamine their positions . When this reexamination occurs, views regarding previously rejected alternatives become more favorable .
Question 2
You as a Marketing Executive for a textile manufacturer, that is new in textile industry. Your Managing Director need you to make survey regarding the following matters :
a)Who would likely to be your customer?
The success of a business marketing strategy rests on the marketer’s ability to identify , evaluate, and select attractive target segments. Effective market selection allows the firm to allocate its resources wisely and results in the achievement of organizational objectives. Who would be my business market customer that would be in Commercial enterprises like OEM , End User , Resellers and in Government sector like government agencies , government office , police and institutions my business market customer is like hospital , university , college and prison this is all my customer in business market
An original equipment manufacturer (OEM ) is Refers to businesses that purchase materials and components to fabricate an infinite variety of end products or equipment.An original equipment manufacturer (frequently abbreviated "OEM") is a company that builds products or components which are used in products sold by another company. For example, textile . It means I as a manufacturer can also sell direct to the customer that in business market who need textile my customer also form other company who need textile it mean that like example I product textile but I don’t have do produce all myself I also can buy form other company that used in my production sale again in market is this my way , and in other way have other company who buy my textile and design it and sale again this is cam OEM .
End User
End user is will be one of customer when a commercial purchases products or services to support its manufacturing process or facilitate any other aspects of business this firm become end user like example toothpaste company purchase raw material for to production of toothpaste this is a end user. End user is the customer that would be Government sector like government agencies , government office , polis and in Institutions my business market customer is like hospital , university , college and prison this is all my customer in business market. They all will be customer of textile company why they are my customer because like Government sector they need uniform so they will order form manufacturer they will be end user like JPJ (Jabatan Pengangkutan Jalan) , police, government school uniform and so like that. Hospital, hotel, army, boutique , tailor shop will be end user because Hospital staff need uniform for their work like nurse, doctor , bed blanket , curtain so that they will by the textile and be end user. is same with hotel they also need textile for their hotel for bed , uniform , curtain , for table , chef and so on . and last will Be boutique need textile because they will design an exclusive fashion for their customer and army also be end user. End user is they by the textile for their own use or for their business this is will be my customer.
Resellers
Resellers also me my customer because they will purchase a lot form manufacturer and sale to people in their shop . Distributors , dealers and retailers purchase raw materials, components parts or equipment that they usually resell with little or no alteration .Resellers example is like KAMDAR , GAYATRI, NAGOYA , HARI –HARI , Euro MODA this is the example of the Resellers . This people will be on of my customer . Like Kamdar they by a lot of the textile and sale again in their shop Mall this the resellers.
b)How do you segment your market ?
AS a Marketing Executive for a textile manufacturer, that is new in textile industry. I am Managing Director will segment the market use Macro segmentation and Micro segmentation For segmentation variables to be meaningful, however, they must involve characteristics that are easily identified, understood, and discernible. While consumer markets are typically segmented on the basic of demographic and psychographic variables, business marketers segment using a macro/micro approach . Macro segmentation deals with differences between industries and business organizations and Micro segmentation involves differences in the criteria that are related to the purchasing decision –making process and the behavior of those individuals involved in these decisions.
Macro segmentation
Many firms products and services that can be targeted to different, even dissimilar, industries. For example, textile manufacturers can market their products to such diverse industries as health , Government sector like government agencies , government office , polis , hospital , university , college and prison , and retailing have some common needs with respect to computing, many of their applications are markedly different, as are their attitudes and approaches toward purchasing
Significant differences may also be present within an industry an industry , consider, for instance, the use of textile within the retailing industry. While Hospital ,Hotel, army, boutique , tailor shop , KAMDAR , GAYATRI, NAGOYA , HARI –HARI , EORU MODA all are part of this textile industry customer.
Micro segmentation
Micro segmentation allows the identification of variables that are similar across industries . Micro segmentation allows the marketer to subdivide those segments further through the analysis of specific organizational and individual criteria that are more directly related to the purchasing decision or product expectations. The specification of these variable, however, usually rules out the use of secondary data and marketers must obtain primary information either through the company sales force or by conducting special market studies.
Organizational Variables
Purchasing situation directly affects marketing strategy, particularly communication strategy. In the new task situation for instance, the seller’s (my company) success in market penetration depends on the ability to solve customer problems, to provide vital information to key decision markers, and to work effectively through all the phases of the purchasing decision process this is the segment I will use in sale my textile first I will make sure what customer want and what their problem and try for solve the problem regarding to by our textile name Venessa Kesavan and on the other hand in straight rebuy situation “out” suppliers must convince customers to reevaluate current suppliers by offering superior product advantages or significant price difference . Thus , segmentation across the Buygrid continuum is an important micro step in examining the buyer’s purchasing needs ,information requirements, and the structure of the buying center and interaction patterns. Purchasing situation is power of the customer must have money to purchase the textile form me if I will give them a credit purchase my textile . Purchasing situation also my company must have enough money to purchase Raw material for make Textile and design the textile as customer want so is all for do must need money because that money is rely important my company will make all to satisfied the customer so the we must have purchasing power so that we can purchase a lot raw material for make textile .
Customer experience (or product life cycle considerations ) is customers unfamiliar with product (during product introduction) tend to assign purchasing responsible to individuals within their organization who are capable of dealing with the uncertainties involved and after familiarity increases , they tend to shift purchasing responsibility to functional specialists or purchasing agents who are more price sensitive and supplier support programs begin to decline in value ,opening the door for new suppliers .customer experience is the customer will purchase the most demand textile in market for examples one month a go cotton very top in life cycle the textile in growth stage the sales and profits grows at a fast rate in this time a lot of same manufacturing like me enter the market so that after the Maturity stage my Cotton textile very popular in the market so that a lot factory are sale cotton also so my textile in decline stage so I introduce new textile that customer need more that is silk because nowadays the fashion industry become very powerful industry they rely want a lot of silk so that now demand for silk very high so i produce the silk textile more I will produce the textile which in growth stage because in these stage can earn for money . I will see which textile is most customer want I produce more which textile in stage decline I will stop production
Customer interaction needs well since product packages must be adapted to customer needs, the buyer-seller relationship often involves considerable interaction and some want transactional relationships that begin and end with a particular buying situation. In my company have a have a lot variety of textile customer can choose want they rely want and need more like Cotton, Silk Linen, Batiste ,Birdseye ,Broadcloth ,Brocade ,Buckram ,Butcher Linen ,Calico ,Cambric ,Candlewick Fabric ,Canton Flannel ,Canvas Chambray ,Chamois Cloth Cheesecloth ,Chenille Fabric ,Chino ,Chintz ,and I also have textile Vintage, Retro. Floral, Cabbage Roses, Traditional, Tropical. This not all I have I will produce in textile if customer ask for it so this want will to I know customer will need different textile each other so I will prepare my company for manufacturing new textile that customer ask for.
Organizational capabilities is the Organizational can also be segmented on the basic of their operating , technical or financial capabilities. Financial capabilities are weak, supplier discounts may be more important than suppliers delivery and the technical strength or weakness can also be an important segmentation variable. Organizational capabilities is mean I will locate my factory the place easy to get material and easy to customer come easy to delivery the textile easy to identify the factory that organizational will get their material very easy because my factory is near by the town so it no problem to get any material.
Inventory requirements will provides a means of differentiating those potential customers whose demands are viable and potentially profitable .and requires the ability to deliver defect –free products , on time , on a regularly scheduled basis. I want my company get high profit so that will find which customer is more give profit for me like I have a lot of customer who need different textiles each of them like the fashion industry will want high quality and soft textiles with good color with good and nice design for their business so they will purchase the textile very soft like silk are give profit to me as manufacturer yes they give high profit for my company silk ,batik usually purchase by fashion industry like Kamdar will purchase the textile which for the middle class people because they Kamdar sell their product in Mall a lot of people go and purchase Shirt, jeans , and textile house so on . GAYATRI , NAGOYA , HARI –HARI , EORU MODA is also give me profit the GAYATRI is Indian Sari Shop in their shop the all Indian people go GAYATRI will purchase textile sari form my company their form all stage Rich , middle , high class , royal . Euro MODA is will buy very high textiles is very exclusive one because they customer is very rich people like Royal Family , Minster Family and so like that this all people are purchase difference textile for their business.
c)Whet are the target marketing approaches you want to choose?
Market segmentation and evaluation analyses help the marketer determine where opportunities exist , which segments are most attractive , and what marketing strategy seems opportunities. These analyses completed , decisions must be made as to which segments will be served , that is, targeted . In addition , the firm must decide whether the targeted segments are relatively similar or different. Four alternative target marketing strategies are available , influenced by the perceived segment similarities and differences: undifferentiated , differentiated , concentrated , and niche marketing .
DIFFERENTIATED MARKETING
A firm also choose to offer its output to a number of segments whose service needs , product usage or market responses are different and increases overall costs in product development , manufacturing , marketing & administration , promotion , service is different. A firm may also choose to offer its output to a number of segments whose service needs , product usage , or market responses are appreciably different . Recognizing these differences , the firm uses a separate market program in each segment to achieve higher sales , a greater market share, and a more favorable image by satisfying each target segment more completely. A differentiated marketing strategy , however , increases overall costs in product development , manufacturing , marketing and administration; hence the theory that greater customer satisfaction leads to higher sales and profits must become a reality. Yes it will increases overall costs because we want differentiated our textile so that is not will confuse the customer we will give good product development , manufacturing , marketing & administration , promotion , service is different will be good so that customer are likely to come to my company to purchase the textile and it will make our product will different form the competitors so not have a similar textile in the market because we already differentiated our textile. So that I must development a good quality textile and manufacturing in right way give very exclusive look to our textile and give promotion to our textile with good service to the customer like, Hotel, army, boutique , tailor shop , KAMDAR , GAYATRI, NAGOYA , HARI –HARI , EURO MODA so that they will come again to by other textile form us . and my textile will have own brand I will create for make different form other textile in the market this how target marketing approaches I want to choose for make a lot of profit.
NICHE MARKETING
Niche marketing is more homogeneous and Enables organization to provide products to buyers with specific desires and preferences. Niche marketing is focus in to one place only like I want have niche marketing in KUALA LUMPUR only so I will promote my textile to customer in KL so this is the niche marketing cost very low because no need to have a lot of promotion. Will have specific customers only like in KL have a lot of boutique like Bernard Chandran , Christian Dior ,Gucci , Prada , Zang Toi , Tom Abang Saufi , Kirana , and so on I will focus on this customer in KL so this is my marketing .
d)How you position your product?
I as a Marketing Executive for a textile manufacturer will must develop and communicate for every market selected , a positioning strategy that clearly differentiates its offering form that of competitors. Regardless of their competitors ‘ strengths or weaknesses , the firm must clarify some distinct position or image in the minds of prospective customers .Positioning starts with a product. A piece of merchandise, a service, a company , an institution, or even a person but positioning is not what you do to a product . Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect
The Four Ps I use is
Product: The Product management and Product marketing aspects of marketing deal with the specifications of the actual good or service, and how it relates to the end-user's needs and wants. My product is textile is have very quality textile it very good in market all people like to purchase the textile I have a lot variety of textile like Woollen Cotton Silk Linen Batiste ,Birdseye ,Broadcloth, Butcher Linen ,Calico ,Cambric ,Candlewick Fabric ,Canton Flannel ,Canvas ,Chino ,Chintz ,Fustian ,Gabardine ,Gingham ,Homespun
Madras ,Monk's Cloth ,Sailcloth ,Sateen ,Velour ,Vichy ,Voile all this very quality one I have a lot type of textile need for all the customer in Business Market like Boutique Christian Dior also one of my customer and fashion industry is my customer also. this is my product.
Pricing: This refers to the process of setting a price for a product, including discounts. This like I will give discount to the customer who buy large textile form me like example Kamdar will purchase large form me company so that is the price is 100% I will give discount until 40% to the kamdar because purchase lager form my company I will use price as one of my plan in make customer come and purchase with my company .
Promotion: This includes advertising, sales promotion, publicity, and personal selling, and refers to the various methods of promoting the product, brand, or company. In business marketing I will promote my textile by personal Selling like go to other customer like example I will send my personal Selling to go and see which company need textile and offer nice price to them give explain about our product textile Ali is my personal Selling worker he go to a lot of Boutique , retailer , company doing shirt for sale, and so on ali will promote my company to all business market people like to fashion designer , Hotel , Kamdar , Hari-Hari and a lot like this and he will tell about what my company have which kind of textile have and so on
Placement: or distribution refers to how the product gets to the customer; for example, point of sale placement or retailing. This fourth P has also sometimes been called Place, referring to “where” a product or service is sold, where the our factory locate is the nearby the business market is it also very important. Because is to our customer come in and purchase the textile . Placement also is where our factory our factory is not all the place in certain place only our factory have .this my market posting I will use in make sure cutomers come and make profit for my company.
These four elements are often referred to as the marketing mix. A marketer can use these variables to craft a marketing plan. The four Ps model is most useful when marketing low value consumer products. Industrial products, services, high value consumer products require adjustments to this model. Services marketing must account for the unique nature of services. Industrial or b2b marketing must account for the long term contractual agreements that are typical in supply chain transactions. The unicist approach to marketing integrates the four elements based on their ontology, linking the marketing process with the selling action. Relationship marketing attempts to do this by looking at marketing from a long term relationship perspective rather than individual transactions.
Question 3
Purchasing department plays an important roles in the company. It has to make sure all activities in that department are run effectively and efficiently. There are some approaches applied by organization in order to achieve it. Below are some of the approaches normally used and you need to explain each of the approach by giving the definition, advantages and disadvantages of using this approach and in-depth explanation for each approach ( can use examples & diagram).
a)Material requirement planning.
Material requirement planning.
Material Requirement Planning (MRP)
Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes. An MRP system is intended to simultaneously meet three objectives:
· Ensure materials and products are available for production and delivery to customers.
· Maintain the lowest possible level of inventory.
· Plan manufacturing activities, delivery schedules and purchasing activities
All manufacturing organisations, whatever it is they produce, face the same daily practical problem - Customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required.
Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will lose the company money. A few examples are given below:
· If a company purchases insufficient quantities of an item used in manufacturing, or the wrong item, they may be unable to meet contracts to supply products by the agreed date.
· If a company purchases excessive quantities of an item, money is being wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all. This is a particularly severe problem for food manufacturers and companies with very short product life cycles. However, some purchased items will have a minimum quantity that must be met, therefore, purchasing excess is necessary.
· Beginning production of an order at the wrong time can mean customer deadlines being missed.
MRP is used by many organizations as a tool to deal with these problems. The questions it provides answers for are: WHAT items are required, HOW MANY are required and WHEN are they required by. This applies to items that are bought in and to sub-assemblies that go into more complex items. Material Requirements Planning (MRP) A dependent demand technique that uses bill-of-material, inventory, expected receipts, and a master production schedule to determine material requirements .
MRP STRUCTURE
Although most MRP systems are computerized, the MRP procedure is straightforward and can be done by hand. A master production schedule, a bill of material, inventory and purchase records, and lead times for each item are the ingredients of a material requirements planning system ( see Figure 1.0).Once these ingredients are available and accurate, the next step is to construct a gross material requirements plan. The Gross material requirements plan is a schedule. It combines a master production schedule (that requires one unit of A in week 8) and the time phased schedule .it shows when an item must be ordered form suppliers if there is no inventory on hand or when the production of an item must be started in order to satisfy demand for the finished product by a particular date
Gross material requirements plan A schedule that shows the total demand for an item ( prior to subtraction of on-hand inventory and scheduled receipts) and when it must be ordered from suppliers , or production must be started in order to meet its demand by a particular date. So far , we have considered gross material requirements, which assumes that there is no inventory on hand. When there is inventory on hand, we prepare a net requirements plan. When considering on-hand inventory , we must realize that many items in inventory contain subassemblies or parts . if the gross requirement for Awesome speaker kits (A’s) is 100 and there are 20 of those speakers on hand, the net requirement for Awesome speaker kits (A’s) is 80 (that is , 100-20). However , each Awesome speaker kit on hand contains 2 B’s As a result , the requirement for B’s drops by 40 B’s (20 A kits on hand × 2 B’s per A). Therefore, inventory is on hand for a parent item , the requirements for the parent item and all its components decrease because each Awesome kit containts the components for lower-level items . Example 3 shows how to create a net requirements plan
Data Files Output Reports
FIGURE 1.0 … Structure of the MRP System. MRP software programs are popular because many organizations face dependent demand situations .
MRP Management The material requirements plan is not static. And since MRP systems increasingly are in tegrated with just-in-time (JIT) techniques, we will now discuss these two issues.
MRP Dynamics Bills of material and material requirements plans are altered as changes in design, schedules, and production processes occur. Additionally, changes occur in material requirements whenever the master production schedule is modified. Regardless of the cause of any changes, the MRP model can be manipulated to reflect them. In this manner, an up to-date requirements schedule is possible.
Due to the changes that occur in MRP data, it is not uncommon to recomputed MRP requirements about once a week. Conveniently , a central strength of MRP is its timely and accurate replanning capacity. However , many firms find they do not want to respond to minor scheduling or quantity changes even if they are aware of them. These frequent changes generate what is called system nervousness and can create havoc in purchase and production departments if implemented . Consequently , OM personnel reduce such nervousness by evaluating the need and impact of changes prior to disseminating requests to other departments. Two tools are particularly helpful when trying to reduce MRP system nervousness.The first is time fences . Time fences allow a segment of the master schedule is thus not changed during the periodic regeneration of schedules. The second tool is pegging. Pegging means tracing upward in the BOM from the component to the parent item. By pegging upward , the production planner can determine the cause for the requirement and make a judgment about the necessity for a change in the schedule.
With MRP , the operations manager can react to the dynamics of the real world. How frequently the manager wishes to impose those changes on the firm requires professional judgment. Moreover , if the nervousness is caused by legitimate changes , then the proper response of operations management may be to investigate the production environment not adjust via MRP.
MRP and JIT
MRP is a planning and scheduling technique with fixed lead times, while just-in-time (JIT) is a way to move material expeditiously. Fixed lead times can be a limitation . For instance , the lead time to produce 50 units may vary substantially from the lead time to produce 1 unit . this limitation complicates the marriage of JIT and MRP . In many respects, however , an MRP system combined with JIT provides the best of both world. MRP provides a good master schedule and an accurate picture of requirements , and JIT reduces work –in-process inventory . let’s look at two approaches for integrating the two systems : small buckets and balanced flow.
Small Bucket Approach MRP is an excellent tool for resource and scheduling management in process-focused facilities that is, in job shops. Such facilities include machine shops, hospital, and restaurants , where lead times are relatively stable and poor balance between work centers is expected . Schedules are often driven by work orders , and lot sizes are the exploded bill-of-material size. In these enterprises , MRP can be integrated with JIT through the following steps . First , reduce MRP “buckets” from weekly to daily to perhaps hourly . Buckets are time units in an MRP system. Although the examples in this chapter have used weekly time buckets , many firms use daily or even fraction –of-a-day time buckets . Second , the planned receipts that are part of a firm’s planned orders in an MRP systems are communicated to the work areas for production purposes and used to sequence production .Third inventory is moved through the plant on a JIT basic. Fourth ,as products are completed , they are moved into inventory (typically finished goods inventory) in the normal way . receipt of these products into inventory reduces the quantities required for subsequent planned orders in the MRP system . Finally , a system known as back flush is used to reduce inventory balances . Back flushing uses the bill of materials to reduce component inventory quantities as each product it is based upon is completed.
The focus in these facilities becomes one of maintaining schedules . Nissan achieves success with this approach by computer communication links to suppliers. These schedules are confirmed , updated , or changed every 15 to 20 minutes . Suppliers provide deliveries 4 to 16 times per day . Master schedule performance is 99% on time, as measured every hour. On-time delivery from suppliers is 99.9% and for manufactured piece parts , 99.5%.
Balanced Flow Approach MRP supports the planning and scheduling necessary for repetitive operations, such as the assembly lines at Harley-Davidson, Whirlpool , and a thousand other places . In these environments , the planning portion of MRP is combined with JIT execution . The JIT portion uses kanbans , visual signals , and reliable suppliers to pull the material through the facility. In these systems, execution is achieved by maintaining carefully balanced flow of material to assembly ares with small lot sizes.
Material Requirements Planning (MRP) II
Material Requirements Planning II is an extremely powerful technique . Once a firm has MRP in place , inventory data can be augmented by labor-hours , by material cost (rather than material quantity), by capital cost, or by virtually any resource. When MRP is used this way, it is usually referred to a MRP II, and resource is usually substituted for requirements. MRP then stands for material resource planning.
For instance, so far in our discussion of MRP, we have scheduled units (quantities). However , each of these units requires resources in addition to its components . Those additional resources include labor-hours , machine –hours , and accounts payable (cash). Each of these resources can be used in an MRP format just as we used quantities . Table 1.1 shows how to determine the labor-hours , machine –hours , and cash that a sample master production schedule will require in each period.
TABLE 1.1 ..Material Resource Planning (MRP II). By utilizing the logic of MRP, resources such as labor , machine –hours , and cost can be accurately determined for 100 units are shown.
W
E
E
K
5
6
7
8
A. A. Units (lead time 1 week)
B.
C. Labor : 10 hours each
D.
E. Machine : 2 hours each
F.
G. Payable : $ 0 each
100
1,000
200
0
B. Units (lead time 2 weeks, 2 each required)
H.
I. Labor : 10 hours each
J.
K. Machine : 2 hours each
Payable : Raw material at $5 each
200
2,000
400
1,000
C. Units (lead time 4 weeks, 3 each required)
L.
M. Labor : 2 hours each
N.
O. Machine : 1 hours each
Payable : Raw material at $10 each
300
600
300
3,000
These requirements are then compared with the respective capacity (that is, labor-hours, machine –hours , cash, and so forth), so operations managers can make schedules that will work. The potential of MRP II, combined with other information To aid the functioning of MRP II, most MRP II computer programs are tied into other computer files that provide data to the MRP system or receive data from the MRP system . Purchasing , production scheduling , capacity planning, and warehouse management are a few examples of this data integration.
Enterprise Resource Planning (ERP)
MRP II has evolved to include order entry , purchasing , and direct interfaces with customers and suppliers such as electronic data interchange (EDI) and advanced shipping notice (ASN). These advanced MRP II systems that tie customers and suppliers to MRP II are now referred to as Enterprise Resource Planning (ERP) systems. For example, company like Vanessa Versace may use a fully integrated ERP system to receive an order electronically form a customer in Brazil , issue necessary purchase order to suppliers in Italy, change inventory levels , notify shippers on both ends of the transaction , update the MRP system , provide files for updating payables and receivables , and do it all in the proper currency . this means performing exchange rate conversions so the sale in the Brazilian real and the purchase of parts in the Italian lira are posted correctly
Among the leading enterprise resource planning (ERP) systems are software packages sold PeopleSoft , American Software, J.D . Edwards , BAAN , and SAP . SAP appears to be the current leader among these vendors with its R/3 software, a three-tier client/server configuration consisting of (1) high speed data base servers , (2) application servers , and (3) front end servers . ERP packages , because of the high level of integration , can be terribly expensive and complex to install. However , as firms seek competitive advantage by tying both suppliers and distributors more closely to their own organizations ,more complex information systems seem inevitable.
When these systems work, they can be a major benefit. Although the typical ERP system is an umbrella system , which ties together a variety of specialized systems , exactly what is tied together , and how , varies on a case –by-case basic . In some discussions , ERP may include not only MRP II , order entry , purchasing , and EDI , but also other major business processes , such as accounting , finance, and human resources , as well as supply-chain features . ERP systems development is ongoing, the phase is used to describe a variety of systems
MRP IN SERVICES
The demand for many services or service items is classifieds dependent demand when it is directly related to or derived form the demand for other services . For examples, in a restaurant where bread and vegetables is dependent on the demand for meals . the meal is an end item and the bread and vegetables are component items. MRP also applied in hospitals, especcially when dealing with surgeries that require equipment , materials, and supplies. Houston’s Park Plaza Hospital , For example , uses the technique to improve the management of expensive surgical inventory.
.
b) Just in Time (JIT)
The philosophy behind just-in-time (JIT) is continuing improvement and enforced problem solving. JIT systems are designed to produce or deliver goods just as they are needed. When implemented, JIT reduces the amount of inventory that a firm has on hand by establishing quality and purchasing controls that bring inventory to the firm just-in-time for use. JIT is related to quality in three ways .
· JIT cuts the cost of quality . this occurs because scrap , rework , inventory investment , and damage costs are directly related to inventory on hand . because there is less inventory on hand with JIT , costs are lower. Additionally , inventory hides bad quality whereas JIT immediately exposes bad quality.
· JIT improves quality . As JIT Shrinks lead time, it keeps evidence of errors fresh and limits the number of potential sources of error .JIT creates , in effect , an early warning system for quality problem , both within the firm and with vendors.
· Better quality means less inventory and a better , easier –to-employ JIT system . Often the purpose of keeping inventory is to protect against poor production performance resulting from unreliable quality . If consistent quality exists , JIT Allows firms to reduce all the costs associated with inventory.
Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. The process is driven by a series of signals, or Kanban that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency when implemented correctly.
New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical demand. If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted a trailing 13 week average is a better predictor than most forecasters could provide.
The Just in Time philosophy was also applied to other segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment. Just in Time a Philosophy of continuous and forced problem solving that drives out waste . Just in Time is a philosophy of continuous and forced problem solving. With JIT supplies and components are “pulled” through a system to arrive where they are needed when they are needed . When good units do not arrive just needed. A “Problem” has been identified. This makes JIT an excellent tool to help operations manager add values by driving out waste and unwanted variability . Because there is no excess inventory as excess time in a JIT system . costs associated with unneeded inventory are eliminated and throughput improved. Consequently . the benefits of JIT are particularly helpful in supporting strategies of rapid respond and low cost .Because elimination waste and variability and the concept of “ puling” material are fundamental to JIT. We will briefly discuss these in this section . In the remainder of this supplement . we will introduce applications of JIT in dealing with suppliers inventory, scheduling , quantity , and employee empowerment.
Waste Reduction When we talk about waste in the production of goods or services are describing anything that does not add value . Products being stored . inspected layed , products waiting in queues , and defective products do not add value ; they are 100 % waste. Moreover , any activity that does not add value to a product form the customer’s perspective is waste . JIT speeds up throughput, allowing faster delivery times and reducing work-in-process. Reducing work-in-process releases assets in inventory for other more productive purposes. Variability reduction to achieve just-in-time material movement , managers reduce variability caused by both internal and external factors . Variability any deviation from the optimum process that delivers perfect product on time , every time.
Pull Versus Push the concept behind JIT is that of a pull system : a system that pulls a unit to where it needed just as it s needed. A pull system uses signals to request production and delivery from stations upstream to the station that has production capacity available . The “pull” concept is used both within the immediate production process and with suppliers . by pulling material through the system In very small lots just as it is needed , the cushion of inventory that hides problems is removed , problems become evident, and continuous improvement is emphasized. Removing the cushion of inventory also reduces both investment in inventory and manufacturing cycle time.
Manufacturing cycle time is the time between the arrival of raw materials and the shipping of finished products. For example, at Northern Telecom, a phone switching system manufacturer , materials are pulled directly from qualified suppliers to the assembly line. This effort reduced Northern’s receiving segment of manufacturing cycle time from 3 weeks to just 4 hours , the incoming inspection staff from 47 to 24, and problems on the shop floor caused by defective materials by 97%.
Many firms still move material through their facilities in a “push” Fashion. A push
System dumps orders on the next downstream workstation regardless of timeliness and resource availability. Push systems are the antithesis of JIT.
Suppliers
Incoming material is often delaying at the shipper , in transit , at receiving departments , and a Incoming inspection. Similarly, finished goods are often stored or held at warehouses prior to shipment to distributors or customers. Because holding inventory is wasteful, JIT partnerships are directed toward reducing such waste.
TABLE S 1.2 JIT Contributes to competitive Advantage
JIT REQUIRES:
Suppliers
Reduced number of vendors ; Supportive supplier relationships ; quality deliveries on time
Layout
work –cell layouts with testing at each step of the process; group technology ; movable, changeable , flexible machinery ; high level of workplace organization and neatness; Reduced space for inventory ; Delivery directly to work areas.
Inventory
Small lot sizes ; low setup time ;
Specialized bins for holding set number of parts.
Scheduling
Zero deviation from schedules ; level schedules ; suppliers informed of schedules ; Kanban techniques
Preventive maintenance
Scheduled; Daily routine ; Operator involvement
Quality production
Statistical process control ; quality suppliers ; Quality within the firm.
Employee empowerment
Empowered and cross-trained employees ; Training support ; Few job classifications to ensure flexibility of employees .
Commitment
Support of management , employees , and suppliers
WHICH RESULTS IN:
Queue and delay reduction speeds throughput , frees assets, and wins orders
Quality improvement reduces waste and wins orders
Cost reduction increases margin or reduces selling price
Variability reduction in the workplace reduces wastes and wins orders
Rework reduction reduces wastes and wins orders
WHICH YIELDS :
Faster response to the customer at lower cost and higher quality-
A Competitive Advantage
JIT partnerships is partnerships of suppliers and purchasers that remove waste and drive down costs for mutual benefits. JIT partnerships exist when supplier and purchaser work together with a mutual goal of removing waste and driving down costs. Such relationships are critical for successful JIT. Every moment material is held , some process that adds value should be occurring. To ensure this is the case , Xerox, like other leading organizations , views the supplier as an extension of its own organization. Because of this view, the Xerox staff expects suppliers to be as fully committed to improvement as Xerox . This relationship requires a high degree of openness by both supplier and purchaser . Table S 1.3 Shows the characteristics of JIT partnerships.
TABLE S 1.3 …Characteristics of JIT Partnership
Suppliers
Few suppliers
Nearby suppliers
Repeat business with same suppliers
Analysis to enable desirable suppliers to become or to stay price competitive
Competitive bidding mostly limited to new purchases
Buyer resists vertical integration and subsequent wipeout of supplier business
Suppliers encouraged to extend JIT buying to their suppliers
Quantities
Steady output rate
Frequent deliveries in small-lot quantities
Long-term contract agreements
Minimal paperwork to release orders
Delivery quantities fixed for whole contract term
Little or no permissible overage or underage
Suppliers package in exact quantities
Suppliers reduce their production lot sizes (or store unreleased material)
Quality
Minimal product specifications imposed on supplier
Help Suppliers to meet quality requirements
Close relationship between buyers’ and Suppliers’ quality assurance people
Suppliers use process control charts instead of lot-sampling inspection
Shipping
Scheduling of inbound freight
Gain control by use of company-owned or contract shipping and warehousing .
Goals of JIT Partnerships
The Goals of JIT Partnerships:
1. Elimination of unnecessary activities. With good suppliers, for instance , receiving activity and incoming-inspection activity are unnecessary under JIT.
2. Elimination of in-plant inventory. JIT delivers materials where and when needed. Raw material inventory is necessary only if there is reason to believe that suppliers are undependable. Likewise, parts or components should be delivered in small lots directly to the using department as needed.
3. Elimination of in-transit inventory. General Motors once estimated that at any given time , over one half of its inventory is in transit. Modern purchasing department are now addressing in-transit inventory reduction by encouraging suppliers and prospective suppliers to locate near manufacturing plants and provide frequent small shipments. The shorter the flow of material in the resource pipeline, the less inventory. Inventory can also be reduced by a technique known as consignment . Under a consignment inventory arrangement , the supplier maintains the title to the inventory until it is used. For instance , an assembly plant may find a hardware supplier that is willing to locate its warehouse where the user currently has its stockroom. In this manner , when hardware is needed, it is no farther than the stockroom, and the supplier can ship to other , perhaps smaller , purchasers from the “stockroom”.
4. Elimination of poor suppliers . When a firm reduces the number of suppliers , it increases long-term commitments. To obtain improved quality and reliability , vendors and purchasers have mutual understanding and trust . Achieving deliveries only when needed and in the exact quantities needed also requires perfect quality –or as it is also known , zero defects . Of course , both the supplier and the delivery system must be excellent.
Concerns of Suppliers
To establish JIT partnerships , several supplier concerns must be addressed . the supplier concerns include :
1. desire for diversification. Many supplier do not want to tie themselves to long-term contracts with one costumers . the suppliers’ perception is that they reduce their risk if they have a variety of customers.
2. poor customer scheduling, Many suppliers have little faith in the purchaser’s ability to reduce orders to a smooth , coordinated schedule.
3. Engineering changes . Frequent engineering changes, with inadequate lead time for suppliers to carry out tooling and process changes , play havoc with JIT
4. Quality assurance . production with zero defects is not considered realistic by many suppliers.
5. Small lot sizes . Suppliers often have processes designed for large lot sizes and see frequent delivery to the customer in small lots as a way to transfer holding costs to the supplier.
6. proximity . Depending upon the customer’s location , frequent supplier delivery of small lots may be seen as economically prohibitive.
For those who remain skeptical of JIT partnerships, we would point out that virtually every restaurant in the world practices JIT, and with little staff support . Many restaurants order food for next day in the middle of the night for delivery the next morning . they are ordering just what is needed, for delivery when it is needed, from reliable suppliers.
JIT LAYOUT
JIT layout reduce another kind of waste –movement. The movement of material on a factory floor (or paper in an office) does not add value. Consequently, we want flexible layouts that reduce the movement of both people and material. JIT layout move material directly to the location where needed. For instance, an assembly line should be designed with delivery points next to the line so material need not be delivered first to a receiving department elsewhere in the plant, then moved again. This is what VF Corporation’s Wrangler Division in Greensboro, North Carolina, did . Now denim is delivered directly to the line , When a layout reduces distance, the firm also saves space and eliminates potential areas for unwanted inventory.
Reducing distance is a major contribution of work cells , work centers , and focused factories . the days of long production lines and huge economic lots, with goods passing through monumental , single –operation machines , are gone . now firms use work cells, often arranged in a U shape , containing several machines performing different operations . these work cells are often based on group technology codes . Group technology codes help us identify components with similar characteristics so we can group them into families . Once families are identified , work cells are built for them . the result can be thought of as a small product-oriented facility where the “product” is actually a group of similar product-a family of products. The cells produce one good unit at a time, and ideally they produce the units only after a customer orders them.
Increased Flexibility
Modern work cells are designed so they can be easily rearranged to adapt to changes in volume , product improvements , or even new designs. Almost nothing in these new departments is bolted down. This same concept of layout flexibility applies to office environments. Not only are most office furniture and equipment movable , but so are office walls computer connections , and telecommunications. Layout flexibility aids the changes that result from product and process improvements that are inevitable with a philosophy of continuous improvement.
Impact on Employees
Employees working together are cross-trained so they can bring flexibility and efficiency to the work cell. JIT layouts allow employees to work together so they can tell each other about problems and opportunities for improvement. When layouts provide for sequential operations , feedback can be immediate . Defects are waste. When workers produce units one at a time , they test each product or component at each subsequent production stage Machines in work cells with self-testing “poka-yoke” functions detect defects and stop automatically when they occur . before JIT, defective products were replaced from inventory. Because surplus inventory is not kept in JIT facilities, there are no such buffers. Getting it right the first time is critical.
Reduced Space and Inventory
Because JIT layouts reduce travel distance, they also reduce inventory by removing space for inventory. When there is little space, inventory must be moved in very small lots or even single units . Units are always moving because there is no storage. For instance , each month security Pacific Corporation’s focused facility sorts 7 million checks , processes 5 million statements , and mails 190 ,000 customer statements . With a JIT layout , mail processing time has been reduced by 33%, salary costs by $ tens of thousands per year , floor space by 50%, and in-process waiting lines by 75% to 90%. Storage , including shelves and drawers, has been removed.
INVENTORY
Inventories in production and distribution systems often exist “just in case” something goes wrong . that is they are used just in case some variation from the production occurs . the “extra” inventory is then used to cover variations or problems. Effect inventory tactics require “just in time” not “ just in case” Just in time inventory is the minimum inventory necessary to keep a perfect system running . with just in time inventory , the exact amount of goods arrives at the moment it is needed, not a minute before a minute after .
References……………
Note of MISS NORAISHAH KAMAROLZAMAN
BUSINESS MARKETING BOOK….WRITER
EDWARD G. BRIERTY ,
ROBERT W. ECKLES ,
ROBERT R. REEDER
http://www.themanagementor.com/enlightenmentorareas/mrkt/index.htm
http://www.strategosinc.com/just_in_time.htm
http://en.wikipedia.org
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