jit - mrp - pomsmeetings.org erp software "optimiser 10.6" was utilized with bom explosion...

Post -Implementation Analysis on JIT strategy under a MRP Environment

Abstract code 020-0594


Dr. Ravishankar Basappa, Professor& Head, IEM, BMS College of Engineering,

Bangalore.India

Gurudatt Lakshminarayana Rao C , Research Scholar, IEM, BMS College of

Engineering, Bangalore , India.

Dr. Jayathirtha Rotti, Research Guide, CEO Bulleye Consulting Group , Bangalore ,India

POMS 22nd

Annual Conference, Reno, Nevada , USA, April 29 to May 2, 2011 ----------------------------------------------------------------------------------------------------------------

Abstract: It is clearly demonstrated that JIT impacts all the areas of manufacturing

management and reduces the waste in the system. The combined effect of all above

drives the organization slack to zero. This paper focuses on MRP implementation in a

small- and medium-scale manufacturing firm in India with JIT approach. MRP

implementation gains are in the form of inventory reduction, thereby reducing working

capital needs and also reducing the stock obsolescence. There is enough evidence

available in literature and research applied by various scientists across the world. Here

an attempt is made on how JIT helps to manage inventory and earn fruitful returns. An

customizable ERP software "OPTIMISER 10.6" was utilized with BOM explosion and

also generating net requirements based on existing stocks at the time of MRP runs. This

study clearly showed the reduction of inventory with MRP implementation with a JIT

approach. This paper is an extension of our earlier paper 007-0484 .

Key words; Just-in-time (JIT), Manufacturing Resource Planning (MRP), Implementation.

Literature review::

Over the past three decades, Japanese manufacturing practices in general and Just-In-Time

production in particular have received a great attention from Western researchers and

manufacturing firms in trial to catch-up in Japan in terms of quality, productivity and lost

cost. The JIT advocates the elimination of waste by simplifying production processes,

reductions in set up times, controlling material flows and emphasizing preventive

maintenance are seen as ways by which excess inventories can be reduced or eliminated and

resources utilized more efficiently. (Kannan and Tan, 2005)

Published research papers covered a wide area of JIT. Early papers tried to identify JIT

elements and whether or not they are associated with Japanese culture and their applicability


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in western manufacturing firms. Golhar and Stamm (1991) classified articles associated with

JIT published in the 1980s as follows: Global productivity comparison articles,

JIT/MRP/OPT comparison articles, articles on JIT practices, Kanban, cellular manufacturing,

accounting, Human Resource Management, purchasing and quality.

Later, emphasize was given to the impact of JIT on both competitive operational and

financial performances of the firm. These operational practices included total quality

management, information systems, technology and others. Sakakibara et al (1997) asserted

that the connection between JIT and manufacturing strategy is rarely discussed in the

literature covering research on manufacturing strategy as necessary infrastructure for JIT

production (Sakakibara et al. (1997); Ahmad et al. (2003)).

The JIT production was described by Taiichi Ohnco, the godfather of Toyota production

system, as “All we are doing at the time line from the moment the customer gives us an order

to the point when we collect the cash, and we are reducing that time line by removing the

non-value-added wastes” (Liker, 2004). One motivating reason for developing JIT and other

better production techniques was that after World War II. Japanese people had a very strong

incentive to develop good manufacturing techniques to help them rebuild the economy

(Cheng, 1996).

There are seven forms of waste identified by Toyota engineers: Waste of overproduction,

Waste of inventory, waste of repair/defects, waste of motion (unnecessary movement), Waste

of processing, and Waste of waiting and Waste of Transport (Womack and Roos, 1990; Imai,

1997; Taylor and Brunt, 2001; Liker, 2004).

There is no agreement on a clear definition of JIT as generally defined concept is as follows

as per Hallihan et al. 1997and Voss and Robinson (1987) : “JIT may be viewed as a

production methodology which aims to improve overall productivity through the elimination

of waste and which leads to improved quality. The in the manufacturing/assembly process

JIT provies the cost-effective production and delivery of only the necessary quality parts, in

the right quantity, at the right time and place while using a minimum of facilities, equipment,

materials and human resources. JIT is dependent on the balance between the stability of the

user’s scheduled requirements and the supplier’s manufacturing flexibility. It is accompanied

through the application of specific techniques which require total employee involvement and

team work”.

Many researchers have tried to identify the main elements of JIT. However, there is little

consensus among researchers regarding the relative importance of these elements in the JIT


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implementation process (Ramarapu et al., 1995). However the potential synergic benefits are

not fully realized until all elements of a JIT system are integrated (goyal and Deshmukh,

1992).

Research has shown several benefits obtained by implementing JIT production. According to

Hay (1998), JIT not only provide companies with great increases in quality of their

manufactured goods, but also help a company to cut response time to market by as much as

90 percent. The most cited JIT benefit is cost reduction. Other benefits included: inventory

reduction, increased quality and productivity levels, improved relationship with suppliers,

improved customer service, reduced lead time, reduced work in process and raw materials,

increased inventory turnover, downtime reduction, workspace reduction (Mehra and Inman,

1992; Sohal et al., 1993 Markham and McCart 1995; Yasin and Wafa 1996; Sriparavastu and

Gupta, 1997; Imai, 1997).

1.0: Organization: This study was conducted in an SME automotive engineering firm. The

organization was following conventional manual planning systems and inventory

management was mostly on thumb rules developed over a long period of time. Fabrication

and assembly facilities were on functional basis and use of computers were limited to

financial accounting. It was a common practice to have higher buffer stock to decouple

fabrication and assembly production stoppages due to stock outages. The company has

several specialized products, out of which the following are the fast moving ones. 1. Bearing

2. Assembled Drive Shafts 3. Assembled Tapered Shafts. The following are the requirements

from the different customers. It should be noted that a lead-time of 20 days is required to

accept orders.

Customer A

Particulars Quantity Order Date Delivery date

Bearings 10000 10th Jul 09 30th Sep 09

Assembled Shafts 4500 10th Jul 09 30th

Sep 09

Customer B


Assembled Shafts 6250 10th Jul 09 10th Oct 09

Tapered Shafts 8450 14th Jul 09 11th Oct 09

Customer C



Sep 09

Tapered Shafts 900 14th Jul 09 21st Oct 09

Customer D


Bearings 1250 10th Jul 09 30th

Sep 09


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Oct 09

Tapered Shafts 230 10th Jul 09 11th

Oct 09

Table 1.1: Order Information

Customer A Customer B Customer C Customer D

Particulars

Order No:

3130

Order No:

3131

Order No:

3132

Order No:

3133 Total Order Qty

Bearings 10000 0 0 5550 15550

Assembled Shafts 4500 2350 6250 165 13265

Tapered Shafts 0 900 8450 230 9580

Table 1.2 Complete Order information

1.1 Selling Prices:

Sl No Particulars EOQ Cost/unit

1 Assembled Shafts 500 4500

2 Tapered Shafts 250 4916

3 Bearings B103 350 452

4 Eccentric Shafts --

5 Engine Casing Assembly --

6 Piston Rings Assembly --

Table 1.3: Component cost and EOQ details

2.0: Problem: Currently the firm does not use MRP methodology and also do not have any

system of enterprise level planning. Each location works like an independent factory with its

own production planning and delivery logic. Issues of delivery slippages, quality,

planning and tight co-ordination issues had cropped up due to sub-optimal utilization of

production resources both manpower and machines. Since the planning was manual and

based on thumb rules for inventory management, it was felt there was excess inventory in the

production system in the form of buffer stocks to take care of supplier quality issues, irregular

supplies, obsolescence and changes in the final delivery plans. These excess stocks were

impacting the working capital on higher side and also denting the profits due to higher

interest outgo.

3.0: Objectives: Twin objectives of this study are (a) Reduce working capital requirement by

reducing excess inventory and (b) increase profits due to reduced working capital

requirements

4.0: Proposed results: It is expected due to application of scientific methods of inventory

control due to rigorous application of MRP logic, there will be reduction of inventory. This

will directly affect the working capital requirements and also enhancing profits due to lower

interest out-go.


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5.0: Methodology: It was decided to compare the stock levels with respect to the production

plans at two levels – one with existing manual thumb-rule based ordering and the latter with

application of MRP logic .The entire production run was divided into fixed interval MRP

runs based on time-phasing and ordering based on actual stock based requirements. An ERP

software “OPTIMIZER 10.6” was used for Bill of materials explosion and arriving at gross

and net requirements

6.0 MRP Process Constraints:

1. The company runs MRP once in 15 days.

2. Orders, which are approved, are supposed to undergo MRP process.

3. There are no Order cancellations after approval.

4. MRP Process cant run on Sundays and General holidays

5. In such cases process is run on either the preceding or succeeding days.

6. Purchase Order has to be sent to vendors after approval.

7. Shop Order has to be sent to production after approval.

7.0 Inventory Scenario:

All components are replenished every 20 days by 10000 numbers and the same amount can

be replenished in case of early consumption. The cost of storage is given as follows.

1. Initial stock of 20000 units for all components is to be considered.

2. The costs of money lock up to be taken as 36%

3. All items loose value every 30 days.

4. Cost of Scrap is 20% of face value.

8.0 Results to be obtained are:

1. Report on order quantity.

2. Report on ordering frequency.

3. Report on status of each order as on 30 days from start.

4. Generate a Purchase Order date wise and MRP number wise.

5. Generate a Shop Order date wise and MRP number wise.

6. Report on the Actual Vs Required Inventory.

7. Generate a list of MRP quantities for the entire time period.

8. Conducts cost analyses and suggest suitable remedies.


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9. Bill of Materials Report (Explode).

10. Closing quantity report.

9.Product Details:

9.1:Product Name: Bearings

Prod ID: b1030, Family: mn1

Sr. No. Component Name Component ID Numbers Make/Buy Cost/unit

1 Steel balls Sb1030 10 Make 20

2 Outer ring Or1030 1 Make 89

3 Inner ring Ir1030 1 Make 78

4 Lubricant Lu1030 1ml Buy 75

5 Oil seal Os1030 3 Buy 60

Table 1.4: List of components for Bearings

9.2 :Product Name: Assembled Shafts

Prod ID: as1030, Family: mn2

Sr. No. Component Name Component ID Number Make/Buy Cost/unit

1 Main shaft Ms1030 1 Make 1159

2 Sub shaft Ss1030 1 Make 1000

3 Coupling1 C10301 1 Make 900

4 Bearings B10301 2 Make 452

5 Nuts1 N10301 4 Make 11

6 Washers Wa1031 4 Make 11

7 Bolts Bo1031 4 Buy 21

8 Split pins1 S10301 2 Make 15

Table 1.5: List of components for Assembled shafts

9.3: Product Name: Tapered Shafts

Prod ID: ts1030, Family: mn3

Sr. No. Component Component ID Number Make/Buy Cost/unit

1 Top shaft To1030 1 Make 1159

2 Main shaft Ms1032 1 Make 1187

3 Coupling2 C10302 1 Make 900

4 Bearings B10302 2 Make 1085

5 Split pins2 S10302 2 Buy 60

6 Nuts2 N10302 4 Buy 42

7 Washer Wa1032 4 Make 42

8 Bolts Bo1032 4 Buy 42

Table 1.6: List of components for Tapered shafts

10.0: Methodology:


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The methodology followed for the given case study is as shown below.

Fig 3.1: Process Flow Chart for execution of Case study

Note: The red colored process indicates that different strategies can be implemented to

perform the activity

11.0: Order Management:

The order management process involves three sections which include entering the orders,

confirming and approval.. The processes are explained briefly below.

• Order Entry Form – In the form order details like customer name, contact

details, address, phone numbers, order date, delivery date, order quantity, product

details, and package information.

• Order Confirm – entered orders are confirmed and modifications like addition

and deletion of quantity for the existing order is done here.

• Order Approval – Confirmed orders are approved here and this is the final stage

for order execution. After this stage there will be no corrections or changes.


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12.0: BOM Entries:

The components of the products are defined here in BOM Define form with suitable

product ID, product Code, product description and family as given in the product details

table.

13.0: Initial Stock Status Entry:

The given amount of stock of 20000 units for all components is entered in the

Inventory Stock Area form.

14.0: MRP Execution:

To run the MRP different strategies can be incorporated which suits the scenario by

keeping the cost factor, inventory handling in mind.

Almost every company has to follow certain strategy to reduce the cost and handle the

process efficiently.

Here in the case study, different strategies are experimented to have an insight of how

things would vary along with the changing situations.

15.0: Working capital gains evaluation

The difference in stocks after each MRP run if it is positive is considered as excess stock and

has been valued to arrive at combined cost of excess inventory holding and scrapping cost

due to obsolescence. This cost is summated after all MRP runs to arrive at total cost due to

excess inventory. This excess inventory would have affected the working capital

requirements and also increasing the interest out goes due working capital tied to excess

inventory holding. This interest out-go in turn will affect the profitability of the operations

and also company profits there by affecting the economic health of the company in particular

and industrial economy in general.

MRP was run five times on scheduled dates. The actual table generated after MRP run by the

software tool “OPTIMIZER” has been presented in table form ( Table No’s 19 to 23) at the

end of this report due to two-column format constraints.

16.0: Strategy : Just In Time (JIT) replenishment of goods

This is one of the optimized strategies what a company can utilize to reduce the operating

costs and increase the profits. Here goods are taken as and when required and at the required


22nd-POMS-Reno 9

amount. For e.g., if we need 3500 units of steel balls to run the MRP, then we receive only

3500 unit of goods and utilize it for the execution. Only goods which are required are ordered

and executed for manufacturing.

By following the basic constraints given initially, the process of action and execution is made

accordingly.

Assumptions: Some assumptions are made for the strategy to make it better and optimize

completely.

∋ It is assumed that goods ordered will be delivered with a minimal amount of lead time

∋ Goods can be received for any quantity.

∋ Goods are received even before the 20 day cycle period as mentioned in the

constraint.

The summarized details for execution of the strategy are as shown below.

Just-In-Time (JIT) Replenishment of goods and minimizing the scrap amount

MRP Execution Plan

30-Jul 14-Aug 29-Aug 14-Sep 29-Sep

Bearings 2000 8000 5550 0

Assembled

Shafts 5000 2500 2880 2885 0

Tapered Shafts 5000 2170 760 750 900

Goods receiving Cycle (initial stock is 20000 units for all components)

30-Jul 14-Aug 29-Aug 14-Sep 29-Sep

Goods Status Goods are received as and when required and at the same time goods left are

scrapped on every 30 days

Results :

The colored segments differentiate the components for bearings, assembled shafts and

tapered shafts. Due to space constraints details of MRP run 01 and MRP run 05 are exhibited

excluding MRP run 02,03 and 04

1st MRP on 30-Jul and goods received on 30-Jul (with initial stock being 20000 for all components)

Component qty goods

received

goods

avail

Reqd.

qty

avail

qty

Status

after

cost

of 1

money

lock-up

value

of

Total

Expenditure


22nd-POMS-Reno 10

(initial

stock)

MRP unit of 36%

for 15

days

dead

stock

(with

scrapping)

steel ball 10 0 20000 20000 20000 0 20 6000 0 6000

outer ring 1 0 20000 2000 20000 18000 89 26700 0 26700

inner ring 1 0 20000 2000 20000 18000 78 23400 0 23400

Lubricant 1 0 20000 2000 20000 18000 75 22500 0 22500

oil seal 3 0 20000 6000 20000 14000 60 18000 0 18000

main shaft 1 1 0 20000 5000 20000 15000 1159 347700 0 347700

Sub shaft 1 0 20000 5000 20000 15000 1000 300000 0 300000

coupling 1 1 0 20000 5000 20000 15000 900 270000 0 270000

bearing 1 2 0 20000 10000 20000 10000 452 135600 0 135600

nuts 1 4 0 20000 20000 20000 0 11 3300 0 3300

washer 1 4 0 20000 20000 20000 0 11 3300 0 3300

bolts 1 4 0 20000 20000 20000 0 21 6300 0 6300

split pin 1 2 0 20000 10000 20000 10000 15 4500 0 4500

Top shaft 1 0 20000 5000 20000 15000 1159 347700 0 347700

main shaft 2 1 0 20000 5000 20000 15000 1187 356100 0 356100

coupling 2 1 0 20000 5000 20000 15000 900 270000 0 270000

bearings 2 2 0 20000 10000 20000 10000 1085 325500 0 325500

split pin 2 2 0 20000 10000 20000 10000 60 18000 0 18000

nuts 2 4 0 20000 20000 20000 0 42 12600 0 12600

washer 2 4 0 20000 20000 20000 0 42 12600 0 12600

bolts 2 4 0 20000 20000 20000 0 42 12600 0 12600

Total money

Lock-up 2522400 0 Total 2,522,400

Table 1.7: Status after 1st MRP

5th MRP on 29-Sep and goods received on 28-Sep

component qty goods

received

goods

avail

reqd

qty

avail

qty

Status

after

MRP

cost of

1 unit

money

lock-up

of 36%

for 15

days

value of

dead

stock

Total

Expenditure

(with

scrapping)

steel ball 10 0 0 0 0 0 20 0 0 0


22nd-POMS-Reno 11

outer ring 1 0 0 0 0 0 89 0 0 0

inner ring 1 0 0 0 0 0 78 0 0 0

Lubricant 1 0 0 0 0 0 75 0 0 0

oil seal 3 0 0 0 0 0 60 0 0 0

main shaft 1 1 0 0 0 0 0 1159 0 0 0

sub shaft 1 0 0 0 0 0 1000 0 0 0

coupling 1 1 0 0 0 0 0 900 0 0 0

bearing 1 2 0 0 0 0 0 452 0 0 0

nuts 1 4 0 0 0 0 0 11 0 0 0

washer 1 4 0 0 0 0 0 11 0 0 0

bolts 1 4 0 0 0 0 0 21 0 0 0

split pin 1 2 0 0 0 0 0 15 0 0 0

top shaft 1 900 0 900 900 0 1159 15646.5 0 15646.5

main shaft 2 1 900 0 900 900 0 1187 16024.5 0 16024.5

coupling 2 1 900 0 900 900 0 900 12150 0 12150

bearings 2 2 1800 0 1800 1800 0 1085 29295 0 29295

split pin 2 2 1800 0 1800 1800 0 60 1620 0 1620

nuts 2 4 3600 0 3600 3600 0 42 2268 0 2268

washer 2 4 3600 0 3600 3600 0 42 2268 0 2268

bolts 2 4 3600 0 3600 3600 0 42 2268 0 2268

Total money

Lock-up 81540 0 Total 81,540

Table 1.8: Status after 5th

MRP and goods received

Graphs :

Details for steel balls (10 units) in bearings ( JIT replenishment)

30th Jun

MRP, GR

14th Aug

MRP,

GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available before

receiving 20000 0 0 0 0

Goods received (GR) 30000 50000 55500 0 0

Inventory status before

MRP 50000 50000 55500 0 0

MRP runs 50000 50000 55500 0 0

Inventory status after

MRP 0 0 0 0 0

Goods scrapped (GS) 0 0 0 0 0


22nd-POMS-Reno 12

G.1.1: MRP V/s Inventory for steel balls in bearings

Details for oil seal (3 units) in bearings ( JIT replenishment)

30th Jun

MRP,

GR

14th Aug

MRP,

GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available

before receiving 20000 5000 0 0 0


Inventory status

before MRP 20000 15000 16650 0 0

MRP runs 15000 15000 16650 0 0


MRP 5000 0 0 0 0



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G1.2: MRP V/s Inventory for oil seals in bearings

Details for all other components (1 unit) of bearings - ( JIT Replenishment)

30th Jun

MRP,

GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available



Inventory status

before MRP 20000 15000 15550 0 0

MRP runs 5000 5000 5550 0 0


MRP 15000 10000 0 0 0



22nd-POMS-Reno 14

G.1.3: MRP V/s Inventory for components having 1 unit in bearings

Details for nuts, washers, bolts (4 units) in assembled shafts ( JIT replenishment)

30th Jun

MRP, GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP


receiving 20000 0 0 0 0



MRP 20000 10000 11520 11540 0

MRP runs 20000 10000 11520 11540 0


MRP 0 0 0 0 0



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G1.4: MRP V/s Inventory for components having 4 units in assembled shafts

Details for bearings, split pins (2 units) in assembled shafts ( JIT replenishment)

30th Jun

MRP,

GR

14th

Aug

MRP,

GR

29th Aug GR,

MRP, GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP


receiving 20000 10000 5000 0 0



MRP 20000 10000 11640 6610 0

MRP runs 10000 5000 6640 6610 0


MRP 10000 5000 0 0 0



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G1.5: MRP V/s Inventory for components having 2 units in assembled shafts

Details for all other components (1 unit) of assembled shafts - ( JIT Replenishment)

30th Jun

MRP, GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available


Goods received

(GR) 0 0 2880 2885 0

Inventory status

before MRP 20000 15000 15380 2885 0

MRP runs 5000 2500 2880 2885 0

Inventory status

after MRP 15000 12500 0 0 0

Goods scrapped

(GS) 0 0 12500 0 0


22nd-POMS-Reno 17

G1.6: MRP V/s Inventory for components having 1 unit in assembled shafts

Details for nuts, washers, bolts (4 units) in tapered shafts ( JIT replenishment)

30th Jun

MRP, GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available


Goods received

(GR) 0 8680 3040 3000 3600

Inventory status

before MRP 20000 8680 3040 3000 3600

MRP runs 20000 8680 3040 3000 3600

Inventory status

after MRP 0 0 0 0 0

Goods scrapped

(GS) 0 0 0 0 0


22nd-POMS-Reno 18

G1.7: MRP V/s Inventory for components having 4 units in tapered shafts

Details for bearings, split pins (2 units) in tapered shafts ( JIT replenishment)

30th Jun

MRP, GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP


receiving 20000 10000 5660 0 0



MRP 20000 10000 7180 1500 1800

MRP runs 10000 4340 1520 1500 1800


MRP 10000 5660 0 0 0



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G1.8: MRP V/s Inventory for components having 2 units in tapered shafts

Details for all other components (1 unit) of tapered shafts - (JIT Replenishment)

30th Jun

MRP, GR

14th Aug

MRP, GR

29th Aug

GR, MRP,

GS

14th Sep

GR, MRP,

GS

29th Sep

GR, MRP

Goods available



Inventory status

before MRP 20000 15000 13590 750 900

MRP runs 5000 2170 760 750 900


MRP 15000 12830 0 0 0



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G1.9: MRP V/s Inventory for components having 1 unit in tapered shafts

Cost Details :The cost detail for the strategy is as shown below.

Cost analysis- JIT Replenishment (in INR)

Sl No MRP

No Money Lock-up Total Expenditure

1 920 2,522,400 2,522,400

2 921 1,794,220 4,316,620

3 922 300,566 4,617,186

4 923 248,190 4,865,376

5 924 81,540 4,946,916

The expenditure is Rs 49 Lakhs .

This is due to the initial stock of 20000 units which is present for all components. If that

amount is reduced, then the case can be further optimized and the expenditures can be pulled

down to a considerable amount.


22nd-POMS-Reno 21

17.0: Discussions and benefits: Scientific inventory management through ERP

implementation would reduce the excess inventory requirement there by reducing working

capital required and enhancing the profits of the organization. If this positive trend of

efficiency is continued it will improve both the organization and Industry. Conversely in-

efficient practices will drag both the organization and industry towards economic down turn.

18.0: Conclusion: From the table 19 it is evident that the excess working capital expenditure

is Rs 49 lakhs which will accrue as savings in JIT replenishment strategy. This can be

further improved by lowering down the initial stock of 20000 units for all components.

Savings due to reduced obsolescence is very significant but is beyond the scope of this study.

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