Question

Assume that if the product requested is not in stock, it needs to be manufactured
before the order handling can continue. In this way, an order can never be rejected.
To manufacture a product, the required raw materials have to be ordered. Two
preferred suppliers provide different types of raw material. Depending on the prod-
uct to be manufactured, raw materials may be ordered from either Supplier 1 or
Supplier 2, or from both. Once the raw materials are available, the product can be
manufactured and the order can be confirmed. On the other hand, if the product
is in stock, it is retrieved from the warehouse before confirming the order. Then
the process continues normally. After confirming the order, the shipment address is
received and the requested product is shipped while the invoice is emitted and the
payment is received. Afterwards, the order is archived and the process completes.

1-Descriptions of System
- Describe the system
- (If any) Explain any problem(s) in the system (e.g. causes of the problem
and its (potential) effects

Answer 1

Description of System: 1. Make to order and 2.Inventory System.

When the product requested is not in stock and needs to be manufactured, MTO (Make to Order) is applicable.

1. MTO is the system where decisions on order acceptance and on production planning are often made separately.Sales department is responsible for accepting orders, while the production department is in charge of production planning for implementation of accepted orders. In this system the inventory and capital is not locked and the order are accepted as per capicity of the production unit and the delivery date is decided accordingly.

When the product is in stock the Inventory Management system is applicable.

2. Inventory management is the continous ongoing process of moving products into and out of a company’s warehouse. The inventory has to be managed on a daily basis, the flow of inward and outward of the product is managed and controlled as per customers order.

For effective functioning of inventory department, the optimal availabliity of finished goods inventory as well as raw material inventory should be maintained and replenished as per demand.

Problem associated with MTO

A) Raw material procuremetnt - The procurement of raw material can be issue as the cost of raw material is not constant also the availability and delivery from supplier becomes the factor of dependencies for production of finished goods.

B) There can be delay in delivery to the customer and frequent event of delay could cause loss of customers confidence.

C) The capicity of production line defines the delivery for the order which may cause loss of oprder.

Problem associated with Inventory system.

A) Capital is locked

B) Lack of proper inventory planning may hamper the production as well as wastage.