Riordan Manufacturing Solution Evaluation

Executive Summary

Riordan Manufacturing has requested assistance to provide specific recommendations for improving their inventory system. The objective for this service request is to analyze the current processes in inventory and define business requirements for system upgrades and improvements. Business requirements were established using a set of metrics to evaluate three options for improving inventory practices at Riordan. The three options evaluated are Enterprise Resource Planning system (ERP), Materials Requirements Planning (MRP), and Vender Managed Inventory (VMI). The metrics allowed the three systems to be scored based on the priority of business requirements, which provided the basis for recommendations to Riordan. In addition to using a metrics table to evaluate the three systems, the evaluation team utilized a Gantt chart to develop implementation timelines for project management, assessment, hardware/software installation, user training, and software support. Riordan Manufacturing advised the consulting team of their constraints of a one million dollar budget with a one year implementation deadline. The team also completed an analysis of the return on investment (ROI) for the MRP solution. This analysis proved that the MRP solution would greatly reduce inventory costs for Riordan. Taking into account the business requirements and parameters set by Riordan, the consulting team can make a recommendation.

After careful analysis using measurable metrics the consulting team recommends Riordan implement a MRP system to improve their inventory processes of raw materials. The metrics table scored the VMI system slightly better then the MRP, but when selecting a system he or she must consider all factors. The metrics revealed the MRP hardware would cost more then the VMI hardware, but the MRP system scored better in the integration and software requirement column. Riordan has two plants in the United States and one in China, so integration will be very important with implementation and meeting the time lines as outlined in the Gantt chart. The ability to utilize Riordan's existing hardware was also an important consideration for keeping cost down. The total implementation time for the MRP solution from start to finish is projected to be 10 months for all three manufacturing locations. After comparing all the teams' evaluations and Riordan's business requirements, the executive team at Riordan will agree that the MRP solution is the right choice for the company.

Riordan Manufacturing Solution Evaluation

Selection Criteria and Methodology

Selection Criteria

The team developed specific criteria to use in the evaluation of each proposed solution. The criteria could be broken down into two primary areas: cost and functionality. The team considered cost first due to the imposed budgetary constraints. The system's ability to work with the company's existing hardware was paramount in this case, as the company's 1 million dollar budget for the project would have to cover the implementation of the chosen system in each of its four locations. The scope of alternatives was somewhat limited due to this fact and, as a result, much of the proposed costs were allocated to the procurement and/or leasing of software packages.

From there, the team evaluated the functionality of each system. The criteria development was based on the extent to which each could reduce or eliminate the manual processes within the company's raw material receiving process. The assumption is a reduction in labor costs could translate into bottom line savings for Riordan. For this reason, the team evaluated each alternative as to whether the inputs and outputs generate automatically. Using best practices methodology, where research was used to determine which option had produced the most consistent, desired results (Vitasek, 2005), it was discovered that industry leaders employed systems driven by RFID or radio frequency identification (dBusiness News, 2006). Such a system could produce the desired results and as such, the team selected RF technology as a mandatory component in the criteria selection process.

Selection Methodology

The team first performed an analysis of the company's current raw materials receiving process and developed a flow chart. The chart displays areas of improvement for the team to focus on for the solution evaluation. Based on the established criteria, the team developed metrics as a means of evaluating each proposed solution. The team assigned a weighted value to each measure, based on the consensus of compliance with the best practice methodology. Data collected for each of the metrics was arranged in a spreadsheet matrix for closer evaluation.

The team selected the best solutions based on this scoring method as well as further analysis performed using a spreadsheet designed by Visible Inventory, Inc., a leader within the supply chain industry. As with the original matrix, the team input cost data to identify an approximated return on investment (ROI). The spreadsheet allowed for a detailed analysis of current expenditures on each activity as well as how the proposed solution could potentially reduce these costs. Measured factures include a breakdown of hours spent on data entry and error correction in addition to overhead expenses one might not associate with the raw materials process (Visible Inventory, Inc., 2005). These figures were then put through a series of calculations that projected the possibility of time savings should the process become automated. The team performed a cost analysis based on these figures, allowing us to calculate Riordans projected return on investment.

Vendor Managed Inventory Solution

The team first considered a VMI or vendor managed inventory system wherein Riordan's current vendors would be responsible for maintaining adequate inventory within the company's raw materials process. EDI or electronic data interchange, currently available through Riordan's existing system, can assist decision makers as to how much product to ship and when to ship the product.

The primary benefit of a VMI system is that it allows for real time analysis of demand, reducing penalties for missed deadlines by identifying and avoiding potential shortfalls. The proposed system could work with the servers that Riordan already has in place. The system also has the ability to support multiple databases and is compatible with SQL or standard query language