1. How much money is Morrison losing because of the problems in the stockroom? W

Question

1. How much money is Morrison losing because of the problems in the stockroom? What the cost versus the benefit?

2. As Lisa Caruso, what action would you take to improve stockroom operations at Morrison?

Lisa Caruso Lisa Caruso, purchasing manage very concerned about the company's stockroom opera Thursday ions. Faulty records, a rash of last-minute rush orders, was occasionally scheduled on and interference with production were troubles that s had become aware of since becoming manager nine r at Morrison, Inc., was including an unpaid 30-minute lunch break) Monday to , and two eight-hour shifts on Friday. Overtime Most loaders were manufactured to customer order with six to eight weeks' lead time. About 60 percent of the months earlier. It was Thursday, November 6, and with loaders and accessories (e.g. .buckets and forks) were sold volumes expecting to increase during the coming months, through distributors in the northeastern United States and Lisa wanted to make a proposal to the president during their meeting the following week Canada. Normally, distributors and customers did some final assembly themselves. MORRISON, INC. MANUFACTURING OPERATIONS Morrison Inc., (Morrison) located near Philadelphia, The major departments in the plant included the machine Pensylvania, manufactured loaders and accessories for shop, fabrication and welding, assembly, and painting. the construction industry. Current sales were approxi The plant also had a maintenance and repair department mately $50 million. The owner-president of Morrison, which included a repair parts storage room David Morrison, was the son of the founder of the busi The company employed 140 nonunion hourly workers s. The company enjoyed an excellent reputation for a and 30 staff across six departments: engineering, manu ell engineered, high-quality, sturdy product line. Morrison facturing, human resources, accounting and finance, ontruction equipment was considered a premium brand sales, and purchasing. Managers in each department re- in the industry, which differentiated itself from the large ported directly to the president, but enjoyed a high degree of autonomy acturers on the basis of quality and reliability. dMorrisn believed in keeping overhead costs and all aspects of the business as simple as possible. prior, purchased from a local software provider. Purchas- ere highly seasonal and cyclical, closely tied to the ing modules in the system included inventory control The company installed an ERP system several years of td nstruction industry. The peak manufactur purchase orders, shipping and receiving, requisitions, and forecasting. planning, and scheduling. The information systems team reported to the CFO period rar d September. During me, the company operated two 10-hour shifts (not

Explanation / Answer

1. The stockroom cost include the losses due to the higher purchase price and the unproductive time of the labour. The purchase cost impact due to emergency orders is $10,000 per month or $120,000 a year. The wages for labour is 22 per hour plus 30% benefits, which works out to $28.6 per hour. If the waiting time at stockroom is two 10-minute periods, that is an unproductive time of 20 minutes for each of the 140 workers. The total unproductive cost would be 28.6 x .33 x 140 = $1334 per day or over $347,000 a year, assuming 5 working days a week for 52 weeks.

2. Some of the actions that Lisa can take to improve the stockroom operations are:

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