Evaluation of Raw Materials Inventory System of SATO Glass Aluminum Fabrication and Installation (Systems Engineering) PDF

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EVALUATION OF RAW MATERIALS INVENTORY SYSTEM OF SATO GLASS ALUMINUM FABRICATION & INSTALLATION A Thesis in SYSTEMS ENGINEERING Presented to the Faculty of Industrial Engineering Department Cebu Institute of Technology - University, Cebu City, Philippines In Partial Fulfillment Of the Requirement...

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EVALUATION OF RAW MATERIALS INVENTORY SYSTEM OF SATO GLASS ALUMINUM FABRICATION & INSTALLATION

A Thesis in SYSTEMS ENGINEERING Presented to the Faculty of Industrial Engineering Department Cebu Institute of Technology - University, Cebu City, Philippines

In Partial Fulfillment Of the Requirements for the Degree

By MARJORIE S. GABALES CLEMENTE M. JUMAMOY JR. GENELYNN Y. NIADAS LOVELY FAITH R. PLACIDO

September 2013

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EVALUATION OF RAW MATERIALS INVENTORY SYSTEM OF SATO GLASS ALUMINUM FABRICATION & INSTALLATION Marjorie S. Gabales, Clemente M. Jumamoy Jr., Lovely Faith R. Placido, Genelynn Y. Niadas Department of Industrial Engineering, Cebu Institute of Technology, Cebu City, Philippines 6000. ([email protected])

ABTRACT Inventory Management plays an important role in a business. Some people may not see its worth without actually experiencing a problem that is caused by improper managing of inventory but practicing this can satisfy not only the company but also the customers. Customers do not care if a company has to manually count their inventory or have access to an automated system; they are only concern if the company has what they need and how fast they can tell them if it is available. If a company has a proper Inventory system, this can improve the company’s performance and others things that comes with it. This study involves the Evaluation of the existing raw materials inventory system of Sato Glass Aluminum Fabrication & Installation. After the problems from the existing system has been identified, proposals for improvement were then proposed. The evaluation of this study was done through document analysis, interview and observation. With further evaluation, it was found out that the problems within the raw materials inventory system is because of some internal factors and external factors of the system. The system understudy in the company lacks standardization and no specific personnel is also assigned in documenting the raw materials; and they have no standard work instructions and Supplier-Company Agreement Policy followed.

Key words: raw material inventory system, standard working instructions and stock cards

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EVALUATION OF RAW MATERIALS INVENTORY SYSTEM OF SATO GLASS ALUMINUM FABRICATION & INSTALLATION Marjorie S. Gabales, Clemente M. Jumamoy Jr., Lovely Faith R. Placido, Genelynn Y. Niadas Department of Industrial Engineering, Cebu Institute of Technology, Cebu City, Philippines 6000. ([email protected]) MANUSCRIPT

Abstract - Inventory Management plays an important role in a business. Some people may not see its worth without actually experiencing a problem that is caused by improper managing of inventory but practicing this can satisfy not only the company but also the customers. Customers do not care if a company has to manually count their inventory or have access to an automated system; they are only concern if the company has what they need and how fast they can tell them if it is available. If a company has a proper Inventory system, this can improve the company’s performance and others things that comes with it. This study involves the evaluation of the existing raw materials inventory system of Sato Glass Aluminum Fabrication & Installation. After the problems from the existing system has been identified, proposals for improvement were then proposed. The evaluation of this study was done through document analysis, interview and observation. With further evaluation, it was found out that the problems within the raw materials inventory system is because of some internal factors and external factors of the system. The system understudy in the company lacks standardization and no specific personnel is also assigned in documenting the raw materials; and they have no standard work instructions and Supplier-Company Agreement Policy followed. Keywords - raw material inventory system, standard working instructions, stock cards. I. INTRODUCTION An inventory is the stock of items used in an organization. Any type of business needs an inventory as inventory system monitors the levels of inventory and determines the

timeline and quantity of orders. Companies maintain inventories of raw materials for various reasons, including unpredictable raw material delivery time, allowing for production scheduling flexibility or demand variations. There are many inventory-related costs including holding, ordering and shortage costs. An effective inventory management system can minimize these costs. This study evaluates the raw materials inventory system of Sato Glass Aluminum Fabrication & Installation. It describes the existing process flow of the said study, where the identified problems were analyzed and treated to propose and recommend possible solutions.

Scope and Limitation of the Study This study was conducted in order to examine the existing raw materials inventory system of the company. The researchers evaluate the existing process flow of the said study and gathered data to treat properly the problems identified. II. METHODOLOGY

Research Environment The study was conducted in Sato Glass Aluminum Fabrication & Installation, a small medium scale establishment, that focuses on fabricating and installing aluminum glasses.

Research Respondents Data needed in conducting this study were given by the proprietor of the company, sales clerk, as well as the workers.

Research Instrument from

In order to gather the data needed the research respondent, the

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researcher conducted different instrument to obtain the information. Instruments like interviews, observations, document analysis, and giving of questionnaires were done.

Research Procedures The study includes the approval of the research subject, stages as to how the undertaken study will be done, up to the provision of recommendations for the improvement of the system, Raw Materials Inventory System. In gathering the needed data for the study, the researchers personally interviewed the owner and asked for any documents related to its inventory if there are any available. The gathered data were then treated and analyzed using different tools like FMEA and Cause and Effect Diagram.

Scope of the System

Raw Materials Inventory System of Sato Glass Aluminum Fabrication & Installation

Chosen Option: Option Number Two: Propose raw materials inventory database system. Supplementary Option: Provide a record book that would serve as backup for tracking records. Option Number Three: Combine option number one and option number two.

Root Cause Number Two: No specific person assigned in documenting raw materials. Chosen Option: Option Number One: Assign the secretary as the person in-charge in documenting or recording of raw materials. Problem Number Two: Two types of raw materials damaged due to improper materials handling.

Receiving of raw materials

Effect: Cost incurred of Php79,711.20 per year.

Customers inquiring

Root Cause Number One: No standard work

Ordering of raw materials

Root Cause Number Two: Error during

Releasing of raw materials

Chosen Option: Option Number One: Propose working instructions/guidelines from receiving the raw materials from suppliers to storing the raw materials received.

III. RESULTS

instructions followed by workers.

delivery inspection.

Problem Areas Problem Number One: Inaccuracy of raw materials inventory resulting to turning down of rushed orders of four customers per month. Effect: Opportunity loss of Php93,748.80 per year. Root Cause Number One: No proper documentation or recording. Option Number One: Propose stock cards for every raw materials in the company.

Supplementary Option: Provide SupplierCompany Agreement Policy. IV. DISCUSSION

Evaluation of Options Criteria

Cost Effectiveness - exhibits the efficiency of cost of the proposals Systems Efficiency - The ability of the

Supplementary Option: Propose a monthly monitoring sheet to easily track the transaction in a month.

proposed solutions to improve the system under study

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Overall Organization Improvement - The general impact of the proposals to the efficiency of the system Rating Scale Rating

Level of Effect

4

Very Good

3

Good

2

Poor

1

Very Poor

Description Very applicable to the option Applicable to the option Less applicable to the option Not applicable in implementing the solution

Findings After understanding, analyzing, and treating the data gathered, it was found out that the problems encountered within the raw materials inventory system of Sato Glass Aluminum Fabrication & Installation were because of some internal factors and external factors of the system. The system understudy in the company lacks standardization such as the usage of standard forms and no standard documentations of the raw materials received and released. No specific personnel is also assigned in documenting the raw materials; and they have no standard work instructions and Supplier-Company Agreement Policy followed. V. CONCLUSION In conclusion, the problem identified and interpreted using quantitative techniques and tools, should be addressed by the company through the solutions or proposals for improvement identified by the researchers. These proposals being recognized would be addressing the problems in the system so as to minimize or eradicate costs and losses incurred. Furthermore, these proposals would lead to the achievement of company’s goals competently. VI. RECOMMENDATIONS Based on the findings and conclusion of this research, the following recommendations are hereby presented.

Primary Recommendation

 Have a raw materials inventory system database.

 Provide record book  Assign the secretary in documenting or recording the raw materials received and released.  Provide a working instructions/ guidelines from receiving the raw materials from suppliers to storing the raw materials received.  Provide Supplier-Company Agreement Policy.

Secondary Recommendation Further research on the raw materials inventory system of the company especially in the movement of the materials should be conducted. Moreover, research on the other systems affecting the system understudy should also be conducted as they give a great impact on the raw materials inventory system of the company. REFERENCES Books [1] Raymond McLeod, Jr. and George Schell, Management Information System (8th Edition), 2001; Published: Pearson Abstract [1] Riikka Kaipia, Coordinating Material and Information Flows with Supply Chain Planning, Helsinki University of Technology; P.O.Box 5500, FI-02015 TKK [email protected] Tel. +358-9-4513664 Fax +358-9-4513736 Unpublished Thesis [1] Estella Ching S. Dacutan, Sandra Jane N. Soon, Jeson P. Talisic, An Evaluation of Construction Raw Material Purchasing and Inventory System of Fine Interior Trading and Manufacturing, Inc. [2] Guido van Heck, BSc., Inventory Management: Introduction a Framework to assess Operational Performance, Delft University of Technology, Master Thesis – Systems Engineering, Policy Analysis and Management [3] Lorfel S. Abellanosa, Jade S. Aliporo, Irish Mae E. Anoos, Mary Madeline D. Despi, Jesse R. Mara-asin: Operations Management

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of Renvitz mNufacturing: Improvements

Basis

for

[4] Cicil J. Cimafranca, Claire A. Quindao, Lady Mae Y. Rivera: Evaluation of Raw Materials Monitoring System of Subcontractors in Polishing Department of Obra Cebuana Incorporated [5] Emerson T. Bacalso, Dianne Mae Y. Caravana, Jeena Divine E. Grafia: Evaluation of Finished Products Inventory System for Local Retailing of Skyhorse Manufacturing Corporation Electronic Sources [1] N.A.”Two ways to establish a manual inventory control system”. Medical Economics.2012.Google.July 2013. [2] Crosby, Tim.”How Inventory Management Systems Work”. How stuff works?.Google. July 2013. [3] Hebb, Nicholas. “Cross functional Flowcharts”. BreezeTree Software. Google. July 2013. [4] N.A.“Overview of the work-centered analysis method”. Prenticehall,Inc.1999. Google. July 2013. [5] N.A.“Cause and Effect Diagram”. HCi. July 2013. [6] N.A.”Failure Modes and Effects Analysis (FMEA)”.

Institute

for

Healthcare

Improvement. 2004. Google. July 2013.

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ACKNOWLEDGMENT We would like to extend our deepest and sincerest gratitude to the following who made this research possible: Mr. and Mrs. Sato, proprietor of Sato Glass Aluminum Fabrication & Installation, for giving us permission to conduct the study in their company, for giving and helping us in gathering data, and for their patience and unwavering support to complete this study; Engr. Aries M. Rivero, IE520 Systems Engineering Instructor, for being patient and for guiding us throughout the completion of this study; To our family for supporting us throughout the completion of this study; To our parents that supported us financially, emotionally and spiritually; To the Almighty God, for hearing our prayers and for giving us strengths despite the troubles and misunderstandings we faced during our study.

The RESEARCHERS

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DEDICATION We dedicate this study to the following: To all the people who inspired us to make this research and seeing it through to completion; To our beloved families, parents, friends and classmates, without your presence and encouragement this research paper would not be realized; To our Almighty God who serves as our inspiration in doing this research.

MSG CMJ GYN LFRP

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TABLE OF CONTENTS CHAPTER

I

TITLE

PAGE

TITLE PAGE…………………………………………………………………………….……..

i

ABSTRACT……………………………………………………………………………………..

ii

MANUSCRIPT…………………………………………………………………………………

iii

ACKNOWLEDGMENT……………………………………………………………………….

vii

DEDICATION………………………………………………………………………………….

viii

TABLE OF CONTENTS…………………………………………………………………….

ix

LIST OF TABLES……………………………………………………………………………..

xi

LIST OF FIGURES…………………………………………………………………….……..

xii

LIST OF EXHIBITS…………………………………………………………………….……

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THE PROBLEM AND ITS SCOPE 1.1 Introduction 1.1.1 Rationale of the Study…………………………………………………..…..

1

1.1.2 Theoretical Background…………………………………………………....

2

1.1.3 Flow of Research……………..…..……………………………...............

7

1.2 The Problem 1.2.1 Statement of the Problem…………………………………….……........

8

1.2.2 Statement of Assumptions…………………………….……….………….

9

1.2.3 Scope and Limitation of the Study…………………………..…………

9

1.2.4 Significance of the Study…………………………………………..……..

10

1.3 Research Methodology

II

1.3.1 Research Environment……………………………………………….…….

11

1.3.2 Research Respondents…………………………………..…………………

11

1.3.3 Research Instrument………………………………………..……………..

12

1.3.4 Research Procedures……………………………………………………….

13

1.4 Definition of Terms…………………………………………………………….………

14

PRESENTATION, ANALYSIS, AND ITERPRETATION OF DATA 2.1 Systems Scoping and Concept Definition 2.1.1 Company Profile………………….……………………………………..………

16

2.1.2 The System and Its Functions…………………………………………….

20

2.1.3 Input-Process-Output Framework………………………………….…..

22

2.2 Functional Analysis and Interface Development 2.2.1 Cross- Functional Chart…………………………………………………..….

23

2.2.2 Systems Algorithm…………………………………………………………….

24

2.2.3 Work- Centered Analysis (WCA) Framework………………..……….

26

2.2.4 Data Flow Diagram……………………………………………………………

27

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2.2.5 Other Systems in the Organization…………………………………..…

30

2.3 Requirements Analysis and Its Impact 2.3.1 Cost of Service……………………………………………………..…………..

32

2.3.2 Internal and External Factors…………………………………..…………

34

2.4 Systems Analysis 2.4.1 Compatibility Analysis………………………………………………………

36

2.4.2 Stability Analysis………………….………………………………………….

38

2.5 Problem Investigation

III

2.5.1 Problem Areas……………………….……………………………………….

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2.5.2 Problem Selection……………………………..…………………………….

42

2.5.3 Cause and Effect Diagram…………………………………………….…

44

2.5.4 Risk Assessment Matrix……………………………………………….….

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2.5.5 Analysis of the Problems…………………………………………………

49

2.5.6 Evaluation of Options………………………………………………………

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PRESCRIPTIVE PHASE 3.1 Systems Improvement Scheme 3.1.1 Summary of Proposals………………………..……………………………

64

3.1.2 Systems Optimization Roadmap…………………………………………

65

3.2 The Proposed System 3.2.1 Cross- Functional Chart…………………………………..………………..

66

3.2.2 Systems Algorithm……………………………………………………………

67

3.2.3 Work- Centered Analysis (WCA) Framework……………………….

68

3.2.4 Cost of Operation…………………………………………………………….

69

3.3 Implementation plan

IV

3.3.1 Work Breakdown Structure………………………………………………

75

3.3.2 Responsibility Assignment Matrix………………………………………

76

3.3.3 Gantt Chart……………………………………………………………………..

77

3.3.4 Comparative Analysis……………………………………………………….

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SUMMARY, FINDINGS, CONCLUSION, AND RECOMMENDATIONS 4.1 Summary………………………………………………………………………………….

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4.2 Findings…………………………………………………………………………………..

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4.3 Conclusion………………………………………………………………………………..

83

4.4 Recommendation Primary Recommendation……………………………………………………….

84

Secondary Recommendation……………………………………………………

85

BIBLIOGRAPHY…………………………………………………………………………….

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APPENDICES A. Transmittal Letter………………………………………………………………

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B. Research Proposal Form…………………………………………………….

xvii

CURRICULUM VITAE……………………………………………………………………..

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LIST OF TABLES NO.

TITLE

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Research Respondents………………………………………….……………………… Cost of Service……………………………………………………….……………………. Frequency of Customer Loss……………………………………..………………….. Frequency of Material Handling Damages……………………..……………….. Summary of Problem Areas…………………………………………..………………. Problem Prioritization Matrix…………………………………………..……………… Problem Selection Criteria……………………………………………………………… Severity Scale………………………………………………………………….………….. Computation for Problem Number One…………………………………………… Computation for Problem Number Two…………………………………………… Root Cause Analysis Matrix……………………………………………………………. Failure Mode and Effect Analysis……………………………………………………. FMEA Rating Scale……………………………………………………………………….. Evaluation of Options……………………………………………………………………. Selection Criteria for Evaluation of Options……………………………………… Rating Scale for Evaluation of Options…...