Tep Case

3 March 2017

Case study teaching notes Trans -European Plastics TEP makes a range of more than 500 plastic household items using batch injection moulding. The case highlights increasing problems with inventory shortages and declining service levels,at the same time that total inventory levels were at a high level. The company was evenconsidering investing in a warehouse extension. This case allows students to explore theunderlying reasons for this situation, and there is considerable numerical data that can beanalyzed.

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This case provides an ideal introduction to the topic of inventory management, and is at a levelto be of use on both undergraduate and Masters/MBA courses. Although describing amanufacturing situation, there are no technical issues to be understood, and the analysis would be little different in a retailing type of service. It provides sufficient information for the studentsto prepare spreadsheets for ABC analysis and categorization. This would be a good case for assessed work, but is too long and complex for a traditional examination.

Some notes on the Trans-European Plastics case 1. Why is TEP unable to deliver all its products reliably within the target of one week,and what effects might that have on the distributors? There are 24 machines working a standard (non-overtime) week of 105 hours. Thus, there are2520 machine hours available per week. There are 500+ stock keeping units (SKUs), eachtaking 3 hours to set-up, and the minimum run length is 20 hours. Thus, any batch takes at least23 hours of machine time. Theoretically, the maximum number of SKUs per standard(nonovertime)week is thus 2520/23 = 110.

Thus, on average , each SKU could be made only every4. 5 weeks (500/110 = 4. 54) or even less frequently, because larger batches for popular itemswill occupy more machine time. This illustrates that it would be impossible to make all productswithin the one-week delivery window, and the company must operate a make to stock (MTS)system, with inventory levels based on forecasts rather than actual orders. The table of representative products shows two products out of 20 (10%) out of stock as at 2ndJanuary.

In addition, there are three products at very low inventory levels (baby bath, storagebin (small), and dustbin and lid), all of which have stocks of less than two weeks’ usage. Thisindicates that stock levels for about 25% of the SKUs are low or zero, putting supply at risk. Analyzing the 20 products listed in Table 12. 8, the moulding time per product varies greatlybetween SKUs, as calculated in Table 1 below. Of the 20 products in the sample, six only needto be made once a year, or less frequently. The average batch moulding time is actually 137hours plus 3 hours set-up =140 hours.

Thus it is only possible to make 2520 hours/140 hoursper batch =18 batches a week. On average , therefore, each of the 500 products can be madeevery 500/18 weeks = 27 weeks. For the high volume products such as the 10-litre bucket, theannual moulding hours (7333) exceed the time available on one machine (120 hours max ? 50weeks = 6000 hours), and thus the machine must be dedicated to the product, with no set-ups. The extra demand above 6000 hours’ production must be satisfied using a second mouldintermittently.

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