Agriculture Reference
In-Depth Information
selecting suppliers are quality, price, timeliness, and customer service. Quality is a very
important consideration. An agribusiness that uses a purchased part only to fi nd out later that
it is defective incurs numerous costs, including costs internal to the fi rm as well as potential
loss of goodwill and future sales.
The price of purchased inputs is fundamentally important in selecting a supplier because
the typical fi rm spends nearly half of its total sales on purchased items. Timely delivery of
purchased inputs from suppliers is also very important. Parts priced at just pennies can cost
the fi rm thousands of dollars for every minute that a production line is not running. The
opportunity costs of such a problem can be enormous, as an agribusiness does not want to
miss sales because they lack inventory of fi nished goods. On the other hand, having too
many goods in inventory can be very costly. Carrying costs, physical storage space, record-
keeping expenses, taxes, insurance, and interest lost on capital tied up in inventory can eat
up as much as 35 percent of the inventory's purchase value. Consequently, customer serv-
ice is another critical, but often overlooked, item. Shorter lead times and on-time delivery of
purchased items help the agribusiness to provide higher levels of customer service with
fewer inventories.
Production control
With the materials for production ordered, the supply chain responsibility now shifts to pro-
duction control . Control of production fl ow is one of the most important daily functions of
the operations manager. The responsibilities of production control include:
Controlling raw materials inventory
Providing detailed production scheduling information
Controlling work-in-process inventory
Communicating changes to master production scheduling and purchasing
Controlling fi nished goods inventory
The tasks of production control are essential for a smooth, continuous fl ow of work through
the agribusiness. Two production operations systems that can facilitate the smooth fl ow of
production are material requirements planning (MRP) and just-in-time (JIT) systems. MRP
is often referred to as a “push” system whereas JIT is a “pull” system. We will explore MRP
and JIT to better understand why push and pull are very descriptive of these two types of
production operations systems.
MRP production operations systems
Material requirements planning (MRP) is a computerized information system for manag-
ing production operations. Its purpose is to ensure that the right materials, components, and
sub-assemblies are available in the right quantities at the right time so that fi nished products
can be produced according to the master production schedule.
MRP operates in the following manner. First, the fi nished product requirements from the
master production schedule are broken down into the requirements for individual parts or
subassemblies. These requirements are compared with on-hand inventory to determine the
quantities of units that still need to be produced. Schedules are created, inputs are purchased
and received, and production begins. Parts produced in-house are combined with purchased
component parts to form the most basic sub-assemblies. These are then “pushed” to the next
 
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