Question Two years ago, Johnny Chang’s company, Realco, int

Two years ago, Johnny Chang’s company, Realco, introduced a new breadmaker, which, due to its competitive pricing and features, was a big success across the United States. While delighted to have the business, Johnny felt uneasy about the lack of formal planning surrounding the product. He found himself constantly wondering, “Do we have enough to meet the orders we’ve already accepted? Even if we do, will we have enough to meet expected future demands? Should I be doing something right now to plan for all this?”
To get a handle on the situation, Johnny decided to talk to various folks in the organization. He started with his inventory manager and found out that inventory at the end of last week was 7000 units. Johnny thought this was awfully high.
Johnny also knew that production had been completing 40,000 breadmakers every other week for the last year. In fact, another batch was due this week. The production numbers were based on the assumption that demand was roughly 20,000 breadmakers a week. In over a year, no one had questioned whether the forecast or production levels should be readjusted.
Johnny then paid a visit to his marketing manager to see what current orders looked like. “No problem,” said Jack Jones, “I have the numbers right here.”

PROMISED SHIPMENTS BY WEEK
1
23,500
2
23,000
3
21,500
4
15,050
5
13,600
6
11,500
7
5400
8
1800
Johnny looked at the numbers for a moment and then asked, “When a customer calls up, how do you know if you can meet his order?” “Easy,” said Jack, “We’ve found from experience that nearly all orders can be filled within two weeks, so we promise them three weeks. That gives us a cushion, just in case. Now look at weeks 1 and 2. The numbers look a little high, but between inventory and the additional 40,000 coming in this week, there shouldn’t be a problem.”

QUESTIONS

1. Develop a master production schedule for the bread-maker. What do the projected ending inventory and available-to-promise numbers look like? Has Realco “overpromised”? In your view, should Realco update either the forecast or the production numbers?

2. Comment on Jack’s approach to order promising. What are the advantages? The disadvantages? How would formal master scheduling improve this process? What organizational changes would be required?

3. Following up on Question 2, which do you think is worse, refusing a customer’s order upfront because you don’t have the units available or accepting the order and then failing to deliver? What are the implications for master scheduling?

4. Suppose Realco produces 20,000 breadmakers every week, rather than 40,000 every other week. According to the master schedule record, what impact would this have on average inventory levels?