The document summarizes a meeting between the president of a water pump company and department managers to plan production over the next 6 months. The marketing manager complains that production cannot keep up with sales orders, frustrating customers. The production manager says demand is hard to predict and hiring takes too long. The HR manager agrees hiring is slow and frequent layoffs hurt the company's reputation. The finance manager doesn't want inventory costs to cut into profits. The president stops the arguing and tasks the managers with developing an effective approach using the marketing department's 6-month demand forecast.

1. JohnLopez,presidentof MeridianWaterPumps(asmall waterpumpproducer),washoldingameeting
withhisdepartmentmanagers.Theywere inthe processof planningproductionof medium-sized
pumpsof the next6 months. Mr. Lopeztoleratedsome of the arguingbefore he feltitnecessarytostop
the discussion asitwas goingso thathe coulddirectittoward a solution.A summaryof some of the
argumentsfollows:
Mary Welch,MarketingandSalesManager-“Mysalespeople are verygood,butgetveryfrustratedat
times.Several timeslastyearthe salespeoplespendlotsof theirtime tryingtocalmdownfrustrated
customers.Astheyare supposedtodo,the salespeople soldasmanyof these pumpsastheycould,yet
at timesthe productioncouldnotkeepupwiththe orders.Productionknowsthatwe have some
cyclicalityinthe demand;we have plentyof machine capacity.Theyshouldbe able tohire peopleso
that we can meetthe demandthatwe sell.Why can’ttheygettheirarea to work correctly?“
Frank Jackson,ProductionManager-“Come on,Mary,we know the salesare cyclical, butwe neverknow
exactlywhenthe cycles happen.Even if we did, the HRpeople alwaystake toolongtogetus the people
we need. Bythe time we get the newpeople hiredandtrained,the salesseemtodropagain.Whatam I
supposedtodo?If we keepthemandallow themtokeepproducingpumps,ourinventoryclimbsand
the finance people startyelling. Ican’tjust letthose new peoplesitarounddoingnothing.The only
otheralternative istolaythemoff,butthe HR people getreallyangry.”
ElizabethConrad,HumanResource MANAGER-“Youbetwe getangry.The productionpeople will
occasionallystartpushingustohurry and hire more people,yet getveryimpatient.Ittakestime togo
throughthe interviewprocessandgetpeoplehiredandorientedtoourbusiness.Thenwe nosooner
getthemon site and workingwhen production asksustolaythemoff.That isa real problemfortwo
reasons.First,there are costsinvolved.Ittakesanaverage of $100 to geta personhired,andother$100
to laythemoff.Secondly,those people thatwe hire andthenquicklylayoff tendtonotreturn.I can’t
blame,since fromtheirperspectiveitlookslike we have noideahow torunour business.Inaddition,as
those people complaintootherpeople aboutourtreatmentof them, ourreputationisgettingtolook
bad,and that makes itincreasinglydifficulttofindgoodpeople tohire .”
JosephWestern,Finance manager-“FrankiscorrectthatI getupsetwhenthe inventoryclimbs.Itcosts
us about$5 to keepone of these pumpsinour inventoryforamonth.That cost comesrightout of our
profit.Since myjobisto maximize profitability, Ican’tsitby and letthose inventorydollars shrinkthat
profitability.The same goesforall thathiringandlayoffs.Thatmoneyalsohurtsprofitability. Can’twe
do better?”
At thispointMr. Lopezstoppedthe discussion andsaid“Enoughof tryingto blame eachother.It isour
jobas managersto manage thisprocessmore effectively.Marketinghasjustcompleteda6-month
forecastof anticipateddemandforthisfamilyof pumps,andwe know frompasthistorythattheir
forecastsare prettygood. We shouldbe able tocome upwithan approach that we all can live andfocus
our effortstomeet.Let’sgetto workon it.”
Assignment: Assume you have been given the job to develop an effective approach to the problem. First,
here isthe forecastdevelopedbyMarketing:

2. Month 1 2 3 4 5 6
Forecasted Demand 600 750 1000 850 750 700
The productionmanagersaid there were currently50 unitesininventory,andtheywouldliketoendthe
6 monthswithonly25 in inventory.He alsoside thatcurrentlyeachworkerproducesanaverage of 25
pumpsinany givenmonth.These are currently20 workersinthe medium-size pumparea.
Question:
Usingthe data,developalevel productionplan.How muchextracost (inventoryandHR costs) are
involvedinthisplan?Whatadditionalcost(bothfinancial and nonfinancial) mightbe involvedwithsuch
a plan?
My answer:
Month 1 2 3 4 5 6
ForecastedDemand 600 750 1000 850 750 700
Productionplan 750 750 750 850 750 725
Planned Inventory(100
in stock)
250 250 0 0 0 25
Addedcost $2250 $1250 0 $400 $400 $225
Workers 30 30 30 34 30 29
1. Jan : hired additional 10workers addedcost $1000 + inventory250pcs*5=$1250 total :$2250
2. Feb: onlyinventorycost250pcs*5=$1250 total:$1250
3. Mar : no any addedcost
4. April:hiredadditional 4workersadded cost$100*4=$400. Total :$400
5. May : laidoff 4 workers=addedcost$400 inventory=0 total :$400
6. June : Laid off 1 worker=addedcost $ 100 inventory=25*5=$125(as required) total :$225
Total addedcost(6months):$4525
That is bestwayto keepproductionsmoothlyandlow cost.