Chartam, Inc.

When Fred woke up that morning, he knew it was going to be a tough day. Besides the usual firefighting that he, as Plant Manager, had to deal with every day, he also had to meet with Joyce Breen, the Division Manager. She was visiting for the day and would, no doubt, be full of questions. The company, Chartam, Inc., was facing a lot of pressure from Marketing about their customer service, and the Division Managers were visiting every plant to see what kind of changes needed to be made. Fred knew that one question he would have to address is why customer service was a problem when by all reports there was extra capacity in the plant. He would have to think of an answer to this as he drove to work. When Fred got to the plant, the corrugators were humming. This was good news because when he left at 6:00 the night before, Corrugator 2, the big one, had just gone down and the maintenance guys didnt know how long it would take them to fix it. As Fred passed by the supervisors office, Connie, the night shift supervisor, waved him in. Connie told Fred that they got the machine going again at 6:30 but shortly after that, Jack, the customer service manager, came running into her office and told him they needed to make an emergency run of Grade 17 cardboard for an important customer. This meant shutting down Corrugator 2 for another 3 hours for a changeover. And we were right in the middle of a big run to fill that heavy demand for Grade 44, so now we are behind on that. What a lousy night! Connie lamented. As Fred walked on to his office, he thought about how many times in the last month they have had to schedule last minute production runs of Grade 17 board. It must have been 3 or 4 times. And yet, just a few months ago they had rolls and rolls of it in the staging area before the sheeter. It didnt make sense. Fred had 30 minutes before Joyce was supposed to show-up, so he decided to talk to Jack and see what was going on. Jack told him the same thing he tells him every time something like this happens TramLaw called and needed 10,000 pounds of sheeted Grade 17 and we only had 8,000 in the warehouse. They are our number one customer so I wasnt about to tell them we couldnt deliver. Tram-Law was indeed their biggest customer. Until about two years ago they made up only a small portion of the business, but in late-2003 they signed a contract with Chartam that made them their primary supplier. Tram-Law ordered several products, but 90% of their order volume was for Grade 17. So, with all the problems theyve been having with Grade 17, it was Tram-Law who was feeling most of the pain. Fred usually likes to solve problems collaboratively with his managers, but he didnt have time today. Look Jack, weve got to find a fix for this. Shutting down the corrugator once a week for an unexpected order is costing us a lot. Fred continued, We only seem to have this problem with Grade 17 board, so there must be a systemic problem that is unique to this product. Do some brainstorming with your team and see what you can find out. Let me know what youve got before I leave at 8:00 tonight. As Fred turned to leave, Jack quickly added, By the way, we are still getting a lot of complaints about Grade 44. Grade 44 was another important product for Chartam, not just because of its relatively high volume, but because it was a special product that got a price premium in the market. One problem Chartam faced with this product was that customers seemed to buy a lot of it at a time, but it tended to get brittle if it wasnt used quickly, so customers often complained about product quality after it sat in their warehouses for a while. Fred quickly replied to Jack, Well, then find a solution to that problem while you are at it. And out Fred walked. Jack called together a member of his customer service team, a member of the sales team that just happened to be in the office that day, and Jane the production planner. Jane had been at the Brighton plant for 15 years and knew the business inside and out. The first question Jack had was to ask Jane how she determined how much to produce each month. Jane explained that she tries to produce each of the 12 grades of board produced at the plant just once a month so that she can schedule long runs on the corrugator and keep it running. She said that figuring out how much to produce has always been pretty easy because demand for all the products is relatively steady from month to month. At the end of each month she puts together a production schedule for two months out. For example, at the end of January, she is forecasting the production needs for March. Planning a month ahead is required due to the lead-time of the raw materials and the need to schedule the workforce. So, at the end of each month, she looks at what she scheduled that month and starts with that number. Then she walks out to the production supervisors office and finds out which products they had emergency runs of and how much extra they had to produce. Then she looks at the inventory levels to see if everything she scheduled actually sold. If she adds the extra production amount to the scheduled amount and then subtracts the increase in inventory, she knows what the demand was last month or in other words, the amount of each grade that was shipped. That tells her how much to schedule for the upcoming month that she is now scheduling for. Jack asked if she tracked those numbers. Sure, Jane said, Ive got them on all the monthly production schedules that I keep in this file. Sue then piped-in. Sue was the key customer service representative for Tram-Law and she was new to the corrugated division of Chartam. She had recently come from the specialty paper division where she had worked in customer service for 2 years. It seems to me, Sue said, that we dont capture all the demand that way. Just two days ago I took a call from Tram-Law and they wanted 6,000 pounds of Grade 17. I told them we couldnt deliver it. Sue shot a glance at the sales guy because she knew he wouldnt approve of her telling their largest customer they couldnt fulfill their order. He of course spoke-up with You guys are killing me. How am I supposed to meet my quarterly sales target when you are turning away business? She ignored this comment and went on, That unfulfilled demand doesnt get captured in Janes numbers. Jacks eyes lit-up temporarily forgetting that he would have to have a talk to Sue about always saying yes to customers. Sue, do those numbers get captured anywhere? Jack asked. Sure, Sue replied, all phone calls get logged and we have to make notes on what transpired during each one. Some of the reps dont like to keep that information, but I have most of it for Tram-Law at least. Just as she said this, Craig walked by. Craig was the nerdy, but nice, analyst. Jack yelled out to him, Craig, come here for a second. Craig backed-up and came into the conference room. Jack smiled and said, Craig, I have a job for you. Please take the scheduled production numbers from Jane and plot them over time for Grade 17. Then look at the logs from all the customer service representatives and plot the total demand filled plus unfulfilled and plot that over time. No problem, Craig responded and started to walk out. No, no, thats not all, Jack stopped him, after you have that, figure out how we should forecast demand for this product. Craig again turned to leave, Oh yeah, Jack added, and see if you can figure out what is going on with Grade 44 as well. Craig had too much to do that day, so he called you, his unemployed friend who he knew would be sitting at home watching Netflix all day1 . Your job is to help Craig. He sent you the data in the file named Chartam-provided-data.xls. Craig is also keen on impressing his boss so he wants you to not only look at Grade 17, but also examine the other products to see how the forecasts for those products might be improved as well.

Questions to Consider:

1. How would you characterize Janes current approach to forecasting? Is it an appropriate method of at least forecasting filled demand? What were the forecast errors she was obtaining with this method?

2. What method would you suggest the plant use for forecasting Grade 17? Try fitting the data for several methods and see which works best. What data should they use? Should they use the same method for the other products?

3. Take a look at Chartams inventory policy. Ideally, the company would like to hold one month of safety stock. Calculate their inventory in the data provided. (hint: you can assume that beginning inventory is exactly safety stock, unless they stocked out in the first month). Can you come up with a revised inventory strategy? If so, how would you quantify the improvements?