QUESTION ONE

Good Habitat Company $($GHC$)$ is a leading producer of garden tools ranging from

wheelbarrows, mortar pans, and hand trucks to shovels, rakes, and trowels. The tools are

sold in four different product lines ranging from the top$-$of$-$the$-$line Hercules products, which

are rugged tools for the toughest jobs, to the Garden Helper products, which are economy

tools for the occasional user. The market for garden tools is extremely competitive because

of the simple design of the products and the large number of competing producers. In

addition, more people are using power tools, such as lawn edgers, hedge trimmers, and

thatchers, reducing demand for their manual counterparts. These factors compel GHC to

maintain low prices while retaining high quality and dependable delivery.

Garden tools represent a mature industry. Unless new manual products can be developed

or there is a sudden resurgence in home gardening, the prospects for large increases in

sales are not bright. Keeping ahead of the competition is a constant battle. No one knows

this better than Julian Roberts, president of GHC$.$

The types of tools sold today are, by and large, the same ones sold $50$ years ago. The only

way to generate new sales and retain old customers is to provide superior customer service

and produce a product with high customer value. This approach puts pressure on the

manufacturing system, which has been having difficulties lately. Recently, Roberts has

been receiving calls from long$-$time customers, such as Builders Warehouse and Micmar

Hardware Stores, complaining about late shipments. These customers advertise

promotions for garden tools and require on$-$time delivery.

Roberts knows that losing customers like Builders Warehouse and Micmar would be

disastrous. He decides to ask consultant Leana Messelina to look into the matter and report

to him in one week. Roberts suggests that she focus on the bow rake as a case in point

because it is a high$-$volume product and has been a major source of customer complaints

of late.

PLANNING BOW RAKE PRODUCTION

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A bow rake consists of a head with $12$ teeth spaced one $25$ mm apart, a hardwood handle,

a bow that attaches the head to the handle, and a metal ferrule that reinforces the area

where the bow inserts into the handle. The bow is a metal strip that is welded to the ends

of the rake head and bent in the middle to form a flat tab for insertion into the handle. The

rake is about $1\mathrm{.}6$ m long.

Messelina decides to find out how GHC plans bow rake production. She goes straight to

Levi Ackerman, the Operations Manager, who gives the following account:

$$Planning is informal around here. To begin, marketing determines the forecast for bow

rakes by month for the next year. Then they pass it along to me$.$ Quite frankly, the forecasts

are usually inflated$$must be their big egos over there. I have to be careful because we

enter into long$-$term purchasing agreements for steel, and having it just sitting around is

expensive. So$,$ I usually reduce the forecast by $10$ percent or so$.$ I use the modified forecast

to generate a monthly final assembly schedule, which determines what I need to have from

the forging and woodworking areas. The system works well if the forecasts are good. But

when marketing comes to me and says they are behind on customer orders, as they often

do near the end of the year, it wreaks havoc with the schedules. Forging gets hit the hardest.

For example, the presses that stamp the rake heads from blanks of steel can handle only

$7,000$ heads per day, and the bow rolling machine can do only $5,000$ per day. Both

operations are also required for many other products.$$

Because the marketing department provides crucial information to Levi, Messelina decides

to see the marketing manager, Mitch Adams. Adams explains how he arrives at the bow

rake forecasts.

$$Things don$$t change much from year to year. Sure, sometimes we put on a sales promotion

of some kind, but we try to give Levi enough warning before the demand kicks in$$usually

a month or so$.$ I meet with several managers from the various sales regions to go over

shipping data from last year and discuss anticipated promotions, changes in the economy,

and shortages we experienced last year. Based on these meetings I generate a monthly

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forecast for the next year. Even though we take a lot of time getting the forecast, it never

seems to help us avoid customer problems.$$

THE PROBLEM

Messelina ponders the comments from Levi and Adams. She understands Levi$$s concerns

about costs and keeping inventory low and Adams$$s concern about having enough rakes

on hand to make timely shipments. Both are also somewhat concerned about capacity. Yet,

she decides to check actual customer demand for the bow rake over the past four years

$($shown in the table below$)$ before making her final report to Roberts.

MONTH

DEMAND

Year $1$ Year $2$ Year $3$ Year $4$

January $55,22039,87532,18062,377$

February $57,35064,12838,60066,501$

March $15,44547,65325,02031,404$

Ap