Setting

This case is set in an electric motor manufacturing plant in the central United States. This plant produces a large variety of small electric motors. The case centers on controlling the inventory of stamped metal castings used in the production of the motors. The castings are made in a supplier plant located in Mexico, and they are shipped weekly in truckload quantities. The large variety of motors produced, combined with large fluctuations in customer demand, caused frequent stock outs, which resulted in missed delivery dates and line downtime. To combat the stock-out problems, the plant carried a large quantity of inventory on these parts.

There were fifty-two unique castings utilized in motor production, thirty-eight of which were used frequently enough to keep stock on hand. Casting demand was forecast using an MRP system and ordered on a three-week lead-time. The timing worked as follows:

• Every Monday, a sales forecast would arrive from the sales office. Every effort was made to "freeze" the first two weeks of the schedule, but customer requirements often made this impossible.

• These requirements were placed into the plant's MRP system, which compared them to the current inventory and forecast casting requirements for the next ten weeks.

• The supplier treated the first three weeks of this schedule as firm orders. Thus, the order placed this week would arrive three weeks from today. Even though there was only a four-day transport time, the orders for the next two weeks were considered firm.

This long lead time, combined...