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Production and Supply Chain Management Information Systems
limited shelf life. Her judgment is also influenced by the information she hears informally
from people in Marketing and Sales about expected sales levels.
The production manager’s inventory data are maintained in an Access database. Data
records are not updated in real time and do not flag inventory that has been sold but not
yet shipped. (Such inventory is not available for sale, of course, but employees cannot
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determine this by looking at the database; thus, workers do not know the level of
inventory that is available to ship at any given moment). This is problematic if the
Wholesale Division generates unusually large orders or high volumes of orders. For
example, two large Wholesale Division orders arriving at the same time can deplete the
entire available inventory of NRG-A bars. If Production is manufacturing NRG-B bars at
that time, it must halt production of those bars so it can fill the orders for NRG-A. This
means delaying production of NRG-B bars and losing production capacity due to the
unplanned production changeover.
The production manager lacks a systematic method not only for meeting anticipated
sales demand, but also for adjusting production to reflect actual sales. Marketing and Sales
does not share actual sales data with the Production Department, partly because this
information is hard to gather on a timely basis and partly because of a lack of trust
between the Sales and Production departments (as a result of prior negative experiences).
If Production had access to sales forecasts and real-time sales order information, the
manager could make timely adjustments to production, if needed. These adjustments
would allow inventory levels to come much closer to what is actually needed.

Accounting and Purchasing Problems
Production and Accounting do not have a good way to calculate the day-to-day costs of
Fitter’s production. Manufacturing costs are based on the number of bars produced each
day, a number that is measured at the end of the snack bar production line. For the
purpose of figuring manufacturing costs, Fitter uses standard costs, which are the normal
costs of manufacturing a product; standard costs are calculated from historical data,
factoring in any changes in manufacturing that have occurred since the collection of the
historical data. For each batch of bars it produces, Fitter can estimate direct costs
(materials and labor) and indirect costs (factory overhead). The number of batches
produced is multiplied by the standard cost of a batch, and the resulting amount is
charged to manufacturing costs.
Most manufacturing companies use standard costs in some way, but the method
requires that standards be adjusted periodically to conform with actual costs. (These
adjustments will be discussed in Chapter 5.) Fitter’s actual raw material and labor costs
often deviate from the standard costs, in part, because Fitter is not good at controlling raw
materials purchases. The production manager cannot give the purchasing manager a good
production forecast, so the purchasing manager works on two tracks: First, she tries to
keep raw materials inventories high to avoid stockouts. Second, if she is offered good bulk-
quantity discounts on raw materials such as oats, she will buy in bulk, especially for items
that have long lead times for delivery. These purchasing practices make it difficult both to
forecast the volume of raw materials that will be on hand and to calculate an average cost
of the materials purchased for profitability planning. Fitter also has trouble accurately
forecasting the average cost of labor for a batch of bars because of the frequent need for
overtime labor.

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