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Production and Supply Chain Management Information Systems
• Multiplying the number of working days in a month times the production
capacity of 333.3 shipping cases per day gives you the monthly capacity in
shipping cases, which is shown in line 5.
With the available capacity (assuming no overtime) now expressed in terms of
shipping cases, it is possible to determine the capacity utilization for each month by 87
dividing the production plan amount (line 2) by the available capacity (line 5). The result
is expressed as the utilization percentage (line 6). This capacity calculation shows whether
Fitter has the capacity necessary to meet the production plan. While higher levels of
capacity utilization mean that Fitter is producing more with its production resources, this
percentage must be kept below 100 percent to allow for production losses due to product
changeovers, equipment breakdowns, and other unexpected production problems. The
sales and operations plan in Figure 4-5 shows that Fitter’s highest level of capacity
utilization is 95 percent in May and June.
The last step in sales and operations planning is to disaggregate the plan, that is, to
break it down into plans for individual products. Lines 7 and 8 in Figure 4-5 disaggregate
the planned production shown in line 2, based on the breakdown of 70 percent NRG-A and
30 percent NRG-B snack bars. This 70/30 breakdown was established using previous sales
data for these products. The monthly production quantities in lines 7 and 8 are the output
of the sales and operations planning process, and they are the primary input to the
demand management process.
Suppose that Fitter is regularly able to achieve production levels at 90 percent of
capacity. If the sales forecast requires more than 90 percent capacity, Fitter management
can choose from among the following alternatives to develop a production plan:
• Fitter might choose not to meet all the forecasted sales demand, or it might
reduce promotional activities to decrease sales.
• To increase capacity, Fitter might plan to use overtime production. Doing
that, however, would increase labor cost per unit.
• Inventory levels could be built up in earlier months, when sales levels are
lower, to reduce the capacity requirements in later months. Doing that,
however, would increase inventory holding costs and increase the risk that
NRG bars held in inventory might pass their expiration date before being sold
by retailers.
• To find the right balance, management might try a hybrid approach to the
capacity problem: reduce sales promotions slightly, increase production in
earlier months, and plan for some overtime production.
The monthly production quantities (in lines 7 and 8 of Figure 4-5) create some
inventory in May to meet June’s sales; in addition, some overtime production is likely in
May and June because capacity utilization is over 90 percent.
This example illustrates the value of an integrated system: it provides a tool for
incorporating data from Marketing and Sales and Manufacturing and for evaluating
different plans. Whereas Marketing and Sales may want to increase sales, the company
might not increase its profits if overtime costs or inventory holding costs are too high. This
sort of planning is difficult to do without an integrated information system, even for small
companies like Fitter. Having an integrated information system helps managers of all
functional areas meet corporate profit goals.

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