Harmon Foods Case

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9-171-248 REV: SEPTEMBER 29, 2006 WILLIAM B. WHISTON Harmon Foods, Inc. John MacIntyre, general sales manager of the Breakfast Foods Division of Harmon Foods, Inc., was having difficulty in forecasting the sales of Treat. Treat was a ready-to-eat breakfast cereal with an important share of the market. It was the main product in those company plants that manufactured it. MacIntyre was responsible for sales forecasts from which production schedules were prepared. In past months, actual Treat sales had varied from 50% to 200% of his forecast. The greatest difficulty in preparing forecasts arose from the wide variability in historical sales. (See Exhibit 1. Sales were debited on the day of shipment; therefore, Exhibit 1 represents unit shipments as well as sales. Consumer Packs and Dealer Allowances, which are discussed later, are also shown in Exhibit 1.) Manufacturing Problems Accurate production forecasts were essential for the health of the entire business. The plant managers received these forecast schedules and certified their ability to meet them. A plant manager’s acceptance of a schedule represented a promise to deliver: crews and machines were assigned, materials ordered, and storage space allocated to meet the schedule. Schedule changes were expensive. On the one hand, the lead time on raw material orders was several weeks, so that ordering too little not only caused expensive shortages in lost production time but also disappointed customers. Reducing schedules, on the other hand, created a surplus of raw material. Lack of storage space required materials to be left on the trucks, railroad cars, or barges that brought them. Retaining these vehicles resulted in expensive demurrage charges.1 Overshadowing the storage problem was the problem of efficient use of the work force. Tight production schedules prevented unnecessary costs. Overtime was

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