The “Problematic Enterprise”
BetterTomorrow Manufacturing produces a wide range of toy products. Some are sold directly to retailing and some are sold to other manufacturers for inclusion in their products.
Recently, production employees of BetterTomorrow have noticed an increase in the amount of inventory on hand. Raw material seems to be arriving earlier than needed, and in many cases BetterTomorrow has plenty of material that production doesn't need; yet BetterTomorrow can't seem to get critical components that are needed. The purchasing manager has been heard saying, “I only purchase what we need...unfortunately, no one knows what we need!"
Even though there are shortages, raw materials inventory keeps getting higher and higher because safety stock is being raised to avoid all the stock-outs. More than an entire year’s supply of packaging material is sitting in the warehouse.
WIP inventory is getting higher as well. The shipping department is constantly taking apart subassemblies to get parts required for urgent orders. The lead-time for items in the major product line is increasing even though a team of expeditors is roaming the floor hurrying material and operations along. Also, the production department can't find WIP material when it is needed, and setup times are getting longer and longer. The manufacturing manager has been heard saying, “I can only track white-hot orders on the floor. Other orders aren't tracked until they're white hot.”
Walking on the shop floor is like maneuvering through an obstacle course. Employees are forced to dodge both good-quality inventory and scrap materials placed wherever a vacant space is available. In fact, there has just been a worker’s compensation claim because someone broke a toe on a die left in the middle of an aisle. The inventory manager has begun a cycle- counting program but is having trouble keeping up with the material because rushed employees do not store it in the proper location or make the associated transactions.
One shining area in this company is the sales department is going to exceed its monthly quota. Sales just landed a huge sale of one of BetterTomorrow's normally low-selling items. The customer wants 350 units. The maximum ever kept on hand for this item is 50 units. The entire shop floor is now dedicated to this order. Sales people are becoming very upset because the regular customers can't get their orders. Customers are placing orders early so they can ensure delivery of product in time for their own production schedules. They are also starting to complain that the quality of BetterTomorrow's products is slipping.
In many cases, the shipping department is not shipping on time because they have to break apart already packaged inventory and then repackage it. This is because items previously manufactured were boxed in customer A’s custom packaging in anticipation of demand based on the sales forecast. If demand for the same part comes from a different customer and none is in stock, shipping unpacks the customer A's items and repacks them in the new customer's required packaging.

The vendors are not able to support the schedules either. The supply of raw materials is intermittent, causing purchasing to order ahead and in larger quantities than needed. This strategy is employed in hopes that the needed materials will be received in time for the actual need date. This is not happening. The vendors are not able to keep up with the demand and are becoming more and more resistant to the last-minute changes BetterTomorrow keeps making to the orders.
The accounting department is extremely upset because they cannot get a proper reconciliation of the actual inventory in stock, and profits are trending downward at an alarming rate. The accounting manager is demanding more detailed tracking of labor and materials against work orders but is not making any progress. The employees on the shop floor are too busy getting orders out the door to stop and record labor and material use. The entire company is dreading the complete physical inventory scheduled for the following weekend.
However, more than the physical inventory, the upper-level managers dread purchasing and implementing an ERP system, which the CEO wants to do if he can justify the costs to the board.
ERP Cost Justification
BetterTomorrow Manufacturing has put together a team to determine the return to the company and develop a cost justification case for the CEO to present to the Board of Directors. You have just been assigned as team of this team.
Customers are canceling orders placed at BetterTomorrow because the delivery dates of BetterTomorrow's products were slipping-what was originally quoted as a five week delivery time-frame has been averaging closer to eight weeks. The canceling of customer orders caused great concern at BetterTomorrow. Therefore, the Vice President of Sales decided to provide an incentive to his sales force to sell more products by offering a trip to Bermuda. Whoever sold the highest quantity of any product would win a free trip for two to Bermuda. In addition, the president of the company decided to give large discounts to customers who purchase in quantities above 300 units even though the discounts resulted in profit margins that were extremely thin.
Subsequently, Joe, one of the newest sales people, landed an order for 35O units, the largest order in the history of the company. Not only was it the largest order, it was for an item that was not normally sold or kept on hand in quantities greater than 50. This meant that the entire production department had to stop work on other orders and concentrate on producing enough of this product to satisfy the large order.
While the large order was being filled, smaller, more profitable orders could not be filled because all the capacity was dedicated to the order of 350 units. As a result, the lead-time for customer orders increased from the already elongated time of 8weeks to an even longer 12 weeks. As a result of the longer lead-time, more customers cancelled their orders.
The continual cancellation of smaller orders only helped to reinforce the VP of Sales's

position that fewer, larger orders were better for the company. Therefore, more incentives were created to obtain larger and larger orders.
The downward spiral will continue until someone examines the entire business system at BetterTomorrow.
The underlying problem is that three functional areas within the organization see the same elements of the situation from three different perspectives-
The sales department sees the solution as encouraging larger orders. These large orders are expected to provide an influx of cash for the organization. The VP of Sales believes that receiving a large order is beneficial and continues to work harder and harder to encourage large sales.
From the perspective of the accounting department, large sales orders are not more profitable, since the incentive for a customer to purchase a large order is a discount on price. So while large orders are beginning to arrive, the smaller, more profitable ones are being cancelled.
The production department views the large orders as a problem because they must continually change schedules and tear down and set up machines in an attempt to accommodate both the existing smaller orders, and the newer, higher-priority larger orders. This, in turn, upsets the accounting department because of all the labor and overhead associated with setups and teardowns.
Commonly, the different perspectives regarding the large orders are only seen from one side by a department. In isolation, the decision to encourage sales to sell larger orders seems to make sense to the sales department, but when viewed from a systems perspective, it doesn’t.
you are the IT project manager, suggest the AI tool that can be added to ERP to help to solve the BetterTomorrow Manufacturing pain points