Jack Bower found himself in a real dilemma when the sales and marketing department presented him with the annual sales demand forecast for one of the gear lines. Jack, as materials manager for TMX Medical, was responsible for taking the forecast and translating it into projected production needs and, as part of that, requirements for raw material purchasing needsboth in quantities and dates. That fairly routine task went fine until he came to the TMX27 family of devices.

The TMX27 family of devices was used by customers in highly stressful applications, and as a result, they needed to be made from highly specialized steel, made with a complex mixture of chemicals. The steel mill made the steel reluctantly, since it required shutting down a furnace and completely cleaning it out in order to avoid contamination. The time and effort to make the furnace ready, in combination with the costly chemicals used to make the steel, meant that the steel was extremely expensive for TMX to buy. In addition, the steel company had told TMX Medical that they would make only one batch of the steel and only once a year. They had their own annual production plans to execute, and the special steel was simply too disruptive to their production for TMX Medical to request any additional steel beyond the one batch during the year. Since TMX Medical was the only customer that needed that steel, the steel company required TMX to buy all the steel that was made in the batch. The steel company had no desire to maintain a very expensive inventory for TMX Medical. As it was, the steel company had reluctantly kept TMX Medical as a customer, and his recent attempts to find another steel company willing to make the steel was met with rapid and emphatic refusals.

Those facts meant that Jack must figure out how much steel to buy as accurately as he couldwhatever amount he bought had to last him for the remainder of the year. If he bought too little, he might not be able to supply some of the customers with the gear, and that could be disastrous for customer service, and his boss (the general manager) would certainly hold him responsible. In fact, just recently the general manager had again emphasized that the customers for the TMX27 device were important enough that he wanted to have enough of the steel to be able to supply those customers on time at least 97% of the time, even though the inventory to do that was certainly very expensive. All of their customers for the TMX27 gears used TMX as their single source of supply. But buying too much would also be bad. Jack, being materials manager, essentially owned the inventory in the facility, meaning that he was held responsible for all raw, in-process inventory, and finished goods inventory, including having to answer for the cost of holding that inventory. Having too much of that expensive steel over the year could get him in a lot of trouble with the chief financial officer and the general manager. While the customers for the gears knew the steel was expensive and they were therefore willing to pay a higher price, they were not willing to accept a price increase to help TMX pay for excessive inventory. They expected TMX to manage that.

Knowing all that, Jacks dilemma was based on looking at the annual sales demand forecast developed by marketing for the TMX27 device family of 16,000 gears. When he got that forecast for 16,000, he looked at the sales for the TMX27 over the last ten years and as follows:

Ten years ago 9,733

Nine years ago 10,115

Eight years ago 9,814

Seven years ago..10,033

Six years ago 10,077

Five years ago 9,782

Four years ago 10,145

Three years ago10,097

Two years ago 9,924

Last year 9,897

Jack decided to call the director of sales and marketing (Phil Johnson) and ask about the forecast. This is how the conversation went:

JACK: I wanted to ask about the demand forecast for the TMX27 device line. You said it was 16,000. How did you come up with that number?

PHIL: Because that is what we plan to sell.

JACK: Do you have or expect to have any new customers for the TMX27

line?

PHIL: No.

JACK: Do any of your customers have any new applications that use the TMX27 device?

PHIL: Not that I know of.

JACK: Do any of your customers have or expect to have new customers for their products that use our TMX27 device?

PHIL: Not that I know of.

JACK: Are any of your customers experiencing growth in their products that use the TMX27 devices?

PHIL: Not that I know of.

JACK: Well then why do you think you will sell 16,000.

PHIL: Because that is what we plan to selland you hadnt better disappoint any of our customers or be late with any of their orders!

Jack hung up the phone and seriously wondered what he was to do. If he ended up with too much inventory or disappointed any customers, he knew the general manager would blame him. He knew it could be a big mistake to try to put the blame back on the director of sales and marketing because not only was the director of sales and marketing at a higher level in the company, but he was also a personal friend of the general manager.

Jack knew they often played golf together on weekends and that their families frequently attended social events together.

1. Give a short introduction about the case study and list down objectives?

2. What is the main problem of the case study?