Nguyễn Thị Kim Hợp - Bùi Thị Minh Nguyệt - Phùng Lê Thùy Linh

There are three actions that Smog Co. responds to the new demands being placed on it by
customers. Firstly, stock level means the level of stock required for efficient and effective
control of goods to avoid over-and under-stocking of goods. The company increases its
stock level to cater to unexpected variations in demand. The production manager has a
feel for what is needed and uses a forecast from the sales department to make an early
start on products that it is considered will be required in the near future. Products are
made whenever resources (people, materials, machines) become available in response to
the demand of customers. There were plenty of finished goods on hand, which the sales
team could use to supply customers, and there was stock to call upon if product demand
increased.

Secondly, the level of expediting is a classified degree of expediting requirement and

frequency to ensure goods are delivered on time. The main customers reduced the call-off
time for its products as well as looking for a 5 percent cost reduction and are demanding
quality improvements. These changes led to an increase in the number of batches being
expedited through the factory. As a result, overtime increased in order to maintain output.
Products are made faster and shorter which ensures goods or services to complete or
deliver in time.

Thirdly, the company pays more for storage racking that expands storage space. The
production of more products to satisfy customer needs led to a higher level of inventory
which was also taking up more space. The extra racks were necessary because the
existing ones were full, and parts stored on the floor were suffering occasional damage in
an increasingly cramped factory. Fred Hollis, the Smog production manager had
submitted a requisition to the finance director to pay for more storage racking.

However, these actions do not seem to be successful because it negatively affects the
production performance of the company. The increase in stock levels had badly affected
competitiveness. Smog Co. was experiencing the consequences of trying to forecast
demand and using the forecast to determine what to make. Their ’make to stock’
approach was responsible for removing the company’s ability to be responsive to changes
in either quantities or product mix; increasing costs and making quality problems worse.

They often rely on their predictions to determine the number of goods to produce so
stockouts are rare. The changing needs of customers have made them unable to keep up.

Preventing stockouts led to an increase in the number of batches being expedited through
the factory. This disrupted the production plan, increased the number of machine
changeovers, and lowered productivity.

The higher level of inventory meant that quality problems were harder to detect. In one
case, a new operator missed a drilling operation. By the time the first customer

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discovered the error, nearly two weeks’ worth of production had to be recalled and
reworked.

They have problems with the lack of storage space and product preservation. When the
higher inventory levels were also taking up more space equals extra expense for the
businesses as it can lead to a shortfall in the cash flow and incur excess storage costs.

The damage to the product packaging caused customers to doubt the quality of the
product and they asked for a return.

• burying underlying production problems under inventory, and thereby preventing

efforts to uncover and resolve them.

In conclusion, while the company had been motivated by its customers to change, the
direction it took seemed to have caused many problems.

There are three actions that the company to the new orders:

1. Background: Briefly describe their business

2. Stock level: actions…

Expediting: actions

Storage space: actions

(Link)success in the past – unsuccess in the present

3. Negative Effects

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Firstly, the company increases its stock level to cater to unexpected variations in
demand.

Secondly, overtime increased in order to maintain output. Thirdly, the company pays
more for storage racking that expands storage space.

These actions have been badly affecting their business. Firstly, having too much stock
equals extra expense for the businesses as it can lead to a shortfall in the cash flow
and incur excess storage costs. Having too little stock equals lost income in the form
of lost sales, while also undermining customer confidence in its ability to supply the
products you claim to sell.

remove the company’s ability to respond to changes in quantities of product mix.

increasing costs and making quality problems worse; burying underlying production
problems under inventory, and thereby preventing efforts to uncover and resolve
them.

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