Finished goods inventory and customer service at Bluebird Foods NZ Ltd

Abstract

This case is designed to teach that company performance depends on both the design of the production planning system and the ability of line management to perform to the production plans of that system. The insights developed in this case study can be applied generically for any Make-to-Stock Production company where stock out of finished goods by the supplier results in lost sales (backorders are not permissible). The problem faced by Bluebird Foods New Zealand Limited (BBF) is two-fold: the dollars invested in Finished Goods Inventory (FGI) is too high while the actual customer service level of 92% has been too low. To the casual observer, the solution to the first problem seems to be to reduce inventory. However, the solution to the second problem appears to be an increase of the amount of FGI to achieve the CEO's desire of 95.4% customer service level. Hence, the production planner's quandary. This case was sponsored by the Indiana University CIBER Case Collection.

Related:Bluebird Foods NZ Ltd, Case TN, Case Centre Teaching note Reference no. 601-018-8