latest sales demand. Although sales were usua lly stable and predictable, during the last three weeks sales had tripled the fo recast for most products. Coming after a three-month layoff and sluggish sales, production capacity had returned to typical levels. Now, in the first week of January, Mazzoli was uncertain about the forecast reliability, why sales were spiking and what action she should take. NECANKO, INC. Necanko, Inc. was an international food conglomerate with headquarters in the United States that had recently merged with a cigarette manufacturer. The U.S. food manufacturing operation had six divisions, organized around the food categories. The smallest division, nuts a nd candy, had seven manufacturing plants: two produced nut products, four produced candy for retail sale and one produced raw chocolate, which supplied the four candy plants, the cookie division and external customers that required high-quality chocolate. An eighth plant had recently been sold to several of the pl ant staff to be managed independently. The Philadelphia plant was built in the early 1900s and supported several different businesses over the years. In the 1950s, a local business man, Jack Wing, began producing specialized chocolate confections in the building. Ten years previously, when Wing retired, he had sold the business to Necanko, Inc. Page 2 9B04D020 Each year, the divisional managers at co rporate headquarters hired approximately 20 university graduates for their mana gement training program. Karen Mazzoli had been hired by the nuts and candy di vision 18 months earlier and was assigned to the Philadelphia plant as an operations assistant. After one year, Mazzoli was promoted to the position of buyer-scheduler. Production Planning at the Philadelphia Plant The Philadelphia plant produced 52 SKUs in seven categories (chocolate- covered mints, caramel pops, caramel buttons, chocolate-covered caramel buttons, chocolate-covered nougat bars, chocolate- covered peanuts and chocolate-covered raisins) and four sizes (juniors, whic h was used for the Halloween bags and change-makers, count, theatre and econo my). The count-sized mints, Necankos most popular product, were offered in multi-packs of 12 or 24. With the exception of the Halloween bags, candy sales were relatively stable. Mazzoli received a sales forecast from the corporate marketing brand manager once a quarter. In addition, she relied on the weekly sales reports from corporate and inventory reports from the Wilkes Barre warehouse, a company-leased warehouse facility outside Philadelphia. This information was used to determine the quantity of each product needed within the month a nd when, during the month, they should be produced. Raw material orders were then derived from the production schedule and raw material invent ory. Most material lead times were short; for example, liquid sugar and chocol ate took about four or five hours from order to receipt. However, some of the individual boxes took up to 16 weeks because of the difficulty in obtaining pape r board, so inventory tended to be high on those components. Mazzoli used a level production strategy for the plant, with a two-week shut-down in July for summer vacations and peri odic maintenance. Halloween production started in January and finished in early September. The Philadelphia plant used a two-shift operation with approximately 200 hourly workers and 40 salaried staff. During the off-Halloween season, the numb er of hourly workers dropped to about 175. Product was produced, shipped and sold within a year since the research and development division had established a 12-month shelf life. After production, the product was shipped daily by an independent trucking company to the Wilkes Barre warehouse to be distributed with other Necanko products to customers at a later time. Occasionally, when there was a significant sales commitment, a truckload of candy woul d ship directly from the Philadelphia plant to California or Canada. Most product was sold by candy brokers (independent salespeople who represente d many candy manufacturers and did not take ownership of the product) to distributors, wholesalers and retailers, although Page 3 9B04D020 Wal-Mart and the U.S. military bypassed the broker system to purchase their product directly from Necanko. As Halloween production ramped down this past September, Mazzoli noticed that sales on all products were lower than forecast and had been for several weeks. The plant manager agreed with Mazzolis reco mmendation to lay off an additional 30 positions. The six production supervisors had f ound this to be particularly difficult since they felt a strong sense of fam ily with the employees, having been line employees themselves before being prom oted to supervisors. Sales remained sluggish during autumn. Now, in the first week of January, employee levels had returned to normal, with the exception of the second-shift Halloween line, which was scheduled to begin in two weeks. At the 9 a.m. m eeting, Arnie Johnson, the supervisor in charge of the Halloween production, announced that star t-up was at 75 per cent of standard output. Mazzoli considered this rate to be expected during the first few hours of their first day