Mr. Potato Chip Company has been a well-respected regional manufacturer for many years. Recently the company has decided to expand into new markets to assure a competitive advantage. To do this, they will need to attract new investors, and to accomplish that, they will need to show they are capable of producing a solid return on investments each year.

In keeping with these objectives, a policy has been instigated which reduces the finished products' inventory to a rock-bottom level each June 30th, which is the end of the company's fiscal year. Why? The lower the inventory, the less money is tied up. This situation, in turn, tends to put the company in a better cash position at year end, which means that more money can be passed on to the stockholders as earnings per share.

As the recently hired production manager, Jane realizes there is a downside to this policy. With inventory levels on June 30 lower than at any other point during the year but with demand for potato chips higher than usual, the net result is an inability to meet the total customer demand for various types of potato chips. In fact, once inventory levels are reduced, it will take more than a month to get the process back to normal and running smoothly again.  The effect, Jane predicts, will be both lost sales at year end and a number of operations problems associated with a low-inventory situation.

For Jane, the dilemma is whether or not to confront senior management with these problems. Should she question the wisdom of the policy?

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