Inventory Problem

The company I worked for this summer keeps a considerable amount of inventory. Most of their products are being shipped from China in containers and have at least a 3 month lead time. Their largest customer makes up about 60% of their revenue and takes up most of the run time during both shifts. The inventory is too large to keep in their main facilities so they have purchased extra space in a 3PL about 45 minutes from the plant. They have recently starting forecasting using a 4 month moving average which has done fairly well, but the purchasing manager isn't involved in many aspects of this process. Most of the managers and staff have worked there for more than 20 years and have become confortable in the way things have "always been done". I spent my summer trying to help them update their forecasting, reorder points, purchasing processes, unfulfilled PO's, counting inventory by hand and pretty much bring them into the 21st century. Does anyone else have any suggestions on what they can do to improve their practices?

More inventory changes as a result of hard times...

I read an article in the Wall Street Journal about how luxury car makers are struggling to sell their cars now that the economies in America and abroad are struggling. Now that large amounts of credit are not available, dealers are maintaining their inventories for a longer period of time.

A year ago, a Lexus LS sedan typically sat on the lot for 21 days before it was sold. Now, that number has increased to 62. And a BMW 3-series sat on the lot an average of 28 days a year ago. Now, the average 3-Series sits unsold for 49 days. So what changes will the automakers undergo in order to maintain the growing levels of inventory?

Most say that they plan to ride out the storm. There is an underlying belief that the economies will rebound and sales will increase again. In addition, some companies plan to alter marketing strategies, etc. in order to target customers differently.

But, BMW is planning to slow its production at its North America plant in order to ship less cars to dealerships. In other words, BMW is changing its production rate in order to move with the demand rate. While some businesses will build up large inventories during the economic downturn, BMW is attempting to maintain steady inventories. This makes sense as a strategy for BMW because if indeed demand does increase, they will easily be able to ramp up production because of the excess plant capacity they have.

The article can be found at:
http://online.wsj.com/article/SB122443910753248171.html

In response to Inventory management in Economic Crisis

This is a very good discussion where there is no direct answer. I spent a little time researching companies inventory during tumultuous times and they vary in how they believe is the best way to handle the problem. My opinion is to carry as little inventory as possible. Companies in retail and manufacturing are producing less, so why carry current inventory levels? Some companies are wary of purchasing excess inventory and believe to only buy or produce what is necessary. Others believe harder times maybe coming and buy excess inventory to build up for the future. We don't know what will work, but obviously one will be right and the other wrong.

In response to the previous post...

I read an article today entitled "The Color of Your Warehouse Doesn't Matter." The article brought up several good points about companies' priorities now that the economy is no longer booming. It mainly talks about the fact that companies may want to focus more on key aspects of their distribution such as providing customers with the right products at the right time instead of following current fads such as making warehouses "green."

The author also makes a good point that because of the current economy many businesses will look into their warehousing and logistics operations and begin to cut down on waste. This is a good practice, but why does it take a declining economy for companies to try to improve their supply chains?

The article can be found at:
http://www.sdcexec.com/web/online/FulfillmentLogistics-Trends/The-Color-of-Your-Warehouse-Does-Not-Matter/15$10763

Financial Issues and Inventory Management

I'm writing this blog to start an open discussion about how the current and future economic conditions will affect firms' inventory management practices. With the DOW closing at about 8600 today everyone is, no doubt, losing faith in the stock market. Will this trend cause companies to alter the way that they treat their inventory? Or, will they continue to maintain their current practices?

Since businesses are constantly balancing the riskiness of each investment with its payoff, will the poor performance of the country's financial markets cause inventory to be a more attractive investment?

There is also, of course, the possibility that firms undergoing hardships could attempt to unload their inventories into the market in order to generate excess cash.

I would argue that the changes in today's financial market will definitely change firms' inventory practices, but what do you think?

Please respond with any ideas...