Privileged fly allowed to be on the wall of a corporate boardroom during a high-powered discussion. The corporation is an engineering firm whose sales total approximately $140 million a year. Up to now, things appear to have been going well. Production does an efficient job, and inventories have been reduced. But danger signs are cropping up. Although no orders have been lost yet, several shipments have missed their deadlines. Customers are beginning to complain. In addition, transportation costs on incoming and outbound freight shipments are mushrooming. It is 9 a.m. and several people are nervously sitting at the conference table. A stern-looking individual enters.

 

President Gish brings the meeting to order. "Look at these air freight bills. Here's one for $955—more than the damn part is worth. I know because I checked. These things are murdering us! You must realize that in our business today, transportation has great cost-cutting potential."

Traffic manager Tracks responds. "I know that freight bills have risen 30 percent in the last six months, but what can I do? Miss Glass here is cutting inventories so hard that she never has anything in stock. Her short lead times force me to use air freight. And the way she spreads small orders, I almost never find a way to consolidate them to get volume rates. And I'm having the same problems on outgoing shipments. I'm caught in a two-bladed buzzsaw!"

Supply manager Joan Glass interrupts to say, "Harold, we're operating on low inventories because we save money doing it. Many times air freight is the only way I can be sure of getting what I need on time."

Production manager Holtz comments, "When I need something, I need it. Take spares. This downtime is a very  expensive proposition, and we all know it. Further, by the time Miss Glass here gets me needed production materials, we are so late that the only way to meet delivery dates is with overtime and the use of air freight."

Marketing manager Levi joins in. "Whatever the trouble, it seems there must be a way to get an efficient pipeline. If Heinrich is late, then I am late. We are losing our image as a reliable supplier. Soon, we'll be losing sales!"

Traffic manager Tracks defends himself by saying, "I don't want to seem bitter, but it looks like I'm getting the short end of the stick."

President Gish interrupts., "No more excuses. I want action! Costs must come down."

Supply manager Glass defends herself by saying, "The lead-time problem goes right back through production and eventually to Harold's sales forecasts. I need earlier information."

Marketing manager Levi says, "I have to promise prompt delivery. We all know that the problem is at the other end."

Production manager Holtz suggests, "Like I've been saying for a long time, we should combine supply and traffic and get them closer to production."

At this point, supply manager Glass sounds frustrated when she says, "Heinrich, we're right back where we started. We need lower freight costs, but at the same time we must keep inventory down."

Director of finance Stein says, "Inventory carrying cost is over 30 percent a year. I think that Joan has done a great job. But I do agree with Mr. Gish that transportation costs are way over budget."

President Gish concludes the meeting by saying, "Heinrich's idea is a possibility. We could create a materials management setup. I understand it is the coming thing. I will give each of you one week to put all your ideas on paper. Be prepared to deliver your reports at our next meeting. I want us out of this fix. . . and soon!"

1. Discuss the basic inventory problem confronting this firm.
2. Air freight bills keep growing both in numbers and in total dollar value of freight transported. What are the factors that have contributed to the development of this situation? Do they reflect efficient or inefficient management of supply, inventories, and production in firms such as this one? Discuss.
3. What should Joan Glass do?
4. Should Glass suggest a materials manager?
5. Should Glass build up her inventories?

Answer rating: 100% (QA)

The basic inventory problem confronting this firm is the tension between keeping inventory levels low to minimize holding costs and maintaining suffic... View the full answer