The Philipps Lighting Company manufactures decorative light fixtures. Its revenues are about $100 million a year. It purchases inputs from approximately 20 suppliers, most of which are much larger companies located in various parts of the country. Sam Spade, the vice president of manufacturing, is a sophisticated executive who has always been impressed by the latest innovative techniques in management.
Last week Sam came into a meeting of the executive team with a proposal to cut inventory costs to almost nothing. Just in time (JIT) is the wave of the future, he said, and proposed that Philipps enter into negotiations with all of its suppliers to implement the concept immediately.
You’re the CFO and tend to be more skeptical about new methods. Prepare a memo to the team, tactfully outlining the problems and risks involved in Sam’s proposal.