What are the four types of inventory
Course:- Project Management
Reference No.:- EM131259785

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Project Management

Frito-Lay has flourished since its origin-the 1931 purchase of a small San Antonio firm for $100 that included a recipe, 19 retail accounts, and a hand-operated potato ricer. The multibillion- dollar company, headquartered in Dallas, now has 41 products-15 with sales of over $100 million per year and 7 at over $1 billion in sales.

Production takes place in 36 productfocused plants in the U.S. and Canada, with 48,000 employees. Inventory is a major investment and an expensive asset in most firms. Holding costs often exceed 25% of product value, but in Frito-Lay's prepared food industry, holding cost can be much higher because the raw materials are perishable.

In the food industry, inventory spoils. So poor inventory management is not only expensive but can also yield an unsatisfactory product that in the extreme can also ruin market acceptance. Major ingredients at Frito-Lay are corn meal, corn, potatoes, oil, and seasoning. Using potato chips to illustrate rapid inventory flow: potatoes are moved via truck from farm, to regional plants for processing, to warehouse, to the retail store. This happens in a matter of hours-not days or weeks. This keeps freshness high and holding costs low. Frequent deliveries of the main ingredients at the Florida plant, for example, take several forms:

? Potatoes are delivered in 10 truckloads per day, with 150,000 lbs consumed in one shift: the entire potato storage area will only hold 7½ hours' worth of potatoes.
? Oil inventory arrives by rail car, which lasts only 4½ days.
? Corn meal arrives from various farms in the Midwest, and inventory typically averages 4 days' production.
? Seasoning inventory averages 7 days.
? Packaging inventory averages 8 to 10 days.

Frito-Lay's product-focused facility represents a major capital investment. That investment must achieve high utilization to be efficient. The capital cost must be spread over a substantial volume to drive down total cost of the snack foods produced. This demand for high utilization requires reliable equipment and tight schedules. Reliable machinery requires an inventory of critical components:

this is known as MRO, or maintenance, repair, and operating supplies. MRO inventory of motors, switches, gears, bearings, and other critical specialized components can be costly but is necessary. Frito-Lay's non-MRO inventory moves rapidly. Raw material quickly becomes work-in-process, moving through the system and out the door as a bag of chips in about 11 2 shifts. Packaged finished products move from production to the distribution chain in less than 1.4 days

Discussion Questions *

1. How does the mix of Frito-Lay's inventory differ from those at a machine or cabinet shop (a process-focused facility)?

2. What are the major inventory items at Frito-Lay, and how rapidly do they move through the process?

3. What are the four types of inventory? Give an example of each at Frito-Lay.

4. How would you rank the dollar investment in each of the four types (from the most investment to the least investment)?

5. Why does inventory flow so quickly through a Frito-Lay plant?

6. Why does the company keep so many plants open?

7. Why doesn't Frito-Lay make all its 41 products at each of its plants?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Project Management) Materials
Discuss the validity of each statement. If the statement is always true, explain why. If not, give a counterexample- Marginal profit is equal to marginal cost minus marginal r
Discuss your thoughts about the unique staffing, training, and motivational challenges that may be encountered within the typical production operation...an automobile plant
Suppose at the time of a new engine shipment, the exchange rate was ¥150/$. What was the dollar cost to Chrysler per engine? What was Mitsubishi's yen revenue per engine?
Identify a well-known organization that has been "caught" in an audit nightmare. What might the corporation have done to avoid a catastrophe?Was the blunder a recoverable on
How long is the pipe for steady state, steady flow conditions.- What is the rate of entropy production.- Show whether this system violates the second law of thermodynamics.
Describe the characteristics of projects. (1-2 paragraphs) Explain the relationship between projects, programs, and portfolios. (2-3 paragraphs). Describe the characteristics
Research to find two metrics along with the affiliated measure used by the company and two project key performance indicators used by a particular industry or company. Describ
It then sued Harris for the bulldozer damage, alleging negligence, and for the $450 damages for breach of contract. Harris claims that K & G defaulted first, having no legal