Chapter 12, Problem 1.5VC

Summary Introduction

Case summary:

Company FL had rapid growth since 1931 after the purchase of company SA for $100. The company has 41 products. With 48,000 workers, production is done in 36 product-focused plants.

Inventory is a major concern where the holding cost exceeds 25% of product value but in the food industry, the level exceeds due to the perishable nature of raw materials. The main ingredient of the firm is cornmeal, corn, potatoes, oil, and seasoning. Frequent delivery of main ingredients follows,

• The potato storage area will hold $7\frac{1}{2}$ hours’ worth of potatoes which are delivered in 10 truckloads with 150,000 lbs. consumed in one shift.
• Oil inventory lasts for $4\frac{1}{2}$ days which arrives by rail car.
• Cornmeal inventory averages for 4 days which arrives from various farms in the Midwest.
• Seasonal inventory averages for about 7 days.
• Packaging inventory averages 8 to 10 days.

The company product represents major capital investment which must attain high usage to be effective. Due to high usage consistent equipment and tight scheduling is needed. Reliable machinery requires inventory such as MRO, maintenance, repair, and operating supplies.

Non-MRO inventory moves rapidly. Within $1\frac{1}{2}$ shifts, the raw materials become work in process as they move through the system. In less than 1.4 days the packed finished products are sent for distribution.

To determine: The reason for the rapid flow of inventory in Company FL plant.