Chapter 12, Problem 1.6VC

Summary Introduction

Introduction:

Company FL had rapid growth since 1931 after the purchase of company SA for $100. The company has 41 products and production takes place in 36 product-focused plants with 48,000 employees.

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

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

The company product represents major capital investment which must achieve high utilization to be efficient. High utilization requires reliable equipment and tight schedules. 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 becomes 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 why company FL keeps many plants open.