Controlling inventory is one of Wheeled Coach's toughest problems. Operating according to a strategy of mass customization and responsiveness, management knows that success is dependent on tight inventory control. Anything else results in an inability to deliver promptly, chaos on the assembly line, and a huge inventory investment. Wheeled Coach finds that almost 50% of the cost of every ambulance it manufactures is purchased materials.
A large proportion of that 50% is in chassis (purchased from Ford), aluminum (from Reynolds Metal), and plywood used for flooring and cabinetry construction (from local suppliers). Wheeled Coach tracks these A inventory items quite carefully, maintaining tight security/control and ordering carefully so as to maximize quantity discounts while minimizing on-hand stock. Because of long lead times and scheduling needs at Reynolds, aluminum must actually be ordered as much as 8 months in advance.
In a crowded ambulance industry in which it is the only giant, its 45 competitors don't have the purchasing power to draw the same discounts as Wheeled Coach. But this competitive cost advantage cannot be taken lightly, according to President Bob Collins. "Cycle counting in our stockrooms is critical. No part can leave the locked stockrooms without appearing on a bill of materials." Accurate bills of material (BOM) are a requirement if products are going to be built on time.
Additionally, because of the custom nature of each vehicle, most orders are won only after a bidding process. Accurate BOMs are critical to cost estimation and the resulting bid. For these reasons, Collins was emphatic that Wheeled Coach maintain outstanding inventory control. The Global Company Profile featuring Wheeled Coach provides further details about the ambulance inventory control and production process.
Discussion Questions *
1. Explain how Wheeled Coach implements ABC analysis.
2. If you were to take over as inventory control manager at Wheeled Coach, what additional policies and techniques would you initiate to ensure accurate inventory records?
3. How would you go about implementing these suggestions?