Problem: Management Decision

Dealing with Oversupply "My first boss in the steel industry told me, nobody thinks there's any inventory until they look out the window and say, ‘Oh my God, what's all that stuff?'"93 So said economist Michael Montgomery of IHS Global Insight. Although it's not as simple as looking out the window, you can definitely relate to the thought as you look over the inventory and sales statistics for your company, which makes LCD screen televisions. You've been keeping the typical 8-week inventory that is the industry standard. But sales are declining rapidly and you're faced with, well, a lot of stuff. And it's your job to figure out what to do with it. You know you're not alone. Consumer spending on anything that isn't essential has been declining globally due to the economic recession. Overstock, especially of SUVs, in the U.S. auto industry is now widespread. But the problem of excess inventory has also hit companies that make chips, computers, and cell phones, along with fl at-screen TVs, as you well know. And the problem isn't only a decrease in consumer spending. Companies have invested enormous amounts of money into production and now many are running at partial capacity or closing. The numbers are staggering: Semiconductor inventories have nearly tripled, from $3.8 billion to $10.2 billion.94 While you can't fi x the global economy, you're still faced with the problem of how to manage your inventory. There are the immediate solutions like temporarily stopping production-SanDisk stopped production for a week at some of its plants and then re-opened at 70 percent capacity and reduced prices and wrote down inventory that couldn't be sold. But you're also concerned with the more long term issue of how to manage your inventory and your operations in a way that brings supply and demand into balance in what will probably be a smaller market. As Montgomery said, "It's going to get worse." You're looking to shift from an 8-week supply of flat-screen TVs to a 4- or 5-week supply. What will your inventory system of the future look like?

Questions: 1. What issues do you need to think about as you design a new inventory system?

2. Think about the systems discussed in the text. Which would you use? Explain your decision.