THE INVENTORY OCTOPUS

Tom Johnson, newly hired supply management director at Smithers Industries, Inc., was about to tackle an inventory octopus. Word had just come from the board room that the directors had decreed a $1 million raw materials and supplies inventory reduction to conserve the company's working capital.

Smithers's president, Brashly Wintersee, had told Johnson during the hiring interview that inventory was one of their biggest problems, and that's why they were looking for a supply and inventory control person who could show them how to work some of the fat off the company's inventories. Johnson's background and experience were expected to turn the trick.

Johnson started to dig into the problem via a visit to each of Smithers's divisions: Mill Machinery Division, Whizzo Tool Division, and Aerlectro Division.

At the Mill Machinery Division, he heard from Elihu Adams, supply superintendent, "Don't know as how the home office can give us much help on inventory, Johnson. We've been making machinery here since 1887, and every customer knows he can get a replacement part from us for almost every machine we've ever made. That's the real service that sells our machines. See that pile of raw castings and plates out there? Don't imagine there's another company in the country that has such a complete stock of material all ready to be made up to customer orders. It's taken years to build this up, and it's worth millions! We figure it's all gravy after depreciation, too."

Jean Rogers, the supply manager at Whizzo Tool Division, told him, "Sure, I'm trying to get our inventory-sales in line with what the top brass at headquarters want. It's not purchasing materials that's out of the line now on Whizzo home hobby shop tools. Our big materials stock last quarter is now in production or in finished tools. Look at them in the warehouse, all backed up for the Christmas selling rush. We've been building up finished stock for a big season all summer. I sure hope our sales forecast is right."

Their Aerlectro supply manager, Nelson Briteway, told Johnson, "We don't have any inventory problem here in supply. All our money is out there on the shop floor in custom-built components. All gear we buy goes directly into a government space black box. Since our customer is Uncle Sam, we don't have any finished goods inventory and darn little in the stockroom."

Smithers's divisions ran under separate division vice presidents, so Tom couldn't tackle the inventory problem himself at each plant. Because he was close to the top brass as a brand-new, high-powered expert, he was expected to help the supply managers come up with some results—and fast.

1.      What are the company's inventory troubles?

2.      How can Tom cure them?