Key Issues

Based on our discussion, several issues emerged that should be addressed since the answers will affect improvement opportunities and, possibly, future business strategy. These issues are preliminary only, and we would expect others to emerge.

1. Is the present inventory management system suitable for all elements of the business? We understand that a computerized "IMPACT" type system is in use. We are familiar with systems of this type, and find them quite useful in nonmanufacturing, stocking businesses in which thousands of relatively stable stock-keeping units are processed. However, it may not be as effective a method as others of determining stock levels and placing orders both centrally and in the regions.

2. With present systems, procedures, and organizational relationships, what is the level of inventory investment necessary to meet customer service objectives? A determination should be made of the investment required to serve present markets with the current products offered under existing procedures. This will provide the proper base from which to determine opportunities for improvements through change opposed to those that could be realized through more control or discipline in the use of present systems and techniques.

3. Are centralized inventories cost effective for you? In the Piping Group, two centralized inventory pools me maintained, for tube products and valves and fittings. These pools were established when the business was small and working capital extremely limited. The central pool was intended to achieve lower inventories, lower cost, and better service, particularly for huge construction projects; management is questioning this policy.

4. What are present levels of obsolete and slow-moving inventories? Excessive inventories are frequently a result of problems in this area. A key part of the analysis should concentrate on determining current inventory excesses. More importantly, we will determine the root causes so that recommendations to prevent reoccurrences can be developed.

5 With changes in inventory policies, organization structures, and systems, l how much improvement can be made in inventory turn? This is the key issue, and could affect long-term business strategy. Management is willing to consider changes in long-established operating procedures if such changes can reduce the working capital intensity of the business.