Eagle Machine Case Study

Eagle Machine Company Case Study

What actions should Sally take to reduce inventories by 10 percent? Obviously having such a large inventory is a glaring cost that executive management and shareholders can plainly view in a monthly and quarterly financial report. Burt, Petcavage and Pinkerton (2010, page 485) claim that carrying cost figure out to be approximately 25 to 35 percent of the total value of inventory. This is a legitimate concern for management and manageable cuts can be made in this area. A good way to reduce inventory, and the cost associated, is to eliminate obsolete stock. Clearing obsolete inventory is a great policy, and great operating polices often result in long-term financial savings. Removing obsolete stock, not only get it off the books, but opens up space for stock that adds value.

What dangers, if any, are there in reducing inventories? The danger if reducing inventories is the possibility that there are not enough parts on hand to continue production. However, standardizing parts could be a viable option to improve quality, lower costs, and benefit an organization in numerous ways. Burt et al (2010, Page 133) argue that standardizing parts enable the manufacturer to vary the amount of finished products while using a smaller amount of parts. They continue their argument by claiming that by standardizing the production process and focusing on continuous improvement will reduce overall cost. This process could be compared to Dell and their ability to make computers specifically for each consumer.

In what ways could the cost of goods purchased be reduced? The cost of goods can be reduced with a major focus on strategic sourcing. This gives the organization greater insight to make more cost effective decisions when purchasing goods. Burt et al (2010, Page 6) claim that Strategic Sourcing if formalized into three activities. What is purchased and from whom (Spending), wh0 offers what and the changes that pertain to the...