Gscm 206 Managing Inventory at Frito-Lay Case Study

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GSCM 206 Managing Inventory at Frito-Lay Case Study

GSCM 206 Managing Inventory at Frito-Lay Case Study

Case Study Questions

1. How does the mix of Frito-Lay inventory differ from those of a machine or cabinet shop (a process-focused facility)?

2. Why does inventory flow so quickly through a Frito-Lay plant?

3. Why doesn’t Frito-Lay make all of its 41 products at each of its plants?

Frito-Lay has flourished since its origin—the 1931 purchase of a small San Antonio firm for $100 that included a recipe, 19 retail accounts, and a hand-operated potato ricer. The multi-billion-dollar company, headquartered in Dallas, now has 41 products—15 with sales of over $100 million per year and 7 at over $1 billion in sales. Production takes place in 36 product-focused plants in the U.S. and Canada, with 48,000 employees.

Inventory is a major investment and an expensive asset in most firms. Holding costs often exceed 25% of product value, but in Frito-Lay’s prepared food industry, holding cost can be much higher because the raw materials are perishable. In the food industry, inventory spoils. So poor inventory management is not only expensive but can also yield an unsatisfactory product that in the extreme can also ruin market acceptance.

Major ingredients at Frito-Lay are corn meal, corn, potatoes, oil, and seasoning. Using potato chips to illustrate rapid inventory flow: potatoes are moved via truck from farm, to regional plants for processing, to warehouse, to the retail store. This happens in a matter of hours—not days or weeks. This keeps freshness high and holding costs low.

Frequent deliveries of the main ingredients at the Florida plant, for example, take several forms:

• ▸Potatoes are delivered in 10 truckloads per day, with 150,000 lbs consumed in one shift: the entire potato storage area will only hold 7½ hours’ worth of potatoes.

• ▸Oil inventory arrives by rail...