Eagle Machine

Eagle Machine Company (EMC), an organisation with sales totalling $72 million and engaged in manufacturing speciality restaurant equipment is in crisis due to decline in sales and increased costs. The president of the EMC had called up a meeting with his managers to explain the sense of urgency and clearly mentioned the goals for coming year of increasing the profit by 5% and sales revenue by 20%. With $43.2 million spend every year on her purchases and $12 million locked up in inventory, President had specially emphasised Sally Stone, the director of supply management of EMC to explore and exploit all the available option to cut the expense without harming the business.

1. What actions should Sally take to reduce inventories by 10 percent?

Reducing inventories by 10 percent can’t be met by focusing on any single aspect but need a holistic approach. There are many approaches available of reducing inventories and Sally should consider all and should not discount any available approach. As a director of supply management, Sally can study the portfolio of products to decide which product can be made in house and explore any opportunity to outsource some of the activities. The option of outsourcing vs. Insourcing gives the opportunity to reduce inventory by not buying individual parts but the assembly. This approach also helps gaining efficiencies with warehousing the product and logistics.

The Pareto Analysis will help to determine the important areas of inventory that are of high importance to the business and need immediate attention. A small change in inventory of higher dollar value can bring significant improvement on ROI as compared to inventory with smaller dollar value. This approach will bring the well needed focus of Sally and her team on to high value but small quantity which can ultimately lead to “Quick wins” in cost down opportunities.

EMC can adopt ‘pull strategy’ and accordingly improve the forecasting which can lead to accurate...