Reference no: EM132827012

Background: Inventory is one of the most expensive assets of many companies, representing as much as 50% of total invested capital. Operations managers around the globe have long recognized that good inventory management is crucial. On the one hand, a firm can reduce costs by reducing inventory. However, production may stop, and customers become dissatisfied when an item is out of stock. The objective of inventory management is to strike a balance between inventory investment and customer service. You can never achieve a low-cost strategy without good inventory management.

All organizations have some type of inventory planning and control system. A bank has methods to control its inventory of cash. A hospital has methods to control blood supplies and pharmaceuticals. Government agencies, schools, and, of course, virtually every manufacturing and production organization are concerned with inventory planning and control.

Inventory represents a major investment for many firms. This investment is often larger than it should be as firms find it easier to have "just-in-case" inventory rather than "just-in-time" inventory.

Inventories are categorized into four types:

• Raw material and purchased components
• Work-in-process
• Maintenance, repair, and operating (MRO)
• Finished goods

Inventory Control

Controlling inventory is one of Wheeled Coach's toughest problems. Operating according to a strategy of mass customization and responsiveness, management knows that success is dependent on tight inventory control. Anything else results in an inability to deliver promptly, chaos on the assembly line, and a huge inventory investment. Wheeled Coach finds that almost 50% of the cost of every ambulance it manufactures is purchased materials. A large proportion of that 50% is in the chassis (purchased from Ford), aluminum (from Reynolds Metal), and plywood used for flooring and cabinetry construction (from local suppliers). Wheeled Coach tracks these inventory items quite carefully, maintaining tight security/control and ordering carefully to maximize quantity discounts while minimizing on-hand stock. Because of long lead times and scheduling needs at Reynolds, aluminum must actually be ordered as much as 8 months in advance. In a crowded ambulance industry in which it is the only giant, its 45 competitors don't have the purchasing power to draw the same discounts as Wheeled Coach. But this competitive cost advantage cannot be taken lightly, according to president Bob Collins, "Cycle counting in our stockrooms is critical. No part can leave the locked stockrooms without appearing on a bill of materials." Accurate bills of material (BOM) are a requirement if products are going to be built on time. Additionally, because of the custom nature of each vehicle, most orders are won only after a bidding process. Accurate BOMs are critical to cost estimation and the resulting bid.

For these reasons, Collins was emphatic that Wheeled Coach maintain outstanding inventory control. The Global Company profile featuring Wheeled Coach provides further details about the ambulance inventory control and production process. what additional policies and techniques would you initiate to ensure accurate inventory records as a control manager? How would you go about implementing these suggestions?