South-Western - Management  
A New Hazard for Recovery: Last-Minute Pace of Orders
Topic Managing Manufacturing and Service Operations
Key Words manufacturing, inventory, just-in-time
InfoTrac Reference none
News Story

Manufacturers are reporting that the orders they are receiving from businesses are smaller and more rushed than ever before. That's because the uncertainty of the economy has required companies to cut back on inventory to save costs. The Thomas Register, a web site that tracks industrial buyers, shows that 57% are boosting just-in-time purchases this year and reducing buying based on forecasts. Consequently, suppliers receiving unsteady, unpredictable orders have difficulty justifying large equipment purchases. Manufacturers are also having to buy raw materials more frequently and in smaller quantities, which squeezes their profits.

The problem stems from the difficulty of forecasting demand in a rapidly changing economy. This is especially true in the consumer-products industry, where changing fads can quickly make products and their packages obsolete. Some companies have found that using the Internet to place orders speeds up the delivery process because of the ability to search several manufacturers for availability.

Questions
1.

Define just-in-time inventory. How is this inventory system impacted by economic trends?

2.

What are the typical costs involved in maintaining an inventory? Which of these costs is most affected by the trend of companies to order in smaller amounts more frequently?

Source Clare Ansberry, "A New Hazard for Recovery: Last-Minute Pace of Orders," Wall Street Journal, June 25, 2002, p. A1.
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