2009
    Analysis of Inventory
Management Trends in US
   A case of electronic and electrical industry




               ...
Introduction:

                             Inventory management has been one of the topics that has brought
             ...
the inventory levels. The primary aim of this report is to understand
some trends in history related to various factors li...
In economics, a durable good or a hard good is a                                                                          ...
Total Inventories - Computer and Electronic Products,
                                   (Mil. $, SA)
      70000.00
     ...
12000.00
                                              Retail Sales for Two industries
    10000.00
                      ...
For the computer and electronics area there had been sharp decline in the value of shipments two
times i.e. 2001-02 and 20...
A note on personal income and expenditure
               nal

Total personal income revealed fairly constant increased rat...
Upcoming SlideShare
Loading in …5
×

Analysis of Inventory Management Trends in US

4,301 views

Published on

Inventory management has been one of the topics that has brought attention and work of many people in different industries. There exists no ideal or unique solution for maintaining the inventory levels; it depends on many factors and situations. The result of which is apparent in the Herculean tasks the companies face in deciding upon their inventory levels. Many models have been developed, but each one comes with its distinct set of disadvantages.

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
4,301
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
70
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Analysis of Inventory Management Trends in US

  1. 1. 2009 Analysis of Inventory Management Trends in US A case of electronic and electrical industry Prepared By: Krishnadas.N Bangalore 4/8/2009
  2. 2. Introduction: Inventory management has been one of the topics that has brought attention and work of many people in different industries. There exists no ideal or unique solution for maintaining the inventory levels; it depends on many factors and situations. The result of which is apparent in the Herculean tasks the companies face in deciding upon their inventory levels. Many models have been developed, but each one comes with its distinct set of disadvantages. Just in Time (JIT) systems recently gained popularity, nonetheless the real implementation and the transportation cost “We want to turn our associated with it questions the use of such systems. The inventory is viewed in three main areas – Raw materials, Finished Goods and inventory faster than Work-in-Progress. The report however focuses on inventory as a our people. “ whole. -James Sinegal The aim of the report is to understand the trends in inventory management and the factors (especially economic factors) affecting the inventory levels, particularly in the case of electronics and electrical (including computers) industry in US. Methodology: The data has been collected from Federal Reserve Board & Bureau of Census, the links of which were present in www.freelunch.com. The data is restricted to US industries and more focus has been given on the data related to electronics and electrical field. The data was essentially time series data, seasonally adjusted. The central theme here is the inventory management and trend, however other economic data has also been considered for better understanding of the factors affecting inventory levels in US. No external manipulations have been performed on the data and simple statistical tools are used to publish the results. The graphical representation includes line graphs and pie charts. All the For more economic data and data collected represents monthly data from January 1992 to charts, visit InRev FCube. February 2009. US Economic Reporting http://www.f-cube.us The electronics and electrical industry (E&E): This industry is a popularly growing industry in US and it even includes computers. The demand in such industries is hard-hitting to fix upon and also there is a plethora of options to consider for betting upon
  3. 3. the inventory levels. The primary aim of this report is to understand some trends in history related to various factors like retail shipment, consumer expenditure, income etc. This will help in deciding upon the levels relating to the economic factor of the nation. The reasons for factors maintaining inventory has been essentially attributed to the following “We are in a situation factors in E&E industries. where inventories have been severely stressed; •Lags in Supply chain Lags Time •Lead Time issues Lead it'll take some time to climb back out of that,” •Demand Demand Uncertainity •Supply Supply - Michael Ervin Economics of •Bulk buying, movement Bulk •Storage Storage Scale Fig 1.1- Reasons for inventory management The report tries to present some trends in order to understand how these factors can be understood in depth in its relation to inventory levels in US with respect to the electronics and electrical industry. Following figure shows the substantial percentage of industry production when some famous US industries were considered. In Feb- 09 the industrial production for Computer/Electronic product and Electrical equipment/appliance was 170.17 and 95.16 respectively (NAICS=334, (Index 2002=100, SA) The percentage of these two NAICS=334, SA)). industries combined turned out to be 24%. Feb-09 Manufacturing Computer and electronic product Electrical equipment, appliance 105.66, 97.36, 9% 9% Motor vehicles and parts 101.19, Food, beverage, and tobacco 9% 170.17, 15% Primary metal 107.94, 10% 95.16, 9% Machinery 113.40, 10% Miscellaneous Petroleum and coal products 93.04, 107.34, 57.98, 5% 8% 10% Mining Electric power generation, transmission and 65.28, 6% distribution Fig 1.2- Industry Production
  4. 4. In economics, a durable good or a hard good is a Inventory Levels (Durable and Non evels Non- good which does not quickly wear out, or more Durable Goods) specifically, it yields services or utility over time rather than being completely used up when used The inventory levels of durable and once. These are goods that can last for a relatively non-durable goods were collected durable long time, such as refrigerators, cars, and DVD irrespective of the type of industry players. (Sullivan, arthur). to understand the trend in inventory management at a global level first. 400000.00 Total Inventories 350000.00 300000.00 250000.00 Total Inventories - Durable 200000.00 Goods Total, (Mil. $, SA) 150000.00 Total Inventories - Nondurable Goods Total, (Mil. $, SA) 100000.00 50000.00 0.00 Mar-… Mar-… Mar-… May-… Nov-… May-… Nov-… May-… Jul-95 Sep-96 Jul-02 Sep-03 Jan-92 Jan-99 Jan-06 Fig 1.3- Total Inventory for durable/non durable goods It can be observed from the above graph that the inventory reached its peak (max inventory levels) around 2000-01 (2001 end) and 20082008-09 for both the durable and non durable goods The end of goods. year 2001 recorded a maximum of 26.9% rise from the initial inventory levels followed by another peak at 41.94% rise from initial levels in December 2008 in case of durable goods. The similar percentages for non-durable goods were 29.75% in January 2001 and 61.03% in September 2008 durable The inventory level in durable goods is high as compared to the non durable goods. The reason for this is quite straight forward considering the demand for the goods. The time between two successive purchases is very high in case of a durable good and hence greater in inventory level. However, if the systems like JIT ( (Just In Time- Zero inventory) were being followed at large scale in durable goods, this situation would not be apparent. There is however no bias or debate at this level apparent. on the levels to be maintained- high or low. Although, the trends are the same; the factors affecting the two types of product is different. This will be evident from the upcoming sections. different. Inventory Levels (Electronics and Electrical industries) The comparison of inventory level of Electronics and Electrical (including computer and software) rison industry with the global (total) durable goods industry will reveal the similarity of the trend The trend. data was collected for two segments a) Computer and Electronic Products and b) Electrical Equipment Appliances and Components.
  5. 5. Total Inventories - Computer and Electronic Products, (Mil. $, SA) 70000.00 60000.00 50000.00 TI34S.US Total 40000.00 Inventories - Computer 30000.00 and Electronic Products, 20000.00 (Mil. $, SA) Bureau of Census: Shipments 10000.00 Inventories and Orders 0.00 (M3) - NAICS version MONTHLY United States Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Total Inventories - Electrical Equipment Appliances and Components, (Mil. $, SA) 20000.00 15000.00 TI35S.US Total Inventories - 10000.00 Electrical Equipment 5000.00 Appliances and Components, (Mil. 0.00 $, SA) Bureau of Census: Shipments Jan-92 Oct-94 Jun-98 Mar-01 Jan-03 Oct-05 Dec-92 Nov-93 Sep-95 Aug-96 Jul-97 May-99 Apr-00 Feb-02 Dec-03 Nov-04 Sep-06 Aug-07 Jul-08 Inventories and Orders (M3) - NAICS version MONTHLY United States Fig 1.4 Industry specific inventory level It can be observed clearly that the inventory level for electrical equipment appliances and components is fairly constant. However, the computer and electronics industry emits similar pattern as that of the durable goods industry. The percentage rise from the initial inventory level recorded its peak in 2001 with a whooping rise of 45.01%, followed by some increase in 2008. (Similar peaks in 2001 and to some extent 2008-09). This clearly demonstrates that the electrical equipment industry does not follow the trend of typical durable goods inventory. However, few more factors need to be explored to reach upon this statement. Retail Sales in Electrical appliance and Computer and Software industry This is another factor that helps to establish the fact that the trend observed in the inventory level of the durable goods industry is largely due to computer and electronic industry rather than the electrical industry. Following graph (Fig 1.5) illustrates the fact:
  6. 6. 12000.00 Retail Sales for Two industries 10000.00 Estimated Monthly 8000.00 Retail Sales- Electronics and 6000.00 appliance stores, ($mil., SA) 4000.00 Estimated Monthly 2000.00 Retail Sales- Computer and 0.00 software stores, ($mil., SA) Nov-93 Aug-96 May-99 Apr-00 Nov-04 Aug-07 Jan-92 Dec-92 Oct-94 Sep-95 Jul-97 Jun-98 Mar-01 Feb-02 Jan-03 Dec-03 Oct-05 Sep-06 Jul-08 Fig 1.5- Retail Sales (Electronics appliance & computer/software) It can be observed that there was a drop in the retail sales in 2001 for the computer computer/software industry and the sales never showed a constant increase like electrical appliances. The retail sales increase (percentage) from initial levels felled exponentially from 126.05% in May 1999 to 51.99% in May 2001. Although there are shades of similar trends in electrical industry, the growth has been pretty significant when compared to computer and software stores. The fall of retail sales is apparent in the computer industry which has resulted in greater inventory levels in 2001 and 2008 2008-09. This is an indication for the present managers to decide upon the inventory levels focussing on retail sales as well. The retail sales are important step of supply chain and there are efforts being made to tighten up the supply chain systems in order to estimate the inventory correctly. Value of Shipments Advanced Durable 50000.00 Value of Shipments Goods: Value of 45000.00 Shipments - Computer 40000.00 and Electronic 35000.00 Products, (Mil. $, SA) 30000.00 25000.00 20000.00 15000.00 Advanced Durable 10000.00 Goods: Value of 5000.00 Shipments - 0.00 Computers and Related Products, Jan-92 Dec-92 Nov-93 Oct-94 Sep-95 Aug-96 Jul-97 Jun-98 May-99 Apr-00 Mar-01 Feb-02 Jan-03 Dec-03 Nov-04 Oct-05 Sep-06 Aug-07 Jul-08 (Mil. $, SA) Fig 1.6- Value of Shipments for two industries
  7. 7. For the computer and electronics area there had been sharp decline in the value of shipments two times i.e. 2001-02 and 2008-09. The shipments reduced from 44,395 mil $ to 28,597 mil $ in the 09. period 2000 to 2003. This again demonstrated the reason for higher inventory levels in those two significant periods. The other two industries taken for this analysis were electronics & electri electrical appliances and computer related products. In these two industries, there was some fall in the products. inventory levels in the two periods mentioned, however the fall was not sharp and significant. Thus, the analysis also showed trends similar to what was observed before. The data observed involves value of the shipments compared for different types of industry related to this particular report. In order to understand the high inventory levels of both the durable and the non non-durable goods, the study of shipments were performed and the effect was noticed on the two types of goods. It was found that the durable goods pattern of inventories could easily be explained the no. of shipments shipments, however for non-durable goods shipment was not a durable factor. As the no. of shipments declined in 2001 . 2001-02 It was observed earlier in the t and 2008-09, the inventory levels rose up. However 09, report, both durable and non urable the case with non-durable goods was different. In this durable durable goods demonstrates case, the shipments increased rapidly in the year similar trend; especially in the 2008-09 which should have decreased the inventory levels but it turned out to be quashing (Illustrated in two high inventory periods of the graph Fig 1.7). The report presently concentrates 2001-02 and 2008 02 2008-09. on electrical and electronic goods which fall in the durable goods category. Value of Shipments for durable and non durable goods Advanced Durable Goods: Value of 300000.00 Shipments - Durable 250000.00 Goods Total, (Mil. $, SA) 200000.00 150000.00 Value of Shipments - Nondurable Goods 100000.00 Total, (Mil. $, SA) 50000.00 0.00 May-… Mar-… Nov-… Nov-… Jan-92 Oct-94 Jun-98 Apr-00 Jan-03 Oct-05 Dec-92 Sep-95 Aug-96 Jul-97 Feb-02 Dec-03 Sep-06 Aug-07 Jul-08 Fig 1.7- Value of Shipments Durable/Non Durable/Non-durable
  8. 8. A note on personal income and expenditure nal Total personal income revealed fairly constant increased rate over the years under study. However, minor falls in Personal Consumption Expenditure could be observed in 2000 01 and significant fall 2000-01 in the period 2000-08. Yet again the two periods gained the limelight which had higher inventory . levels. Therefore, personal consumption expenditure is a significant factor in demonstrating the total inventory levels of the nation. Some forecasting methods could be applied to the study t nation. the future trends in consumer expenditure that can relate to the inventory levels. Sector wise details of the consumer expenditure can be studied in detail and then analysis could be conducted to find relevant effect on the inventory level. The data and c charts are available in the following site: Labour Statistics Spending Consumer Expenditure in InRev FCube (http://www.f http://www.f-cube.us). Income and Personal Consumption Expenditure 14000.00 Income: Total 12000.00 Personal, (Bil. $, 10000.00 SAAR) 8000.00 6000.00 Income: Personal 4000.00 Consumption 2000.00 Expenditures, (Bil. $, 0.00 SAAR) Jan-92 Jul-93 Jan-95 Jul-96 Jan-98 Jul-99 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Conclusion The concept that this reports aims to bring up is the relation of the inventory levels with the economic factors At present, deciding upon the factors. Inventory is a levels of inventory as high or low is the dilemma which many companies face ``Flexibility today. There are many factors involved in this decision, and what is being Buffer'', but the ignored today is the relation of decision with the various economic facto It factors. question is how is important to consider the variety of economic factors available to decide to find the trade- upon the inventory which in turn affects the decision of production as well. off between These economic factors if found relevant for a particular industry can be further explored and research can be conducted (including forecasting) for inventory and efficient performance of the industry. customer service! This will even ensure the consistency in the supply chain and can result in win-win situation for both the producers and the consumers. win

×