1. VIDEO CASE: INVENTORY CONTROL AT WHEELED COACH AMBULANCE
This video looks at inventory management at the Wheeled Coach Division of Collins
Industries, the world’s largest manufacturer of ambulances. We suggest you follow
these four steps:
1. Read the case study that follows.
2. View the video tour of Wheeled Coach that addresses its inventory issues, then view
the video clip containing the authors’ observations.
3. If you wish to have further background, reread the material on inventory in Chapter
12.
4. Answer the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Firms like Wheeled Coach spend over half of their sales revenue on purchases. These
purchases are often in inventory and represent a huge portion of Wheeled Coach’s
assets.
But, perhaps even more importantly, the ambulances cannot be built if the proper
inventory is not on hand when needed. Because of the cost and critical nature of
inventory, Chapter 12 deals with inventory management.
Two important inventory management techniques are ABC analysis and Cycle
Counting. Wheeled Coach uses both. But effective inventory management begins at
the design stage. Efficient inventory control requires knowing what is needed. Bills-of-
material (BOM) provide this knowledge. Therefore Wheeled Coach spends substantial
time and effort making sure the BOMs are correct. Only then does it know what to
purchase and have available for the production process.
ABC analysis helps firms develop policies and procedures for controlling inventory. ‘A’
items are the expensive items such as the chassis (usually purchased from Ford),
aluminum (from Reynolds Metal), and plywood used for flooring and cabinetry (from
local suppliers). These few items constitute the majority of the inventory values at
Wheeled Coach. They are tightly controlled, from purchase to use, with effective
security. Orders are negotiated to maximize quantity discounts while minimizing on-
hand quantities. Some items, such as aluminum, must be ordered as much as eight
months in advance. ‘B’ items are less expensive and controlled less tightly. Finally, ‘C’
items have less control, but all items are stored under lock and key and only removed
from a secure area if they are on a BOM.
Part of the control of inventory items at Wheeled Coach is cycle counting. Under cycle
counting, ‘A’ items are counted on a very short cycle, perhaps once a month to verify
transaction accuracy. ‘B’ items are counted less frequently, perhaps every two months.
And ‘C’ items are verified once a quarter or even less frequently. Cycle counting
2. provides a much more effective auditing procedure than periodic (annual) counts of
inventory.
Only by driving down purchase costs and maintaining tight control of inventory can
Wheeled Coach control its total costs. With 45 competitors and orders that are usually
won only after a bidding process, Wheeled Coach has no alternative to effective
inventory management.
Discussion Questions
1. Explain how Wheeled Coach implements ABC analysis.
2. If you were to take over as inventory control manager at Wheeled Coach, what
additional policies and techniques would you initiate to ensure accurate inventory
records?
3. How would you go about implementing these suggestions?
