What are the four types of inventory Give an example of each

What are the four types of inventory? Give an example of each at Frito-Lay. How would you rank the dollar investment in each of the four types (from the most investment to the least investment) Why does inventory flow so quickly through a Frito-Lay plant? Why does the company keep so many plants open? Why doesn\'t Frito-Lay make all its 41 products at each of its plants?

Solution

Question 1: How does the mix of Frito – Lay’s inventory differ from those at a machine or cabinet shop? (A process – focused facility)?

The mix of Frito – Lay’s inventory differ from those at a machine or cabinet shop because it is a product focused facility and invested a lot on its’ capital equipment. This means Frito – Lay must keep a reliable inventory of maintenance, repair and operating supplies (MRO) whereas the cabinet shop does not need high upkeep of MRO compared to Frito – Lay.

Cabinet or machine shop keeps high volume of raw materials, work – in – progress (WIP) and final products in inventory as they have variations in their order basis. This is different with Frito – Lay where their demand is not by order basis thus they can produce more products without having to wait for orders. Frito - Lay produces the potato chips faster and more efficient than the production rate of cabinet or machine shop. Frito – Lay non – MRO inventory moves rapidly where a raw material quickly becomes WIP, to final products and to distribution chain. Frito – Lay’s finished products move from production to distribution chain in less than 1.4 days.

Question 2: What are the major inventory items at Frito Lay, and how rapidly do they move through the process?

The major inventory items in Frito Lay are corn meal, corn, potatoes, oil and seasoning. The potatoes arrive through trucks everyday and consumed in one shift. The entire storage holds the potatoes for 7 and ½ hours only. The oil, corn meal and seasoning averages 4 ½ days, 4 days and 7 days respectively. The finished products move from production to distribution chain in less than 1.4 days.

Question 3: What are the four types of inventory? Given an example of each at Frito – Lay.

The four types of inventories are as per below:

1. Raw Materials – potatoes, corn, seasonings and oil.
2. Work in process – cleaned potatoes, seasoned potatoes then cooked potatoes.
3. Finished goods - bags of chips & cartons of chips.

4 MRO - Parts from motors gears & all necessarary materials.

Que :- How would you rank the dollar investment in each of the four types (from mostinvestment to least investment) ?

Managing Inventory at :-

(a) Least: WIP—There is virtually no WIP—only one shift worth that is moving rapidly through the plant.

(b) Next to least: Raw material with frequent delivery will have low volume on hand at any one time.

(c) Next to most: Finished goods—Several days of inventory but with an average of 1.4 days, to ensure that proper mix is available for delivery. This is more costly as it has both the raw material cost and the processing cost included.

(d) Most: MRO (maintenance repair and operating supplies)—This inventory is typically high in process industries because good/high utilization is required. Also, replacement parts must be available to keep the high capital investment process running.

5. Why does inventory flow so quicky through a Frito-Lay plant?

Inventory flows quickly because: The plant is automated and efficient. It suffers minimal breakdowns. It has to move rapidly because: The basic corn and potato ingredients are perishable until they are processed and sealed in bags.

6. Why does the company keep so many plants open?

The firm has plants throughout the United States and Canada (30 in total) because: The product must move to market quickly to keep it fresh. Also, the manufacturing process needs to be near the consumer and markets.

7. Why doesn’t Frito-Lay make all its 41 products at each of its plants?

Frito-Lay does not make all 41 products at each plant because: It’s a cost issue. Equipment to handle specialty products that have (relatively) smaller sales is expensive. Some plants make only a few products and distribute them more broadly.