An article published on February 9, 2009 in Wall Street Journal reported that after falling sharply for a year, U.S. inventories shot up by $6.2 billion unexpectedly in the fourth quarter of 2008, according to the latest U.S. Commerce Department figures. The surge underscores the rapid demand decline that is hitting large and small manufacturers.
The economic downturn is hitting companies so hard and so fast that even those that have made huge strides implementing inventory-control systems haven't been able to react quickly enough to avoid a costly buildup.
The upshot is that companies up and down the line are slashing prices and throwing the brakes on new production. As they rush to clear away the excess, their actions tend to magnify slowdowns already under way. Tighter inventory systems have lessened, but not eliminated, this pileup effect, economists said.
"The system went from full speed ahead to stop," said Ronald DeFeo, chief executive of Westport, Conn., mining and construction equipment maker Terex Corp. "We're working like crazy to stop our suppliers at the door and send them away -- and they're doing the same thing. So it's reverberating back through the system."
Another factor making inventory management more difficult has been growing globalization. Red Wing Shoe Company Inc. in Red Wing, Minn., produces in three U.S. plants, but also outsources some lower-priced lines to Asian factories. Chief Executive David Murphy said he has been able to quickly curb production at his U.S. plants as demand slowed, but his inventories of imported shoes have swelled, in part because those orders were placed far in advance of the downturn.
"We've had customers who placed orders with us, and we purchased shoes based on that, but then those customers canceled orders," he said. "Some of it was our own internal sloppiness, but we're also dealing with long lead times."
Consider the U.S. auto industry: While auto makers closed factories to reduce inventory, they failed to cut it deep enough to keep up with the massive decline in sales compared to the prior year.
At the end of last month, the industry had 116-days of sales of light vehicles sitting on dealer lots, compared to 78 days a year ago.
Some companies are using outside consultants to help slash inventories. Carlisle Companies Inc., a Charlotte, N.C., conglomerate that makes everything from lawnmower tires to commercial roofing, began working with TBM Consulting Group two years ago to streamline its operations, including its inventory systems. The company's goal is to slash $100 million in inventory by the end of this year.
Source: Aeppel, Timothy , “Firms Race to Regain Control Over Inventories” Wall Street Journal, February 9, 2009.