2009

Prepared By: Krishnadas.N

Bangalore

4/8/2009

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

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

associated with it questions the use of such systems. The inventory is

viewed in three main areas – Raw materials, Finished Goods and

Work-in-Progress. The report however focuses on inventory as a

whole.

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

data collected represents monthly data from January 1992 to

February 2009.

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

“We want to turn our

inventory faster than

our people. “

-James Sinegal

For more economic data and

charts, visit InRev FCube.

US Economic Reporting

http://www.f-cube.us

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

maintaining inventory has been essentially attributed

factors in E&E industries.

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.

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)

industries combined turned out to be

•Lags in Supply chain

•Lead Time issuesTime

•Demand

•SupplyUncertainity

•Bulk buying, movement

•StorageEconomics of

Scale

65.28, 6%

93.04,

8%

113.40, 10%

107.94, 10%

101.19,

9%

105.66,

9%

Fig 1.1- Reasons for inventory management

Fig 1.2- Industry Production

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 factors of the nation. The reasons for

maintaining inventory has been essentially attributed to the following

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.

figure shows the substantial percentage of industry

production when some famous US industries were considered. In Feb-

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

industries combined turned out to be 24%.

Lags in Supply chain

Lead Time issues

Demand

Supply

Bulk buying, movement

Storage

97.36,

9%

170.17, 15%

95.16, 9%

57.98, 5%107.34,

10%

65.28, 6%

93.04,

105.66,

9%

Feb-09 Manufacturing

Computer and electronic product

Electrical equipment, appliance

Motor vehicles and parts

Food, beverage, and tobacco

Primary metal

Machinery

Miscellaneous

Petroleum and coal products

Mining

Electric power generation, transmission and

distribution

Reasons for inventory management

Manufacturing

Computer and electronic product

Electrical equipment, appliance

Motor vehicles and parts

Food, beverage, and tobacco

Petroleum and coal products

Electric power generation, transmission and

“We are in a situation

where inventories have

been severely stressed;

it'll take some time to

climb back out of that,”

- Michael Ervin

It can be observed from the above graph that

around 2000-01 (2001 end) and 2008

year 2001 recorded a maximum of

peak at 41.94% rise from initial levels in

percentages for non-durable goods were

The inventory level in durable goods is high

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

However, if the systems like JIT (

durable goods, this situation would not be apparent

on the levels to be maintained- high

the two types of product is different

Inventory Levels (Electronics and Electrical industries)

The comparison of inventory level of

industry with the global (total) durable goods industry

data was collected for two segments a)

Equipment Appliances and Components.

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

300000.00

350000.00

400000.00

Jan

-92

Ma

r-…

Ma

y-…

Jul-

95

Sep

-96

No

v-…

Total Inventories

In economics, a durable good

good which does not quickly wear out, or more

specifically, it yields services or

rather than being completely used up when used

once. These are goods that can last for a relatively

long time, such as refrigerators, cars, and DVD

players. (Sullivan, arthur).

Fig 1.3- Total Inventory for durable/non durable goods

Inventory Levels (Durable and Non

Durable Goods)

The inventory levels of durable and

non-durable goods were collected

irrespective of the type of industry

to understand the trend in inventory

management at a global level first.

from the above graph that the inventory reached its peak (max inventory

and 2008-09 for both the durable and non durable goods

recorded a maximum of 26.9% rise from the initial inventory levels followed by another

from initial levels in December 2008 in case of durable goods. The similar

durable goods were 29.75% in January 2001 and 61.03% in September 2008

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

However, if the systems like JIT (Just In Time- Zero inventory) were being followed

this situation would not be apparent. There is however no bias or debate at this level

high or low. Although, the trends are the same; the

the two types of product is different. This will be evident from the upcoming sections.

Inventory Levels (Electronics and Electrical industries)

rison of inventory level of Electronics and Electrical (including computer and software)

durable goods industry will reveal the similarity of the trend

data was collected for two segments a) Computer and Electronic Products and b)

Equipment Appliances and Components.

No

v-…

Jan

-99

Ma

r-…

Ma

y-…

Jul-

02

Sep

-03

No

v-…

Jan

-06

Ma

r-…

Ma

y-…

Total Inventories

Goods Total, (Mil. $, SA)

Total Inventories

Goods Total, (Mil. $, SA)

Total Inventories

durable good or a hard good is a

which does not quickly wear out, or more

or utility over time

rather than being completely used up when used

once. These are goods that can last for a relatively

long time, such as refrigerators, cars, and DVD

Total Inventory for durable/non durable goods

evels (Durable and Non-

Goods)

The inventory levels of durable and

durable goods were collected

irrespective of the type of industry

to understand the trend in inventory

management at a global level first.

inventory reached its peak (max inventory levels)

durable and non durable goods. The end of

from the initial inventory levels followed by another

in case of durable goods. The similar

and 61.03% in September 2008

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 inventory level.

were being followed at large scale in

. There is however no bias or debate at this level

Although, the trends are the same; the factors affecting

. This will be evident from the upcoming sections.

(including computer and software)

the similarity of the trend. The

and b) Electrical

Total Inventories - Durable

Goods Total, (Mil. $, SA)

Total Inventories - Nondurable

Goods Total, (Mil. $, SA)

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:

0.0010000.0020000.0030000.0040000.0050000.0060000.0070000.00

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 - Computer and Electronic Products,

(Mil. $, SA)

TI34S.US Total

Inventories - Computer

and Electronic Products,

(Mil. $, SA) Bureau of

Census: Shipments

Inventories and Orders

(M3) - NAICS version

MONTHLY United States

0.00

5000.00

10000.00

15000.00

20000.00

Jan

-92

De

c-9

2

No

v-9

3

Oct

-94

Sep

-95

Au

g-9

6

Jul-

97

Jun

-98

Ma

y-9

9

Ap

r-0

0

Ma

r-0

1

Feb

-02

Jan

-03

De

c-0

3

No

v-0

4

Oct

-05

Sep

-06

Au

g-0

7

Jul-

08

Total Inventories - Electrical Equipment Appliances and

Components, (Mil. $, SA)

TI35S.US Total

Inventories -

Electrical Equipment

Appliances and

Components, (Mil.

$, SA) Bureau of

Census: Shipments

Inventories and

Orders (M3) - NAICS

version MONTHLY

United States

Fig 1.4 Industry specific inventory level

It can be observed that there was a

industry and the sales never showed

increase (percentage) from initial levels

in May 2001.

Although there are shades of similar trends in electrical industry, the growth

significant when compared to computer and software stores.

the computer industry which has resulted in greater inventory levels in 2001 and 2008

indication for the present managers to

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

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

Jan

-92

De

c-9

2

No

v-9

3

Oct

-94

Sep

-95

Au

g-9

6

Retail Sales for Two industries

0.005000.00

10000.0015000.0020000.0025000.0030000.0035000.0040000.0045000.0050000.00

Jan

-92

De

c-9

2

No

v-9

3

Oct

-94

Sep

-95

Au

g-9

6

Value of Shipments

Fig 1.5- Retail Sales (Electronics appliance & computer/software)

Fig 1.6- Value of Shipments for two industries

It can be observed that there was a drop in the retail sales in 2001 for the computer

never showed a constant increase like electrical appliances.

increase (percentage) from initial levels felled exponentially from 126.05% in May 1999 to 51.99%

Although there are shades of similar trends in electrical industry, the growth

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

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.

Au

g-9

6

Jul-

97

Jun

-98

Ma

y-9

9

Ap

r-0

0

Ma

r-0

1

Feb

-02

Jan

-03

De

c-0

3

No

v-0

4

Oct

-05

Sep

-06

Au

g-0

7

Jul-

08

Retail Sales for Two industries

Jul-

97

Jun

-98

Ma

y-9

9

Ap

r-0

0

Ma

r-0

1

Feb

-02

Jan

-03

De

c-0

3

No

v-0

4

Oct

-05

Sep

-06

Au

g-0

7

Jul-

08

Value of Shipments

Retail Sales (Electronics appliance & computer/software)

for two industries

computer/software

like electrical appliances. The retail sales

felled exponentially from 126.05% in May 1999 to 51.99%

Although there are shades of similar trends in electrical industry, the growth has been pretty

The fall of retail sales is apparent in

the computer industry which has resulted in greater inventory levels in 2001 and 2008-09. This is an

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

Estimated Monthly

Retail Sales-

Electronics and

appliance stores,

($mil., SA)

Estimated Monthly

Retail Sales-

Computer and

software stores,

($mil., SA)

Advanced Durable

Goods: Value of

Shipments - Computer

and Electronic

Products, (Mil. $, SA)

Advanced Durable

Goods: Value of

Shipments -

Computers and

Related Products,

(Mil. $, SA)

For the computer and electronics area

times i.e. 2001-02 and 2008-09.

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

appliances and computer related products

inventory levels in the two periods mentioned, however the fall was

Thus, the analysis also showed trends similar to what was obs

involves value of the shipments

report.

In order to understand the high inventory levels of both the durable and the non

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

however for non-durable goods

factor. As the no. of shipments declined in 2001

and 2008-09, the inventory levels rose up. However

the case with non-durable goods was different.

case, the shipments increased rapidly in the year

2008-09 which should have decreased the inventory

levels but it turned out to be quashing (Illustrated in

the graph Fig 1.7). The report presently concentrates

on electrical and electronic goods which fall in the

durable goods category.

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

300000.00

Jan

-92

De

c-9

2

No

v-…

Oct

-94

Sep

-95

Au

g-9

6

Value of Shipments for durable and

non durable goods

Fig 1.7- Value of Shipments Durable/Non

computer and electronics area there had been sharp decline in the value of shipments two

09. The shipments reduced from 44,395 mil $ to 28,597 mil $ in the

This again demonstrated the reason for higher inventory levels in those two

periods. The other two industries taken for this analysis were electronics & electri

computer related products. In these two industries, there was some fall in the

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

value of the shipments compared for different types of industry related to this particular

In order to understand the high inventory levels of both the durable and the non

study of shipments were performed and the effect was noticed on the two types of goods. It was

durable goods pattern of inventories

could easily be explained the no. of shipments,

durable goods shipment was not a

. As the no. of shipments declined in 2001-02

09, the inventory levels rose up. However

durable goods was different. In this

case, the shipments increased rapidly in the year

which should have decreased the inventory

quashing (Illustrated in

The report presently concentrates

on electrical and electronic goods which fall in the

Au

g-9

6

Jul-

97

Jun

-98

Ma

y-…

Ap

r-0

0

Ma

r-…

Feb

-02

Jan

-03

De

c-0

3

No

v-…

Oct

-05

Sep

-06

Au

g-0

7

Jul-

08

Value of Shipments for durable and

non durable goods

It was observed earlier in the

report, both durable and non

durable goods demonstrates

similar trend; especially

two high inventory periods of

2001-02 and 2008

Durable/Non-durable

in the value of shipments two

The shipments reduced from 44,395 mil $ to 28,597 mil $ in the

This again demonstrated the reason for higher inventory levels in those two

electronics & electrical

. In these two industries, there was some fall in the

and significant.

erved before. The data

compared for different types of industry related to this particular

In order to understand the high inventory levels of both the durable and the non-durable goods, the

study of shipments were performed and the effect was noticed on the two types of goods. It was

Advanced Durable

Goods: Value of

Shipments - Durable

Goods Total, (Mil. $,

SA)

Value of Shipments -

Nondurable Goods

Total, (Mil. $, SA)

t was observed earlier in the

urable and non

durable goods demonstrates

especially in the

two high inventory periods of

02 and 2008-09.

A note on personal income and expenditure

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

in the period 2000-08. Yet again

levels. Therefore, personal consumption expenditure is a significant factor in demonstrating the

total inventory levels of the nation

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

in the following site:

Labour Statistics����Spending����Consumer Expenditure

Conclusion

The concept that this reports aims to bring up is the

inventory levels with the economic factors

levels of inventory as high or low is the dilemma which many companies face

today. There are many factors involved in this decision, and what is being

ignored today is the relation of decision with the various economic facto

is important to consider the variety of economic factors available to decide

upon the inventory which in turn affects the decision of production as well.

These economic factors if found relevant for a particular industry can be

further explored and research can be conducted (including forecasting) for

efficient performance of the industry.

This will even ensure the consistency in the supply chain and can

result in win-win situation for both the producers and the consumers.

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

Jan

-92

Jul-

93

Jan

-95

Jul-

96

Jan

-98

Jul-

99

Income and Personal Consumption Expenditure

nal income and expenditure

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

. Yet again the two periods gained the limelight which had higher inventory

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

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

Consumer Expenditure in InRev FCube (http://www.f

The concept that this reports aims to bring up is the relation of the

the economic factors. At present, deciding upon the

levels of inventory as high or low is the dilemma which many companies face

today. There are many factors involved in this decision, and what is being

today is the relation of decision with the various economic factors. It

is important to consider the variety of economic factors available to decide

upon the inventory which in turn affects the decision of production as well.

These economic factors if found relevant for a particular industry can be

research can be conducted (including forecasting) for

efficient performance of the industry.

This will even ensure the consistency in the supply chain and can

win situation for both the producers and the consumers.

Jan

-01

Jul-

02

Jan

-04

Jul-

05

Jan

-07

Jul-

08

Income: Total

Personal, (Bil. $,

SAAR)

Income: Personal

Consumption

Expenditures, (Bil. $,

SAAR)

Income and Personal Consumption Expenditure

Total personal income revealed fairly constant increased rate over the years under study. However,

01 and significant fall

the two periods gained the limelight which had higher inventory

personal consumption expenditure is a significant factor in demonstrating the

. Some forecasting methods could be applied to the study the

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 charts are available

http://www.f-cube.us).

Inventory is a

``Flexibility

Buffer'', but the

question is how

to find the trade-

off between

inventory and

customer service!