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3. What are the four types of inventory? Give an example of each at Frito-Lay
2. What are the major inventory items at Frito-Lay, and how rapidly do they move through the process?
FRITO LAY CASE STUDY: CHAPTER 12
Frito-Lay is a product-focused
producer, rather than a
process-focused producer, which
means high volume with a
The company is highly invested
in capital assets and do not base
production on customer orders,
but rather mass production and
Due to the perishability of
inventory in the prepared food
industry, inventory management is
far more critical and can significantly
affect product satisfaction and market acceptance than in a
Must maintain a dependable
inventory of maintenance, repair
and operating supplies (MRO), while
it is not critical for a process-focused
The major inventory items:
The rapid inventory process moves potatoes from truck to farm, to regional plants for processing, to warehouse, to the retail store in a matter of hours, not days. This keeps freshness high and inventory costs low.
1. Raw Materials:
2. Work in Process:
3. Finished Goods:
Bag of Chips
Cartons of Chips
4. MRO: (maintenance, repair, and operating supplies):
Critical Specialized components
4. How would you rate the dollar investment in each of the four types? (from the most investment to the least investment)
Most Investment: MRO (maintenance repair and operating supplies)
This inventory is highly demanded and a high utilization is required.
Replacement machinery must be available to keep the high capital assets running correctly.
Second Most Investment: Finished goods
Process averages of 1.4 days, and Frito-Lay must ensure the correct mix is available for delivery.
This is more costly as it has both the raw material cost and the processing cost included.
Second Least Investment: Raw material
Frequent delivery will have correct volume on hand at any one time.
Least Investment: WIP (Work in Process)
Very low WIP, as it is constantly rapidly moving through the plant.
The plant is automated
It suffers minimal
It Must Move Rapidly
The basic corn and potato ingredients are perishable until they are processed and sealed in bags
Why Does Inventory Flow so Quickly Through a Frito-Lay Plant?
Why Does the Company Keep So Many Plants Open?
The firm has 30 plants in total in the US & Canada.
process needs to be next to those who purchase the product - consumers and markets
The product must move quickly to the market in order for it to remain fresh
Why doesn't Frito-Lay make all of
its 41 products in each of its plants?
It would cost them more
No need to purchase excess equipment for specialty products that dont sell as much
Easier to distribute broadly