Sample Case Study Paper on Inventory Management and its Influence in the Performance of Frito Lay’s Business Operations

QUESTIONS

  1. How does the mix of Frito-Lay inventory differ from those of a machine or cabinet shop (a process-focused facility)?

Frito Lay’s inventory has to be rapidly moving. This is significant since it helps in the efficient management of working capital. This frees up the cash reserves that provide the business with sufficient capital and financial resources to oil its day to day operations. Frito Lay has positioned all its facilities in both the United States and Canada to be product-focused facilities. In product focused facilities effective and efficient management of the inventory plays a crucial role in availing low-cost products and services to the end user (consumer or customer). This enables the business to maintain a competitive advantage in the market while at the same time producing competitively priced (low-cost) high quality products that are more affordable to the consumers.As a result of this strategy, Frito lay has enjoyed an improved and expanded market position. This business has been able to generate strong profit margins which make it one of the most profitable business ventures for the Pepsi Corporation. The company has continuously expanded its range of product line to date with forty one brands in the market. Additionally, the business has been able to manage moderate requirements of capital while at the same time it generates strong free operating cash flow.

  1. Why does inventory flow so quickly through a Frito-Lay plant?

Rapid flow of inventory has to be sustained in order to ensure that there is high and effective utilization of the production plants and facilities that it owns. Effective utilization ensures that there is maximum and optimum production which is characterized by low or minimum operating business costs and maximum profit margins. In the business arena that Frito Lay operates in, they also deal with highly perishable goods which are primarily potatoes which have to be transported fast to the production facilities for further processing before they rot. This ensures that the freshness of the potatoes have to be kept high in order to deliver high quality potato chips to the consumers. Frito Lays operates in the fast moving consumer goods (FMCG) industry which makes its products in high demand in the developed world as a result of changing lifestyles of the middle class working population. FMCG products have a short shelf life in the supermarkets and should be made available to the consumers at the lowest price possible.

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

Each product has to be allocated its product line. This will facilitate mass production of the product while at the same time ensuring there is reduction in the operating costs. This technique of allocating a product its own production line is known specialization of production. Specialization ensures that each product is allocated its own labour and capital. Each product requires different production methods and procedures in order to be finally produced efficiently at a lower cost. The facility is also able to optimize its production processes for maximum production at the lowest possible cost. The quality of the final product is also greatly improved due to the fact that it has been given adequate attention along the production chain. Specialization of product lines leads to economies of scale thus in the production of a particular product assigned along that line there is significant reduction in the production costs as well as great increase in the volume of production. Each product also requires specialized labour such as food scientists, ingredient mixers and chef masters to be produced which is guaranteed through product line specialization. There is significant drop and reduction in the average cost per unit of the product leading to low prices. There is great reduction in the human errors and product variations associated with production environments. Due to product line specialization, Frito Lay is able to produce high-quality products since they are properly tested along the production line and at a lower cost and price.