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No inventory problems are bigger than those of the U.S. auto industry. To produce a car or truck requires thousands of parts supplied by dozens of subcontractors scattered across the U.S. Running short of even one crucial component can force the shutdown of an entire assembly or production line at a plant. On the other hand, the costs of buildings and guards for equipment that is not needed can be staggering. For example, at Ford Motor Co., which lost $1.06 billion in 1981 on sales of $38.2 billion, every $1 worth of inventory costs the company an additional 260 a year in overhead expenses. Sums up William J. Harahan, Ford's director of technical planning: "Substantial inventories are just no longer an affordable luxury."
The Japanese have introduced the just-in-time approach to inventory control. This system, which was developed over a ten-year period by Toyota Motor Co., requires suppliers to deliver only enough components to build exactly the number of cars scheduled for production during a given day or week. The autos are then quickly shipped out to the market. The just-in-time system has spread throughout Japanese industry. Factories of YKK, the world's largest zipper manufacturer, have no warehouses at all. Goods are moved immediately from the production line to distributors.
Both Ford and General Motors are experimenting with just-in-time production. At GM's truck assembly plant in West Carrollton, Ohio, Findlay Industries Inc., a local manufacturer of truck seats, makes daily deliveries of seats that are bolted into truck cabs within four hours of their arrival at the plant. The seats used to sit around in a plant warehouse for as long as two weeks waiting to be drawn from inventory and used. At GM's Linden, N.J., and Tarrytown, N.Y., assembly plants, similarly tight inventory management procedures are expected to save the company upwards of $100 million.
Firestone has undertaken a major reorganization in order to bring about tighter control of inventories. The company cut down the types of tires it keeps in stock from an incredible 7,200 to 2,000. Its huge distribution center in Cranbury, N.J., now keeps only one-fourth as many tires as it did four years ago.
As a practical matter, neither the auto industry nor business in general is ever likely to do away with inventories entirely. Indeed, some inventory stockpiles are necessary to prevent unexpected supply interruptions from turning into crippling production bottlenecks that can spread havoc throughout the economy. But computers now permit companies to maintain leaner inventories, and this more precise business management should eventually reduce costly overhead charges and increase profits. —By Christopher Byron.
Reported by Bernard Baumohl/New York and Paul A. Witteman/Detroit