Question

(Frito-Lay) Frito-Lay has flourished since its origin---the 1931 purchase of a small San Antonio firm for $100 that included a recipe, 19 retail accounts, and a hand-operated potato ricer. The multi-billion-dollar company, headquartered in Dallas, now has 41 products---15 with sales of over $100 million per year and 7 at over $1 billion in sales. Production takes place in 36 product-focused plants in the U.S. and Canada, with 48,000 employees. Inventory is a major investment and an expensive asset in most firms. Holding costs often exceed 25% of product value, but in Frito-Lay's prepared food industry, holding cost can be much higher because the raw materials are perishable. In the food industry, inventory spoils. So poor inventory management is not only expensive but can also yield an unsatisfactory product that in the extreme can also ruin market acceptance. Major ingredients at Frito-Lay are corn meal, corn, potatoes, oil, and seasoning. Using potato chips to illustrate rapid inventory flow: potatoes are moved via truck from farm, to regional plants for processing, to warehouse, to the retail store. This happens in a matter of hours---not days or weeks. This keeps freshness high and holding costs low.

Frequent deliveries of main ingredients at the Florida plant, for example, take several forms:
--- Potatoes are delivered in 10 truckloads per day, with 150,000 lbs consumed in one shift: the entire potato storage area will only hold 7.5 hours' worth of potatoes.
--- Oil inventory arrives by rail car, which lasts only 4.5 days.
--- Corn meal arrives from various farms in the Midwest, and inventory typically averages 4 days' production.
--- Seasoning inventory averages 7 days.
--- Packaging inventory averages 8 to 10 days.

Frito-Lay's automated product-focused facility is expensive. It represents a major capital investment that must achieve high utilization to be efficient. The capital cost must be spread over a substantial volume to drive down total cost of the snack foods produced. This demand for high utilization requires reliable equipment and tight schedules. Reliable machinery requires an inventory of critical components: this is known as MRO (or maintenance, repair, and operating supplies). MRO inventory of motors, switches, gears, bearings, and other critical specialized components can be costly but is necessary.

Frito-Lay's non-MRO inventory moves rapidly. Raw material quickly becomes work-in-process, moving through the system and out the door as a bag of chips in about 1.5 shifts. Packaged finished products move from production to the distribution chain in less than 1.4 days

(Frito-Lay) Compare a product-focused plant (e.g., Frito-Lay) and a process-focused job shop (e.g., machine shop) in terms of the mix of four types of inventory in dollars.
--- Raw materials and work-in-process inventory is higher in a ___.
--- Finished goods and MRO inventory is higher in a ___.
A. process-focused job shop, process-focused job shop
B. process-focused job shop, product-focused plant
C. product-focused plant, product-focused plant
D. product-focused plant, process-focused job shop

Answer 1

In a product-focused plant, the higher inventory is in raw materials and work-in-process inventory. In a process-focused job shop, the higher inventory is in finished goods and MRO inventory.

Step-by-step explanation:

In a product-focused plant, such as Frito-Lay, the higher inventory is in raw materials and work-in-process inventory. This is because the production process involves transforming these inputs into finished products with rapid inventory flow.

On the other hand, in a process-focused job shop, the higher inventory is in finished goods and MRO (maintenance, repair, and operating supplies) inventory. This is because the production process involves customizing and assembling products according to specific customer orders.

As for finished goods and MRO inventory, a product-focused plant like Frito-Lay requires consistent production to spread out the capital costs of their highly automated facilities, meaning they have a high turnover of finished goods. Therefore, finished goods inventory is kept low to maintain efficiency and minimize storage costs. However, to ensure high utilization and reliability of their production lines, they must maintain a substantial MRO inventory to keep machinery running without interruptions.

Thus, the correct answer is: Raw materials and work-in-process inventory is higher in a process-focused job shop, and finished goods and MRO inventory is higher in a product-focused plant, making the answer B. process-focused job shop, product-focused plant.