Academic journal article Journal of the International Academy for Case Studies

Rascal-Mildew, Inc.: A Case of the Inventory Hot Potato

Academic journal article Journal of the International Academy for Case Studies

Rascal-Mildew, Inc.: A Case of the Inventory Hot Potato

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case is Inventory Management in a high tech company with a very short product life cycle due to continual product improvements. Rascal-Mildew Inc. went from one of the best managed companies in the U.K. to a company that ultimately succumbed to competitive forces, lead by severe inventory problems. The case has a difficulty level of undergraduate seniors in Operations Management or Auditing and/or graduate level MBA Operations Management or MACC Cost Accounting and/or Auditing programs. The case is designed to be taught in one class (one hour and fifteen minutes), assuming cases are presented in groups of four students, with a fifteen minute presentation per group and fifteen minutes wrap up by the instructor. Student workload should be expected to be eight hours per group or roughly two hours per group participant at the undergraduate level. Workload should increase to ten to twelve group hours at the graduate level.

CASE SYNOPSIS

The case presents students with a combination of quantitative and qualitative aspects of Inventory Management. The products' high tech nature and unusual short life cycle should have made inventory management a serious priority in the company. The company lacked any detailed sales plan that could be driven down to specific product configurations for manufacturing to produce. This lead to the Manufacturing organization building what it thought would sell due to the Sale organization's reluctance to accept Inventory level and mix responsibility. Students should examine the role of the Sales organization in forecasting sales and inventory levels and tie this information to product life cycle.

At the same time, Manufacturing was combating increased automation to reduce direct labor costs leading to excess capacity. This was evidenced by the Labor Efficiency report. Manufacturing management's response was to increase efficiency by building more inventory, instead of laying off direct labor. In addition, during this time a Manufacturing Resource Planning (MRPII) implementation was underway throughout the organization. Students should be able to pick up the change in the WIP aging, indicating a much better priority planning process than pre-MRP times. Further complications can be examined related to the audit-client relationship. This aspect could be explored at the graduate level so students can better understand the "political" nature of the audit relationship. The circumstances could also be examined in a post Sarbanes-Oxley environment where students understand how the audit-client relationship may be different. Lastly, the student is faced with the reality of considerable excess and obsolete inventory and how to financially cope with the effects of writing it off the books.

This case was prepared solely to provide material for class discussion. The author did not intend to illustrate either effective or ineffective handling of a managerial situation. The author has disguised all names and other identifying company information to protect confidentiality.

INTRODUCTION

In June of 1986, Cost Accounting Controller Nick Trevino reviewed the latest RascalMildew monthly Manufacturing Performance Reports wondering who was really in charge of the company inventory levels. Nick sat in last month's Executive Staff meeting because his boss Fernando Lopez, V.P. of Finance was out of town. During that meeting, the topic of inventory levels came up and Ken Matty, V.P. of Sales said to Ray Bucci, V.P. of Manufacturing, "we sell em and you make em".

The high tech industry is typically characterized by rapidly changing technology and Rascal's modem, data encryption, and multiplex products were in the upper end of the product life cycle growth curve. Last year's audit report by Coopers and Lybrand indicated inventory levels were approaching a high level and the obsolescence risk and related financial exposure were rapidly growing. …

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