Newspaper article St Louis Post-Dispatch (MO)

Time May Have Passed `Just-in-Time' by, Experts Say

Newspaper article St Louis Post-Dispatch (MO)

Time May Have Passed `Just-in-Time' by, Experts Say

Article excerpt

There are a lot of red faces in corporate America these days.

Warehouses are bulging with raw materials and finished goods. Inventories in the second quarter grew faster than at any time since 1987, up $54 billion, according to the Commerce Department. That's more than double the gain in the first quarter and twice what economists had expected.

Even more embarrassing than the excess sitting on the shelves, though, is the question it begs: What happened to "just-in-time" inventory, one of the most ballyhooed business concepts in the 1990s? This notion, in which producers buy only enough raw materials to fill orders and retailers move products from manufacturers to customers almost instantly, was adopted by thousands of companies in the past few years.

Just-in-time was supposed to cut down on the costs of companies having to blindly carry inventory that may not lead to sales. Now, its short heyday may be over.

"Just-in-time is slowly going with the wind," said Michael Evans, president of The Evans Group, a Boca Raton, Fla., economic forecasting firm.

At Ladd Furniture Inc., the largest publicly held furniture maker in the U.S., inventory rose 18 percent in the second quarter to $122 million - mostly wood products for jumbo-sized TV-set cabinets.

Borden Inc., the giant food producer, is loading up on wheat used to make its Creamette, Prince and Anthony's pastas. The New York company is also stocking up on polyvinyl chloride for use in packaging. In the first six months of the year, its stocks in those two products increased 20 percent.

"We don't want to be sitting on too much inventory," said Bill Creekmuir, Ladd's chief financial officer. "But we can't run the risk of being unable to fill orders."

Sealing just-in-time's fate is the nation's peculiar economic recovery. The gross domestic product is growing without inflation.

At the same time, prices of commodities like steel, oil, lumber and wheat have surged. The Commodity Research Bureau Index, a benchmark index of 21 commodities, rose 10 percent in two months this summer.

But with retail prices flat, companies that wait to buy raw materials are likely to pay more without being able to equally increase the price of finished products.

"Businesses caught short of supplies could find themselves in a heap of trouble if that commodity is in an upward spiral," said Eric Johnson, professor of management at Vanderbilt University.

Clayton Homes Inc., the Knoxville, Tenn., maker of pre-fabricated houses, got hurt because it stood by just-in-time.

When lumber prices rose 33 percent in four months last winter, Clayton refused to warehouse wood.

"We've long been faithful to just-in-time inventory control, said Richard Ray Jr., Clayton's chief financial officer.

Clayton tried to pass the increased costs to home buyers, but that strategy didn't work. …

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