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- July 31, 2007 -

 
   

Supply Chain Strategy: Goodyear Finds New Insights to Inventory Management from Coping with Strike

 
 

Maybe All That Inventory Isn’t Required After All; Building an Advantaged Supply Chain

 
 

 

SCDigest Editorial Staff

The News: Tire giant Goodyear is the latest company to highlight supply chain initiatives as a key element of overall corporate strategy. In addition to a series of plans designed to reduce costs and improve responsiveness, Goodyear’s CEO noted that dealing with last year’s difficult strike at several plants showed the company it could manage with lower inventory levels.

SC Digest Says:
Could there be many other companies that find in the duress of a production constraint that in fact their supply chains could operate just fine at lower inventories?

What do you say? Send us your comments here

The Impact: It is often said that inventory is like high water in a river that hides the rocks of process inefficiencies in the water below. Necessity is also often the mother of invention. Many companies also have long-held, institutional beliefs and processes that build in high levels of inventory into their supply chains. Could there be many other companies that find in the duress of a production constraint that, in fact, their supply chains could operate just fine at lower inventories? Should more take a look at that potential without the need for such a catalyzing event?

The Story: The Supply Chain played a prominent role in Goodyear’s Q2 2007 earnings report, as Chairman and CEO Bob Keegan told investors last week that one of the company’s key initiatives was to build “an advantaged supply chain.”

That effort includes a multi-pronged effort to reduce costs, in large measure through supply chain process and network design improvements.  (See Supply Chain Graphic of the Week – Goodyear’s Supply Chain Cost Reduction Strategy.)

"We have some money to invest in this area, and don't think of bricks and mortar - think more in terms of IT,” Keegan told investors and analysts last week. "This is not an industry with great supply chains overall because the SKU proliferation of the past 10 or 15 years has really strained the system."

Goodyear is just the latest in a growing array of companies in which supply chain excellence and transformation have vaulted to board-level concern. What interested SCDigest even more were Keegan’s comments relative to inventory management.

In 2006, Goodyear suffered through a painful 12-week strike by the United Steelworkers at 16 of its US and Canadian factories. While the strike was eventually resolved, CEO Keegan said the strain of meeting customer demand with severely constrained production showed Goodyear it could operate at significantly reduced inventory levels.

"We learned a great deal during the [Steelworkers] strike last year about working with reduced inventories, about meeting customer service goals, and about taking cost out of the system, for example by utilizing direct shipment to our customers from our factories,” Keegan said. “This is helping us understand the investments and decisions required to create an advantaged supply chain.”

Keegan also said the company has set a goal of having 50% of its production capacity in low cost countries in five years, a goal that will not only enable Goodyear to lower its cost basis but also better align supply with growing Asian demand.

Are you surprised Goodyear found during the strike period it could operate at lower overall inventory levels? Should it take a dramatic event like a strike to cause companies to see the potential? How can they see the light without such a difficult event? Let us know your thoughts at the Feedback button below.

 
     
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