May 28, 1998 Market Analysis High-Tech Manufacturers Reduce Inventory by 48 Percent in the Last 20 Years Between 1977 and 1997, the typical U.S. high-tech manufacturer nearly doubled its inventory performance - from 2.4 to 4.8 turns per year, according to a study by PRTM (Costa Mesa, Calif.; www.prtm.com), a management consulting firm. That performance means that U.S. technology-based industry now requires $1.2 trillion less inventory to run its business than it did 20 years ago: a 48 percent reduction. The study, the 20th Annual Inventory Study of Technology-Based Industry, shows that inventory performance has improved steadily over the two decades examined, with temporary dips coinciding with the 1982 recession and the 1987-88 stock market crash. PRTM identifies another dip in 1994-96, which it attributes to the high-tech industry's preoccupation with enterprise resource planning (ERP) system implementations and the consequent interruption of total quality management and Just-in-Time manufacturing initiatives. "PRTM sees two reasons for the last dip in inventory performance," said study leader and PRTM director Jeffrey Berg. "The allure of moving to next-generation ERP systems turned most companies upside-down as they researched and implemented these systems. At the same time, the materials management techniques introduced were largely ineffective. There is little evidence to suggest that companies changed their business practices while implementing programs such as vendor-managed inventories and in-plant stores. Without changes to underlying supply chain business practices, these types of programs served to do nothing more than move material and assets to other supply chain performers." Berg expects to see the typical high-tech company exceed 5.0 inventory turns by the turn of the century, spurred by the widespread adoption of a new generation of integrated supply chain management practices supported by Web-enabled information technology tools. "Joint Service Agreements, build- and configure-to-order manufacturing strategies, and global demand/supply planning are examples of the practices that will enable true collaboration among internal and external supply chain partners," said Berg. The study identifies three distinct cycles of performance improvement in the technology sectors: 1970-1981: Zero inventory and material requirements planning 1984-1993: Total quality management, Just-in-Time manufacturing and manufacturing resource planning 1997-2000: Integrated supply chains and the realization of ERP implementations. The Manufacturing Report © Copyright 1997, 1998 by Lionheart Publishing, Inc. All rights reserved. E-mail Editorial Dept: tmr-editorial@lionhrtpub.com Lionheart Publishing, Inc. 2555 Cumberland Parkway, Suite 299, Atlanta, GA 30339 USA Phone: 770-431-0867 | Fax: 770-432-696 E-mail: lpi@lionhrtpub.com Web Design by Premier Web Designs E-mail: lionwebmaster@preweb.com