1. How does the mix of Frito-Lay’s inventory differ from those at a machine or cabinet shop (a process-focused facility)? Managing Inventory at Frito-LayManaging Inventory at Frito-LayFrito-Lay has flourished since its origin–the 1931 purchase of a small San Antoniofirm for $100 that included a recipe, 19 retail accounts, and a hand-operatedpotato ricer. The multibillion-dollar company, headquartered in Dallas, now has41 products–15 with sales of over $100 million per year and 7 at over $1 billion insales. Production takes place in 36 product-focused plants in the United States andCanada, with 48 000 employees.Inventory is a major investment and an expensive asset in most firms. Holdingcosts often exceed 25% of product value, but in Frito-Lay's prepared food industry,holding costs can be much higher because the raw materials are perishable. In thefood industry, inventory spoils. So, poor inventory management is not onlyexpensive but can also yield an unsatisfactory product that, in the extreme, canalso 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 truckfrom farm, to regional plants for processing, to warehouse, to the retail store. Thishappens in a matter of hours–not days or weeks. This keeps freshness high andholding costs low.Frequent deliveries of main ingredients at the Florida plant, for example, takeseveral forms:• Potatoes are delivered in 10 truckloads per day, with 15o 000 poundsconsumed 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 typicallyaverages 4 days' production.Seasoning inventory averages 7 days.Packaging inventory averages 8 to 10 days. Frito-Lay's product-focused facility is expensive. It represents a major capitalinvestment that must achieve high utilization to be efficient. The capital cost mustbe spread over a substantial volume to drive down total cost of the snack foodsproduced. This demand for high utilization requires reliable equipment and tightschedules. Reliable machinery requires an inventory of critical components: Thisis known as MRO, or maintenance, repair, and operating supplies. MRO inventoryof motors, switches, gears, bearings, and other critical specialized components canbe costly but is necessary.Frito-Lay's non-MRO inventory moves rapidly. Raw material quickly becomeswork-in-process, moving through the system and out the door as a bag of chips inabout 1.5 shifts. Packaged finished products move from production to thedistribution chain in less than 1.4 days.Discussion Questions*1. How does the mix of Frito-Lay's inventory differ from those at a machineor cabinet shop (a process-focused facility)?2. What are the major inventory items at Frito-Lay, and how rapidly do theymove through the process?3. What are the four types of inventory? Give an example of each at Frito-Lay.4. How would you rank the dollar investment in each of the four types (fromthe most investment to the least investment)?5. Why does inventory flow so quickly through a Frito-Lay plant?6. Why does the company keep so many plants open?7. Why doesn't Frito-Lay make all its 41 products at each of its plants?Sources: Professors Jay Heizer, Texas Lutheran University; Barry Render. Rollins College; and Bev Amer, Northern Arizona University.

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