Inventory management has been one of the topics that has brought attention and work of many people in different industries. There exists no ideal or unique solution for maintaining the inventory levels; it depends on many factors and situations. The result of which is apparent in the Herculean tasks the companies face in deciding upon their inventory levels. Many models have been developed, but each one comes with its distinct set of disadvantages.

1. 2009
Analysis of Inventory
Management Trends in US
A case of electronic and electrical industry
Prepared By: Krishnadas.N
Bangalore
4/8/2009

2. Introduction:
Inventory management has been one of the topics that has brought
attention and work of many people in different industries. There
exists no ideal or unique solution for maintaining the inventory levels;
it depends on many factors and situations. The result of which is
apparent in the Herculean tasks the companies face in deciding upon
their inventory levels. Many models have been developed, but each
one comes with its distinct set of disadvantages.
Just in Time (JIT) systems recently gained popularity,
nonetheless the real implementation and the transportation cost
“We want to turn our associated with it questions the use of such systems. The inventory is
viewed in three main areas – Raw materials, Finished Goods and
inventory faster than Work-in-Progress. The report however focuses on inventory as a
our people. “ whole.
-James Sinegal
The aim of the report is to understand the trends in inventory
management and the factors (especially economic factors) affecting
the inventory levels, particularly in the case of electronics and
electrical (including computers) industry in US.
Methodology:
The data has been collected from Federal Reserve Board & Bureau of
Census, the links of which were present in www.freelunch.com. The
data is restricted to US industries and more focus has been given on
the data related to electronics and electrical field. The data was
essentially time series data, seasonally adjusted. The central theme
here is the inventory management and trend, however other
economic data has also been considered for better understanding of
the factors affecting inventory levels in US.
No external manipulations have been performed on the data
and simple statistical tools are used to publish the results. The
graphical representation includes line graphs and pie charts. All the
For more economic data and
data collected represents monthly data from January 1992 to
charts, visit InRev FCube.
February 2009.
US Economic Reporting
http://www.f-cube.us
The electronics and electrical industry (E&E):
This industry is a popularly growing industry in US and it even includes
computers. The demand in such industries is hard-hitting to fix upon
and also there is a plethora of options to consider for betting upon

3. the inventory levels. The primary aim of this report is to understand
some trends in history related to various factors like retail shipment,
consumer expenditure, income etc. This will help in deciding upon the
levels relating to the economic factor of the nation. The reasons for
factors
maintaining inventory has been essentially attributed to the following
“We are in a situation
factors in E&E industries.
where inventories have
been severely stressed;
•Lags in Supply chain
Lags
Time •Lead Time issues
Lead it'll take some time to
climb back out of that,”
•Demand
Demand
Uncertainity •Supply
Supply
- Michael Ervin
Economics of •Bulk buying, movement
Bulk
•Storage
Storage
Scale
Fig 1.1- Reasons for inventory management
The report tries to present some trends in order to understand how
these factors can be understood in depth in its relation to inventory
levels in US with respect to the electronics and electrical industry.
Following figure shows the substantial percentage of industry
production when some famous US industries were considered. In Feb-
09 the industrial production for Computer/Electronic product and
Electrical equipment/appliance was 170.17 and 95.16 respectively
(NAICS=334, (Index 2002=100, SA) The percentage of these two
NAICS=334, SA)).
industries combined turned out to be 24%.
Feb-09 Manufacturing
Computer and electronic product
Electrical equipment, appliance
105.66, 97.36,
9% 9% Motor vehicles and parts
101.19,
Food, beverage, and tobacco
9%
170.17, 15% Primary metal
107.94, 10%
95.16, 9% Machinery
113.40, 10% Miscellaneous
Petroleum and coal products
93.04, 107.34, 57.98, 5%
8% 10% Mining
Electric power generation, transmission and
65.28, 6%
distribution
Fig 1.2- Industry Production

4. In economics, a durable good or a hard good is a Inventory Levels (Durable and Non
evels Non-
good which does not quickly wear out, or more Durable Goods)
specifically, it yields services or utility over time
rather than being completely used up when used The inventory levels of durable and
once. These are goods that can last for a relatively non-durable goods were collected
durable
long time, such as refrigerators, cars, and DVD irrespective of the type of industry
players. (Sullivan, arthur). to understand the trend in inventory
management at a global level first.
400000.00
Total Inventories
350000.00
300000.00
250000.00 Total Inventories - Durable
200000.00 Goods Total, (Mil. $, SA)
150000.00 Total Inventories - Nondurable
Goods Total, (Mil. $, SA)
100000.00
50000.00
0.00
Mar-…
Mar-…
Mar-…
May-…
Nov-…
May-…
Nov-…
May-…
Jul-95
Sep-96
Jul-02
Sep-03
Jan-92
Jan-99
Jan-06
Fig 1.3- Total Inventory for durable/non durable goods
It can be observed from the above graph that the inventory reached its peak (max inventory levels)
around 2000-01 (2001 end) and 20082008-09 for both the durable and non durable goods The end of
goods.
year 2001 recorded a maximum of 26.9% rise from the initial inventory levels followed by another
peak at 41.94% rise from initial levels in December 2008 in case of durable goods. The similar
percentages for non-durable goods were 29.75% in January 2001 and 61.03% in September 2008
durable
The inventory level in durable goods is high as compared to the non durable goods. The
reason for this is quite straight forward considering the demand for the goods. The time between
two successive purchases is very high in case of a durable good and hence greater in inventory level.
However, if the systems like JIT ( (Just In Time- Zero inventory) were being followed at large scale in
durable goods, this situation would not be apparent. There is however no bias or debate at this level
apparent.
on the levels to be maintained- high or low. Although, the trends are the same; the factors affecting
the two types of product is different. This will be evident from the upcoming sections.
different.
Inventory Levels (Electronics and Electrical industries)
The comparison of inventory level of Electronics and Electrical (including computer and software)
rison
industry with the global (total) durable goods industry will reveal the similarity of the trend The
trend.
data was collected for two segments a) Computer and Electronic Products and b) Electrical
Equipment Appliances and Components.

5. Total Inventories - Computer and Electronic Products,
(Mil. $, SA)
70000.00
60000.00
50000.00
TI34S.US Total
40000.00 Inventories - Computer
30000.00 and Electronic Products,
20000.00 (Mil. $, SA) Bureau of
Census: Shipments
10000.00 Inventories and Orders
0.00 (M3) - NAICS version
MONTHLY United States
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Total Inventories - Electrical Equipment Appliances and
Components, (Mil. $, SA)
20000.00
15000.00 TI35S.US Total
Inventories -
10000.00 Electrical Equipment
5000.00 Appliances and
Components, (Mil.
0.00 $, SA) Bureau of
Census: Shipments
Jan-92
Oct-94
Jun-98
Mar-01
Jan-03
Oct-05
Dec-92
Nov-93
Sep-95
Aug-96
Jul-97
May-99
Apr-00
Feb-02
Dec-03
Nov-04
Sep-06
Aug-07
Jul-08
Inventories and
Orders (M3) - NAICS
version MONTHLY
United States
Fig 1.4 Industry specific inventory level
It can be observed clearly that the inventory level for electrical equipment appliances and
components is fairly constant. However, the computer and electronics industry emits similar
pattern as that of the durable goods industry. The percentage rise from the initial inventory level
recorded its peak in 2001 with a whooping rise of 45.01%, followed by some increase in 2008.
(Similar peaks in 2001 and to some extent 2008-09). This clearly demonstrates that the electrical
equipment industry does not follow the trend of typical durable goods inventory. However, few
more factors need to be explored to reach upon this statement.
Retail Sales in Electrical appliance and Computer and Software industry
This is another factor that helps to establish the fact that the trend observed in the inventory level of
the durable goods industry is largely due to computer and electronic industry rather than the
electrical industry. Following graph (Fig 1.5) illustrates the fact:

6. 12000.00
Retail Sales for Two industries
10000.00
Estimated Monthly
8000.00 Retail Sales-
Electronics and
6000.00 appliance stores,
($mil., SA)
4000.00
Estimated Monthly
2000.00 Retail Sales-
Computer and
0.00 software stores,
($mil., SA)
Nov-93
Aug-96
May-99
Apr-00
Nov-04
Aug-07
Jan-92
Dec-92
Oct-94
Sep-95
Jul-97
Jun-98
Mar-01
Feb-02
Jan-03
Dec-03
Oct-05
Sep-06
Jul-08
Fig 1.5- Retail Sales (Electronics appliance & computer/software)
It can be observed that there was a drop in the retail sales in 2001 for the computer
computer/software
industry and the sales never showed a constant increase like electrical appliances. The retail sales
increase (percentage) from initial levels felled exponentially from 126.05% in May 1999 to 51.99%
in May 2001.
Although there are shades of similar trends in electrical industry, the growth has been pretty
significant when compared to computer and software stores. The fall of retail sales is apparent in
the computer industry which has resulted in greater inventory levels in 2001 and 2008
2008-09. This is an
indication for the present managers to decide upon the inventory levels focussing on retail sales as
well. The retail sales are important step of supply chain and there are efforts being made to tighten
up the supply chain systems in order to estimate the inventory correctly.
Value of Shipments
Advanced Durable
50000.00
Value of Shipments Goods: Value of
45000.00 Shipments - Computer
40000.00 and Electronic
35000.00 Products, (Mil. $, SA)
30000.00
25000.00
20000.00
15000.00 Advanced Durable
10000.00 Goods: Value of
5000.00 Shipments -
0.00 Computers and
Related Products,
Jan-92
Dec-92
Nov-93
Oct-94
Sep-95
Aug-96
Jul-97
Jun-98
May-99
Apr-00
Mar-01
Feb-02
Jan-03
Dec-03
Nov-04
Oct-05
Sep-06
Aug-07
Jul-08
(Mil. $, SA)
Fig 1.6- Value of Shipments for two industries

7. For the computer and electronics area there had been sharp decline in the value of shipments two
times i.e. 2001-02 and 2008-09. The shipments reduced from 44,395 mil $ to 28,597 mil $ in the
09.
period 2000 to 2003. This again demonstrated the reason for higher inventory levels in those two
significant periods. The other two industries taken for this analysis were electronics & electri
electrical
appliances and computer related products. In these two industries, there was some fall in the
products.
inventory levels in the two periods mentioned, however the fall was not sharp and significant.
Thus, the analysis also showed trends similar to what was observed before. The data
observed
involves value of the shipments compared for different types of industry related to this particular
report.
In order to understand the high inventory levels of both the durable and the non
non-durable goods, the
study of shipments were performed and the effect was noticed on the two types of goods. It was
found that the durable goods pattern of inventories
could easily be explained the no. of shipments
shipments,
however for non-durable goods shipment was not a
durable
factor. As the no. of shipments declined in 2001
. 2001-02 It was observed earlier in the
t
and 2008-09, the inventory levels rose up. However
09, report, both durable and non
urable
the case with non-durable goods was different. In this
durable durable goods demonstrates
case, the shipments increased rapidly in the year
similar trend; especially in the
2008-09 which should have decreased the inventory
levels but it turned out to be quashing (Illustrated in two high inventory periods of
the graph Fig 1.7). The report presently concentrates 2001-02 and 2008
02 2008-09.
on electrical and electronic goods which fall in the
durable goods category.
Value of Shipments for durable and
non durable goods Advanced Durable
Goods: Value of
300000.00
Shipments - Durable
250000.00 Goods Total, (Mil. $,
SA)
200000.00
150000.00 Value of Shipments -
Nondurable Goods
100000.00
Total, (Mil. $, SA)
50000.00
0.00
May-…
Mar-…
Nov-…
Nov-…
Jan-92
Oct-94
Jun-98
Apr-00
Jan-03
Oct-05
Dec-92
Sep-95
Aug-96
Jul-97
Feb-02
Dec-03
Sep-06
Aug-07
Jul-08
Fig 1.7- Value of Shipments Durable/Non
Durable/Non-durable

8. A note on personal income and expenditure
nal
Total personal income revealed fairly constant increased rate over the years under study. However,
minor falls in Personal Consumption Expenditure could be observed in 2000 01 and significant fall
2000-01
in the period 2000-08. Yet again the two periods gained the limelight which had higher inventory
.
levels. Therefore, personal consumption expenditure is a significant factor in demonstrating the
total inventory levels of the nation. Some forecasting methods could be applied to the study t
nation. the
future trends in consumer expenditure that can relate to the inventory levels.
Sector wise details of the consumer expenditure can be studied in detail and then analysis
could be conducted to find relevant effect on the inventory level. The data and c
charts are available
in the following site:
Labour Statistics Spending Consumer Expenditure in InRev FCube (http://www.f
http://www.f-cube.us).
Income and Personal Consumption Expenditure
14000.00
Income: Total
12000.00 Personal, (Bil. $,
10000.00 SAAR)
8000.00
6000.00 Income: Personal
4000.00 Consumption
2000.00 Expenditures, (Bil. $,
0.00 SAAR)
Jan-92
Jul-93
Jan-95
Jul-96
Jan-98
Jul-99
Jan-01
Jul-02
Jan-04
Jul-05
Jan-07
Jul-08
Conclusion
The concept that this reports aims to bring up is the relation of the
inventory levels with the economic factors At present, deciding upon the
factors. Inventory is a
levels of inventory as high or low is the dilemma which many companies face ``Flexibility
today. There are many factors involved in this decision, and what is being Buffer'', but the
ignored today is the relation of decision with the various economic facto It
factors.
question is how
is important to consider the variety of economic factors available to decide
to find the trade-
upon the inventory which in turn affects the decision of production as well.
off between
These economic factors if found relevant for a particular industry can be
further explored and research can be conducted (including forecasting) for inventory and
efficient performance of the industry. customer service!
This will even ensure the consistency in the supply chain and can
result in win-win situation for both the producers and the consumers.
win