978-0134741062 Crayola Inventory Management At Crayola Case

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Crayola: Inventory Management at Crayola

Length:

07:18

Subject:

Inventory Management at Crayola

Textbook Reference:

Chapter 9: Inventory Management, page 367

Summary

This video case explains the inventory management challenges and strategies at Crayola. Crayola

faces three main seasons year-round, which is spring, back-to-school, and holidays. The back-to–

school period drives 42% of company sales, which creates a risk if Crayola fails to predict demand

accurately or meet the demand with production. For these reasons, Crayola has the strategy to

locate key suppliers close to their plants; utilize materials requirements planning systems; postpone

the final packaging that decides whether they are in kits, packages, or bundles; level out production

early-on; and focus on accurate forecasting.

Key Concepts related to the chapter

Students should be able to structure the information given in the case in terms of the inventory

types and how they are affected by Crayola’s inventory strategies. Based on the information

provided, the students should first identify the inventory size requirements for Crayola. This is

also related to answering the first discussion question. Small inventory should be justified by the

cost of capital, storage and handling costs, and taxes, insurance, and shrinkage possibilities. On

the other hand, a larger inventory will be needed to justify higher customer service, lower ordering

and setup costs, better labor and equipment utilization, lower transportation cost, and lower

payments to suppliers from quantity discounts.

The next point to consider is how inventories are classified in the case. Managers used the terms

raw materials, work in process, and finished goods. These are inventory categories for accounting

purposes. Students should be able to identify additional types of inventories based on the

information provided in the case. This task is related to the third question for discussion.

Another point is relating Crayola’s inventory strategy and its impact on the four operational

inventories – cycle, safety, pipeline, and anticipation. One way to think of it is to explain how each

supply chain decision reduces one of the four inventory types. An example is having close

proximity to suppliers so that it may reduce the amount of pipeline inventory.

Essay or Discussion Questions Based on Video

1. Consider the pressures for small vs. large inventories. Which situation does Crayola seem

to fit, and why?

• The pressures for small inventory consist of cost of capital, storage and handling cost,

and taxes, insurance or shrinkage. Crayola would be more affected by the pressures for

large inventories. Sales patterns have a strong seasonality, and stock-outs cannot be

2. Explain how both independent and dependent demand items are present at Crayola.

• Dependent demand items consist of raw materials and work in process inventories that

the supply chain’s agility was credited with helping to meet the crisis. We have discussed

four ways to classify operational inventories by how they are created. Regarding the ways

managers can use these inventories to satisfy demand, explain how Crayola can achieve

the flexibility to adjust to unexpected demand surges.

• Crayola established duplicate capacities in China to meet the foreseen aggregate

demand growth, but located closer supplier networks to accommodate short-term

demand fluctuations. During the demand surge, Crayola was able to quickly source the

long lead-time inkbottles because their key supplier was located in close proximity.