Page 115 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

cash position to invest in a new generation of automobile
assembly plants that were more efficient because they used cut-
ting-edge technology. When the economy went into reverse in
1937, GM suddenly found itself overexposed. Taking decisive
action as it had at the start of the Great Depression, GM was
quick to postpone its capital expenditure. Only in 1939, when
the worst of the Great Depression was over, were the new
assembly plants completed.

Focus on Inventory Management

With rapidly changing economic conditions, it is essential to
keep inventory decisions in line with economic forecasts, mar-
ket dynamics, and changes in the macroeconomy. Two-thirds of
companies responding to The Boston Consulting Group’s
September 2009 survey reduced their inventories during 2009,
and an equal number are planning to do so in 2010. But focused
inventory management is not just a matter of reducing invento-
ries. It also requires synchronizing inventories to the shifts in
the external environment—as the following story demonstrates.
RadioShack, the consumer electronics retailer, was faced
with significant inventory management challenges in the 1970s
because of the nature of its business model. With a chain of
thousands of stores selling identical products, RadioShack
needed to maintain substantial inventories yet still achieve high
turnover.
The challenge was made more complex by the fact that 40
percent of RadioShack’s merchandise was sourced from
Japanese suppliers. This meant that two important macro -
economic trends of the time significantly complicated
RadioShack’s ability to manage its inventory: the fluctuating

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