Page 116 - Accelerating out of the Great Recession

DEFENSE FIRST

exchange rates between the U.S. dollar and the Japanese yen,
and rising inflation in the United States.
To minimize its exposure to these risks, RadioShack closely
synchronized its inventory decisions with its economic forecast-
ing, and in 1977–1978, it was successful in getting ahead of
economic trends. (Incidentally, a surprising number of compa-
nies in our survey paid scant attention to external economic
indicators, and even fewer “baked” these indicators into their
operating processes in the form of early-warning systems.)
When U.S. inflation picked up in the first half of 1977 and the
U.S. dollar began to fall relative to the yen, RadioShack
responded by increasing orders from its Japanese suppliers.
This, of course, meant running up high inventories. But the
combined impact of rising inflation and a weakening dollar
could have driven up RadioShack’s costs by more than 10 per-
cent per year. So, by stockpiling inventories at an opportune
time, RadioShack was able to contain its costs.
Given the heightened risk of inflation in the medium term
owing to uncertainty and concern about the “exit strategies” of
governments from their stimulus measures, the RadioShack
story provides an important lesson for companies today.
Inventory management is not just a matter of cutting; it is also
a matter of proper forecasting and tracking—and linking to a
view on macroeconomic developments.

Reduce Debt Levels

Despite net debt repayments in recent months, many compa-
nies are still overleveraged. Thus, for some companies, paying
down debt may be a necessity rather than an option. In BCG’s
September 2009 survey of business leaders, 69 percent of the
respondents reported that their companies reduced overall debt

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