Time to trim?
Some firms expect downward pressure on inventory to build this year
By Staff -- Industrial Distribution, 4/1/1999
TRIMMING INVENTORY HAS ONCE AGAIN BECOME A NECESSITY for many power transmission distributors whose customers are struggling. "We're definitely skinning our inventory as usage goes down. It hurts manufacturers as well," says Doug Savage, president of the Power Transmission Distributors Assn. and president of Bearing Service Inc. in Livonia, Mich."It's a little bit of a double hit for [suppliers]," he adds. "Hopefully they are participating in other economies that are doing well, such as technology."
In a recent outlook survey by the PTDA, nearly 40 percent of distributors said they would trim inventory levels, on average between two and five percent during the year. Some 31 percent plan to maintain steady levels and another 29 percent plan increases of less than five percent. Four of 10 firms plan to add new brands, meanwhile.
Among manufacturers, nearly 42 percent said they would cut inventory, and two-thirds of those expect to do so by two to eight percent. One third of suppliers expect inventory to grow between two to five percent.
"I think everyone's just really holding tight to the vest," says Patrick Frater, president of Northwest Power Products Inc. of Eagan, Minn. "From an inventory standpoint I think everyone's watching it closely. I think there will be downward pressure on that all the way."
Not everyone is reducing inventories, of course. Columbia, S.C.-based Bearing Distributors, Inc., expects to maintain stocks this year even though 1999 began "a little soft," says vice president Paul DeBorde. He anticipates sales gains of between three and four percent and says his company benefits from a diversified customer base, which includes end users thriving in the Southeast such as lumber, quarries, brick manufacturers and some automotive plants.
"Our inventory doesn't fluctuate that much," says DeBorde. "We monitor it daily, and we don't look for any large reduction in it this year. We try to keep a balanced inventory because we have 10 branches and a home office. The branches carry 30-day stock and we back them up with 60 to 90 days depending on the items."
In response to soft demand, firms like Northwest Power Products reduce slower moving items and try not to get caught short if a pickup occurs. Through February the company cut levels in one electrical-related product line by 15 percent, which Frater says was the only significant change made to that point "because that's the area we could identify well."
"In our case, we do a lot with motors - one or five horsepower motors are bread and butter items," he says. "You bring them down across the board a little but don't know who's going to buy what."
Savage also sees a shift in orders from parts for heavier machinery to lighter equipment for new machining centers.
"The machines they're buying can outproduce three or four [older] machines on their floor, so they're using less of the old machine parts," he says.
End users apparently are not asking many power transmission distributors to build up inventories in anticipation of supply chain disruptions that might result from Y2K computer glitches by the year's end. Some manufacturers fear that malfunctioning computers -- which fail to recognize the year 2000 -- will create havoc, and have asked their suppliers to build up inventories as insurance.
"We haven't had any of that," says DeBorde. "Most of them are always looking for a better price though."
Frater and Savage concur. "I don't see it as being that big of a concern," Frater says of possible Y2K-related disruptions. He, for one, is more concerned about the impact of cheaper products imported from the Pacific Rim and former Soviet bloc countries, which may be more susceptible to Y2K problems.
Meanwhile, to compensate for tepid sales activity in recent months, Frater says his firm has focused internally on its operations, such as investing about $100,000 in Y2K problems.
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