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Inventory Management Case Study
Xenon SA
Changes in the product range of Xenon SA a supplier of sophisticated components to
industrial lathe users in France, and the effects of severe economic recession, was forcing
a re-evaluation of the marketing plan. Founded in the early 1920s, the company remained
a medium sized independent operation, based near the large industrial town of Lille.
By the end of the 1980s it manufactured three product ranges. Historically, the engineering
range of standard lathes - used throughout the north-east of France, Belgium and Holland
- made up the majority of turnover, though a declining proportion of profit as the company
faced increasing competition from low-cost Far Eastern suppliers. The product range had
high volumes with long product cycles, but margins that were lower every year as the
company cut prices to meet Far East competition.
The other two ranges were more specialised and required higher levels of investment in
new product development, with shorter product lives and higher returns. The first involved
specialist products for the automotive industry, and Xenon supplied Renault,
Peugeot/Citroen, Matra, Ford in Belgium and Daf in Holland. The second range was more
recent and had been developed to provide specialist cutting heads mainly for the high
speed train industry in France, with recent small orders having been received from
Germany. Margins in these two sectors were five or six times higher than in the traditional
engineering sector in which the company had started.
Xenon's customers varied considerably from sector to sector. The general engineering
sector supplied customers from the very small - employing less than five, to the largest of
engineering enterprises. Few of these companies held large quantities of stock, and
expected delivery within 72 hours of order. The disadvantage of the market was that need
for the cutting equipment was directly related to the customers' production. As many of
the customers had a very erratic, and rarely planned, production flow, this had severe
consequences on the stock planning of the cutting equipment manufacturer. The number
of companies in this sector had steadily declined over the years, and in the current year
Xenon was supplying 125 companies, approximately 80 per cent of the total in the sector.
Typically, the company had held 4 months stock of all product lines A-J. The pattern of
sales over the last year is provided in Table 8A.
Table 8A. Product line sales in units by month.
1
2
3
4
5
6
7
8
9
10
11
12
A
20
32
45
34
56
21
22
76
45
54
15
87
B
45
65
112
22
13
89
125
23
15
78
32
25
C
216
245
165
301
143
167
112
89
77
274
165
121
D
121
74
62
12
132
145
156
72
54
23
76
112
E
11
21
32
18
27
24
45
61
67
69
43
20
F
321
345
345
321
303
307
311
367
310
312
317
319
G
7
11
9
65
45
35
14
18
21
87
88
23
H
27
45
52
67
28
67
49
41
52
58
34
43
I
889
902
756
621
134
521
432
301
287
276
266
251
J
121
105
112
142
134
137
127
150
162
100
98
112
These product lines - and set up manufacturing costs - varied considerably in price. The
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