Management's view towards inventory has changed significantly over the past several years. Previously, managers perceived inventory as an asset because it appears as an asset in the firm's financial reports. However, as seen in the opening vignette, this is no longer th~ case. As we have seen, product life cycles are becoming ever shorter, increasing the likelihood of product obsolescence, as seen in the accompanying OM in Practice box. As we also have seen, excessive inventories on the manufacturing floor tend to conceal a wide variety of problems. Moreover, inventory storage costs are typically very expensive, averaging 30 to 35 percent annually of the types of inventory:
raw material Vendor-supplied items that have not had any labor added. finished goods Completed products still in the possession of the firm. work-in-process (WIP) Items that have been partially processed but are still incomplete. 604 value of the inventory-and in some cases they are much higher. For all of these reasons, managers now look at inventory as a liability to the firm, something to be reduced or eliminated wherever possible, as illustrated in the GE advertisement. Consequently, no topic in operations is more often discussed by managers or perceived to be more important by them than inventory. There is a continuous effort among managers to reduce inventories in all categories, beginning with raw materials and purchased parts, through to working process, and ultimately in finished good.