Agroindustrial project analysi

THE PROCESSING FACTOR 145cessor in the Philippines constructed minimal wheat storage butbuilt and rented considerable space for storing finished flour." 0When demand fell, the company possessed large inventories ofperishable flour that, even with chemical treatment, had a shelflife of only four months. Under proper conditions, wheat can bestored for years, but after processing it is much more perishable.The problem was exacerbated by a large grain shipment that arrivedand, because of the lack of silos, had to be immediatelyprocessed.One alternative for plant inventory management is intermediatestorage. The raw material can be semiprocessed-into forms such astomato paste, orange juice concentrate, or powdered milk, for example-toreduce its perishability and then can be inventoried forsubsequent processing. Semiprocessing offers the advantage of reducingthe plant's investment in finishing equipment and permitsthe plant to work a longer period, thereby reducing the costs ofidle capacity.The analyst should consider the tradeoff between the costs ofraw material and inventory facilities for finished goods. If the sizeof the raw material is significantly reduced in processing-for example,oranges converted into frozen juice-the space requirementsfor the inventory of finished goods will be substantially lower. Thequality and cost of the storage facilities may differ, however; in theexample of frozen orange juice, the difference is between nonrefrigeratedand refrigerated storage. In any event, the perishabilityand seasonality of agroindustrial raw materials require that standardinventory management procedures-for example, economicorder quantity systems-be altered. 31 The plant should also ensurethat there is adequate inventory capacity for supplies and processinginputs other than raw material, including parts for equipmentrepair. These inventories generally require minimal cost and space,30. Edward Felton and Ralph Sorenson, "Republic Flour Mills, Inc.," CaseStudy no. ICH 12M30 (Manila: Inter-University Program for Graduate BusinessEducation, 1966).31. For a description of some of these procedures, see J. Orlicky, MaterialRequirements Planning (New York: McGraw-Hill, 1975); 0. W. Wright,Production and Inventory Management in the Computer Age (Boston: CahnyBooks, 1974); and D. C. Whybark and J. G. Williams, "Material RequirementsPlanning under Uncertainty," Decision Sciences, vol. 7, no. 4 (October1976), pp. 595-606.