There hasn't been much mention of APC's inventory levels lately, but in looking at the company it's my major concern. In last year's 10-k, management said the following:
Inventories decreased substantially during 1997 due to operational improvements relating to component and finished goods planning, combined with work-in-process reductions associated with the company's conversion to lean cellular manufacturing. Inventory turnover was 4.1 turns for 1997, 2.9 turns for 1996, and 2.4 turns for 1995. Accordingly, inventory levels declined as a percentage of sales from 104% in the fourth quarter of 1995 to 62% in the fourth quarter of 1996 and 41% in the fourth quarter of 1997.
It seems that 1997 was a high water mark. With the exception of a slight improvement in Q3, 1998 inventories have ballooned in relation to sales, and the Q4 comparisons are awful. DSI is 118 days vs. 69 days last year, and inventory as a percentage of sales is 71.7% vs 41.4%. Inventory turns were 3.7 for 1998 vs. 4.1 for 1997, and there's every indication this will get worse.
So what happened to those "operational improvements" which were made in 1997? Why is WIP still so high? This looks like a great company, but great companies usually do a much better job managing their inventories. What am I missing?
FWIW,
Mark |
