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090220 1 (1975-08-14)

handle is hein.gao/gaobacvxl0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE . WASHINGTON REGIONAL OFFICE U~ FIFTH FLOOR 803 WEST BROAD STREET FALLS CHURCH, VIRGINIA 22046 AUG 4T M,4r. David C. Jelinek, Associate Commissioner Federal Prison Industries, Inc. HOLC Building 320 First Street, NW, Washington, D.C. 20534 Dear Mr. Jelinek: We have had several discussions with you and other corporation officials regarding our views on improvements needed in the management of the corporation's inventory. Although several improvement actions have already been initiated, we thought it would be useful to summar- ize our observations so that you may consider whether further improve- ment could be achieved. Inventory management could be strengthened Inventory management generally encompasses the functions of determining future supply requirements and ordering and holding inventory to meet those requirements. Simply stated, good inventory management is knowing how much of an item to order at one time and when to order it. Inventory excesses or shortages can liave an adverse affect on the corporation. For example, overstocking ties up cash that could otherwise be put to other productive use, increases warehousing costs, and increases the risk of obsolescence. Understocking can result in the disruption of production, possibly idling inmates, and hence a potential loss of sales and profits to the corporation. During our prior year's examination of the corporation we pointed out to management that the inventory level was increasing at the expense of cash and at a rate inconsistent with overall corporate asset growth. At June 30, 1974, the corporation's total inventory was valued at $27.3 mil- lion, an increase of almost $5.5 million or 25 percent above the prior year's level and was 39 percent of all corporate assets. An analysis of inventory turnover ratios for the past 3 years reveals a steady decline in the inventory turnover rate from 2.32 to 2.03. This means the average inventory levels over this peribd have increased at a rate faster than the cost of go6ds sold.

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