GKN hit by apparent logistics malfunction

The issue of inventory management generally only receives attention when something goes seriously wrong. This appears to be what has happened at the engineering company GKN.

In a shock announcement by the board of GKN on November 16, it was disclosed that Kevin Cunningham, the man who had been chosen to take over as the new CEO next year, was dismissed from the company. The statement ran; “Kevin Cummings, previously CEO Designate, will leave the Board and GKN with immediate effect”.

Mr Cummings was previously in charge of the company’s substantial US business and this has faced a number of issues related to inventory recently. In October, an official ‘trading statement’ was released stating that “following a detailed review, GKN Aerospace North America will incur a £15 million non-cash charge at its Alabama, USA facility relating to revised assumptions on programme inventory and receivables balances.”

Alongside the statement about Mr Cunningham in November an update was provided to this situation stating that “in light of the issues communicated earlier in relation to Alabama, a review of working capital has been initiated across other Aerospace plants in North America. While this review is not yet complete it is likely to result in a further write-off estimated to be between £80 million and £130 million, much of which built up before 2017.”

It appears that there were some rather strange inventory management practices going on at GKN’s US operations. As ever in these cases it is almost impossible to get a clear and objective picture. However the Financial Times described what it called the issue of the “write-off of mountains of overvalued inventory”, citing reports from a rather unconventional source – the employment website Glassdoor. Employees wrote, “operations build what will help them meet revenue, not what’s due to customers”, whilst another described “$10s [sic] of millions in ‘working inventory’ and finished goods that is scrap or obsolete materials and parts”.

It is very hard to be certain, however it appears reasonable to suggest that GKN has been suffering from severe problems with logistics systems. The consequence is that there is now talk that the company may be broken up, illustrating that internal logistics is frequently a strategic issue of high order.

Source: Transport Intelligence, December 5, 2017

Author: Thomas Cullen


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