HBS Case: Jaguar PLC

HBS 9-290-005: Jaguar plc, 1984

Jaguar PLC, 1984 Harvard Business Review

  • To discuss operating exposure to real exchange rate changes
  • To discuss various alternatives for managing such exposure
  • This case setting is the privatization of Jaguar in 1984
  • To value the shares being offered for sale as a function of expected exchange rate

1. Consider Jaguar’s exchange rate exposures. To which currencies is Jaguar exposed? What are the sources of these exposures? How would the company be affected by a 25% decline in the value of the dollar?

2. How should Jaguar’s shares be priced? Estimate the likely value of Jaguar’s equity in the following scenarios:
  • no change in the real exchange rate between the dollar and the pound
  • a 25% drop in the real value of the dollar against the pound
  • a 10% rise in the real value of the dollar against the pound
  • Create other scenarios of your own. In doing so, consider reasonable changes in price, volume, and other variables that may change as a direct or indirect result of exchange rate changes

3.Quantify Jaguar’s exposure in 1984 to the real dollar/sterling exchange rate. How large is it compared to Jaguar’s sales? Assets? Equity value?

4. Should Jaguar attempt to hedge its dollar exposure? Why or why not? What methods are available for hedging this exposure? What are the costs and benefits of each?

Background-dramatic turnaround from 1980 to 1983
  • An increase in labor productivity
  • Cost cuts
  • An increase in volume to move the company past its breakeven production volume
  • Sales volume increased by 13 thousand vehicles from 1980-1983.
  • Nearly all of this improvement occurred in the U.S. market

What is the most important factor contributing to this increase in U.S. sales volume?
- Was it due to the appreciation of the dollar during this period (see Exh 7), rather than to the efforts of John Egan?
- Perhaps because of strong dollar
- But, both Jaguar and German competitors did not cut dollar prices in the US
- Instead, the followings contribute to sales volume increase rather than price cuts
1. Improvements in product quality
2. U.S distribution
3. Customer service

Q. Why did export volume to some countries such as West Germany and the rest of Europe actually declined from 1980 to 1983?
-It was not because of reduced European demand, but rather of Jaguar’s decision to allocate production to the more profitable U.S. market

Q. Which currencies affect Jaguar’s operating exposure?
  • $/pound
  • DM/$
  • Daimler-Benz – Jaguar’s competitor
  • Best: $/pound and DM/$ fall
  • Worst: $/pound and DM/$ rise
  • If we sell our products in the US but outsource from our home country, we will raise dollar prices after a weakening of the $ against home currency.
- A general rise in the value of sterling against all currencies is more harmful to Jaguar than a general weakening of the dollar agianst all currencies.

  • Base case
  • A 25% depreciation of the $ against the pound, with no changes in $ prices or U.S. unit volume
  • A 25% depreciation of the $, to which Jaguar responds with a 10% increase in $ prices  Reduce U.S. unit volume
  • A 10% dollar appreciation with no price or volume changes

1. Base case
- There are three types of distinctions
1. dollars vs. pounds
2. volume changes vs. price changes
3. fixed vs. variable costs
 We divide Jaguar’s world into 2 markets, the U.S. and the rest of the world assumed to be a sterling market
 Thus, the analysis may ultimately understate $ exposure, because markets such as Australia and Canada might be more $-like than pound-like.

What is a discount rate for sterling cash flows?
- No beta is provided because there are no public shares as yet.
- Betas for other auto producers are either not available or are for very large full line producers such as G.M. and Ford,and are measured with respect to different equity markets.

- Jaguar’s financial statements for 1980-83 show negligible taxes, but you may expect that Jaguar will soon exhaust its unutilized tax credits and carry-forwards.
- Dollar price increases in the U.S. equal to U.S. inflation, assumed to be 3% per year.
- Sterling inflation is 5% per year
- Rest-of-world sterling prices increase at this rate

 The exchange rate starts at $1.350/pound in 1984 (given in the case)
 Declines at a rate of 2% per year (according to PPP)
 This is not what the market expect.
 Exh. 8 shows the dollar at a forward discount to the pound, despite lower U.S. inflation
 COGS –variable cost increasing at the sterling rate of inflation.
 Depreciation – fixed
 R&D, distribution, and administration - increased with sterling inflation
 Some portion of distribution costs is variable
 Some portion of COGS, other than depreciation, is fixed.
 2. 25% depreciation in $ against pound PPP holds there after. Thus there is no change in the sterling discount rate
 Assume Jaguar makes no change in its dollar prices in response to the shock Its scope for responding is affected by actions of other competitors.
 If the sterling value of the dollar drops, not its mark value, then Jaguar may have difficulty raising dollar prices because its German competitors are less likely to.
 The effect of this simple change is quite dramatic.
 The value of the CF is reduced from 515 million pound to 119 million pound a reduction of 77%

How to respond?

Other scenerios
 25% Depreciation in $ and raise $ price 10%
The value of FCF is 258 million pound compared to 119 if we don’t raise price.

 10% Appreciation in $
33% increase in FCF and 38% increase in equity value compared to the base case

Potential exposure to the Yen

 Honda, Toyota, and Nissan are expected to enter the U.S. luxury car market before the decade is out.
 None has yet entered in 1984.
 Yen/pound - the Japanese producers may enter the U.K. and European markets
 Yen/$ - The pace and progress of the Japanese entry into the U.S. market.

If yen appreciates against $, how will it affect the profit of U.S. luxury car?
 Will be less profitable for the Japanese companies
 This is even more true in less expensive segments of the U.S. market, in which the Japanese firms already compete.
 Thus, this appreciation of yen will hasten the move upscale by Honda, Toyota, and Nissan to the detriment of Jaguar and the German companies.
 It might reduce the profit of U.S. luxury car.

How to estimate exposures?
 There is a distinction between the exposure of firm value and the exposure of equity value.

 What is exposure?
It is how home currency firm value change with respect to the 1% change of home/FX exchange rate.Thus, it is foreign currency unit.

 Exchange rate change may not be permanent
 It may take only 1-2 years
 This exposure is based on unexpected change.
 If the exchange rate rises in 1985, the stock market may regard it as a deviation from PPP, but not as a surprise.
 Exchange rate +/-1%  Cash flow change +/- 50 million pound 50*$1.35/pound = $67.5 million

 Overestimated number

Why is 67.5 million an overestimate of exposure?
 It takes no account of Jaguar’s ability to blunt the exposure with operating responses:
$ appreciate -> Raise $ price -> Decrease sales volume
 It assumes that exchange rate change is permanent
 In the volatile rate environment of the 1980s, a given real exchange rate shock might have both permanent and

temporary parts
 Exposure to a temporary change occurs during a year or 2, rather than the PV of all future dollar CF

It assumes that the exchange rate change is unexpected.

 The expected scenario is not the base case, but rather one in which PPP is not expected to hold.
 If the exchange rate rises in 1985, the stock market may regard it as a deviation from PPP.

Why do we tend to overestimate exposure?
 It is not a surprise.
 The MV of Jaguar assets (and equity) has already been discounted for some expected drop in the value of the $
 That’s why Jaguar’s equity value drops to 200 from 450 million
 Info about expected future exchange rates is available from the term structure in the forward market
 The case does not provide the term structure of FW market except in Exh 8.
 If available, it would be another way to construct the projected exchange rates

Should we hedge?
 Although Jaguar’s exposure is much less than $24 billion, it is still large
 Quite possibly larger than equity value or asset value

Pros of hedging
 Reduced volatility increases firm value
 By reducing contracting costs
 Firms can hedge more cheaply than investors
 Because of lower transaction costs and better information
 Investor can hedge for themselves if they want to
 A hedging program may be expensive
 Difficult to control
 Set up potentially perverse incentives
 Ultimately ineffective

1. The are nominal contracts that only work well when nominal exchange rate changes are highly correlated with real

 This has been the case for most major exchange rates for most of the 1980s.
2. They can significantly distort reported financial results
3. Except for LT debt, they are not easily obtained for terms much beyond 24 months.
4. Jaguar’s exposure is so large that any effective hedge would be large compared to the rest of the firm

 Jaguar’s CFO remarked that, for LT US$ debt functioned as an effective hedge,…
 Jaguar would have to issue a huge amount (over US$1 billion), convert the proceeds to pound, and sit on the cash.
 He felt this would intolerably distort Jaguar’s financial reports.
 Use real hedges:
 Sourcing policies
 Manufacturing locations
 Selling locations
 John Eagan stated the importance of quality
 Use of real hedges made the company successful so far in the 1980s.

What happened
 At the end of July 1984, 177.88 million Jaguar shares (of a total 180 million shares) were offered.
 At a price of 165 pence per share
 Implied a market cap of 297 million pound.
 The offer was oversubscribed
 The shares traded up about 7% upon being first listed on Aug 10.
 Selling $ forward 50-75% of the next 12 months
 It would not nearly hedge all of Jaguar’s exposure, but would give the manager some time to respond to dramatic

currency swings.
 $ rose for a short time after the share offering in July 1984, reaching $1.159/pound at the end of 1984; it did not peak

until the first Q of 1985.
 $ began to fall in Feb 1985
 In the spring of 1985, Jaguar executives felt that forward rates were attractive and pushed their rolling hedge out 24

months instead of 12 effectively locking in sterling rates through the spring of 1997
 This proved quite prescient, as the dollar’s slide accelerated, until by the end of 1987.
 Jaguar’s management was roundly praised
 DM/pound was fairly stable
 In 1988-89, some of the forward contracts lost money as the dollar recovered
 Many employees were dissatisfied  Labor negotiations were more difficult
 Unable to hedge its exposure effectively
 Jaguar remained competitive through improvements in its dealer network and production efficiencies
 Capital expenditures were tripled from 1983-1987 to modernize manufacturing capacity and lower costs.
 Ford acquired Jaguar at the end of October 1989 in buying the entire company for 1.6 billion pound (about $2.5 billion)

Estimated Exchange Rate Risk 90.0
Value Risk as a % value
Q1 1984 Sales 143.3 15.7%
1984 Sales Annualized 573.2 15.7%
1983 Sales 472.6 19.0%
Fixed Assets 119.0 75.6%
Current Assets 130.5 69.0%
Total Assets 249.5 36.1%
Equity 125.0 72.0%

HBS Case: Threshold Sports

Harvard Business School Case : Threshold Sports
Cycling Market

* Popular as amateur and professional sports
* Well supported

1. Prestigious Tour de France
2. 1 billion viewers

United States

* Growing in popularity as a professional sport
* Lack of community support and organization
* Growing interest due to cycling icon

1. Greg LeMond
2. Lance Armstrong

S.W.O.T Analysis
Management experience

* Cycling
* Event planning
* Contacts
* Over 100 professional cycling events

Current sponsorship agreements
  • First Union Series, BMC Software Grand Prix, U.S. PRO Cycling Tour
  • Event-staging equipment Acquired for less than 1/3 of the value

* New Company: 3 months old
* Management has limited experience in finance
* Financing needed for first growth phase
* Identification for potential investors/banks
* No tangible assets


* First movers to emerge in the United States
* To become a household name – “branding”
* Growth potential

Interest by spectators – the next “NASCAR”
Expansion across the U.S.

* Selling more sponsorships
* Expansion of TV coverage
* Developing new revenue streams
* Potential profit growth

31.17% in 2001
15.47% in 2002

* Risk of competitors gaining the advantage
* Loss of market share
* Being taken over by an umbrella organization
* Cycling does not gain popularity

Lack of investors
Lack of marketing

Growth Plans
* Create financing need for Threshold Sports
– Estimated need of $500,000 for upcoming expenses
– Growth plan consists of emerging European style cycling events into the US market

Issues Facing Valuation

* New firm
* No tangible assets
* Limited comparable companies

Possible Valuation Methods

* EBITDA multiplier for private companies = 6.0
* EBITDA multiplier average for comparable companies based on the industry for fiscal yr 1999 = 17.35
* Comparable company with a positive EBITDA

– Cordiant Communications Group
– 15.09
Valuation based on EBITDA
P/E Multiples of Comparable Companies
Valuation based on P/E multiple
Discounted Cash Flow
Key assumptions:
Rf = 6.04%
Βeta = 1.2
Rm = 15.04%
Re = 16.84%
Valuation of Threshold based on DCF method

FRICTO Analysis of Debt Financing
– Not flexible, but customizable
– Risk off-set by a higher interest rate by the bank
– It is a risky loan for the bank
– Structured into the loan, coupon payments, lump sum payment, etc.

FRICTO Analysis of Debt Financing
– Founders can keep control
– Timing can affect the interest rate, not as important as other 2 options
– Can default on loan, bankruptcy, debt restructuring
Valuation of Debt Financing
Tax shield value = $135,511
Value of Threshold Sports = $4,473,000

FRICTO Analysis of Issuing Common Stock
– Liquid – easy to change ownership

– Higher Risk for investor
– If company goes bankrupt, common stock holders are behind bond holders in line for assets

– Capital appreciation
– Dividend

– Owner of company with voting rights
– Founders will lose some control
– If they wanted to keep control, they can sell 49% of the company as long as they all vote the same

– Best to offer stock when company has strong financials and positive outlook, this way they can raise the max. capital

– Financial statement implications, looks better than debt

The added value to the company is the equity received from the stock issue

FRICTO Analysis of Issuing Convertible Preferred Stock
– Pre-established terms state that it could be converted into common stock
– Preferred stock = 1.5 units of common stock executable at the strike price

– If company fails preferred stock holders may lose some initial investment
– Increase in interest rate
– Company risk

– 10% dividend on par value that will accrue and be payable on a cumulative and noncumulative basis

– Holders of convertible preferred stock do not have voting rights
– Control remains in the hands of the founders
– If the preferred stock holder wants to sell, first must offer to the company for a buy back and then to existing preferred stockholders

– Interest rate sensitive; not ideal to offer during increasing interest rates
– Tax disadvantage/No tax shield offered
– Taxed as personal income, not as a business expense

Value of the Preferred stock
– $4,176,000
– Deducted discounted dividend payments from the discounted cash flows

Convertible Preferred Stock
Convertible preferred stock has an embedded option that allows the holder to exchange each preferred share for a specified number of common shares. Convertible preferred is usually callable. This allows the issuers to call the stock and force preferred shareholders to choose between accepting either par value or common shares. This is called a conversion-forcing call.

Option #1

* Find a corporate partner to provide capital in the form of a loan
* For collateral on the loan issue the lending company common stock
* This will provide a tax shield to Threshold Sports and allow them to retain majority control of the company

Option #2

* Issue convertible preferred stock

Convertible preferred stock

attachment : http://www.filefactory.com/file/a0ee91e/n/Threshold_Sports_Exhibits_xls

HBS CASE : Home Depot

Home Depot - Strategic Internal Organization & Financial Analysis

Home Depot has many distinctive competencies that it uses to capture the majority of the Do It Yourself market, which represents a $100 billion dollar market. The key Issue is that while Home Depot is satisfying the DIY market they have not yet gained a significant share of a much larger $265 billion dollar, professional market. It has already built a foundation of key competencies that can be used to attract the professional buyers. These competencies include the incorporation of up to date technologies, which aid in its internal and external environment and allows it to gain a competitive edge over its competition. Home Depot’s ability to supply extensive product lines, and provide services and support for those products, also enables it to differentiate itself from many of its competitors.

Internal Organization Analysis

Strategy and Direction

The company started off with plans to cater to the Do-It-Yourself market, and over the years has been successful with it. This is a $100 billion market. Over the years, since Home Depot has expanded over most of the states and areas in United States and neighboring countries, its time they find another target market that they can address. Hence now Home Depot is thinking of concentrating on the Professional business customer market with is a $265 billion dollar market. Even though the profit margin is low in this business, Home Depot can expand and supply this market and still make good amount of Profit instead of having around $150 million per year in cash savings.

Key Managers
The Key Managers for Home Depot are widely experienced in other retail markets. Many of the key managers have been promoted from within. Because of internal promotions employees have an attachment to the company and are motivated to work hard at their jobs. The company has further improved productivity by cross training its employees. It has invested a considerably large amount of money towards training therefore employee turnover is a concern. Currently Home depot has a 30% turnover rate an this issue needs to be addressed.

Bernard Marcus, Arthur Blank and Ronald Brill are a part of the key management team. Marcus and Blank are co-founders and serve on the board of directors. They have also served on many other boards which bring them more experience in management. Marcus’s background before Home Depot was in the retail industry. Brill has been with Home Depot since its inception in 1978 and was the Treasurer and more currently an Executive Vice President and CFO.

Board of directors
The Board of Directors consists of ten really experienced people. Most of the board members are from outside the company. Like the management team, the board of directors needs to have members with more outside experience in similar retail markets. This will allow them to guide the company in with regard to where competitors are moving, and would help Home Depot take a few critical steps forward. Home Depot Values its employees, and pays them decent wages.

Value chain
As mentioned earlier Home Depot’s wide array of products which is coupled with its supporting services, and extremely helpful and knowledgeable staff proves to be a strong source of added value to its products. This makes the Do-It-Yourself task much simpler. Home Depot has also applied its cutting edge technology to reduce the huge customer lines associated with its large customer base. They have incorporated a self-checkout system which makes it a lot faster, and convenient for customers to complete the purchase process; this is another aspect that adds value to purchasing products at home depot.

Financial analysis
Home Depot has been successful financially, and has showed impressive growth since its beginning. The Do-It-Yourself market has proved to be successful with 24.1 billion in sales, which is more than twice their nearest competitor. The growth numbers have been impressive for this company. If one had invested $1,000 in this company on June 30, 1982, their investment would have been worth $152,479 on June 28, 1997. Home depot’s Inventory turnover increased significantly following the application of a new inventory management system. The change was from 4.1 in 1985 to 5.7 in 1994. This rate helped Home Depot carry 40 million less in inventory tying up less working capital to finance it. This allowed for a cost structure that was significantly lower than its competition.Home Depot had a quick ratio of 54% in 1997, and 35% in 1998; even then they have increased their current assets and inventories. The current ratio for Home Depot in 1997 was 2.01 and in 1998 it was 1.81. This is pretty strong, since they have 1.81 assets for each liability. They have taken no risk at all; they actually have an equivalent of almost half their debts on hand. This means that they have a lot of cash that hasn’t been used for anything yet. These available funds can be used towards the implementation of strategies that support expansion in to the professional market.

Resources , capabilities and performance evaluation
Home Depot is expanding pretty rapidly and making more and more profits every year. Their Balance sheet for 1997 and 1998 shows that Home Depot has an equivalent of $146 million and $172 million in cash and in cash equivalents. The company has always been able to translate its resources into capabilities, by trying to expand in new markets by opening more and more new stores every year and continuously incorporating new technology in its processes. The company’s past performance has been really good. They have used their finances efficiently to expand their business. The Company has been successful up till now with their Do-It-Yourself strategy, and hasn’t yet failed in any strategies that they have tried to implement. Home Depot was mainly focusing on the DIY strategy up until now, when they decided to enter in to the professional market. New strategies that utilize their healthy finances will have to be implemented in order to increase market share of this large target market.

While Home Depot has been doing very well over the past few years there is still much room for improvement in a couple areas. The more minor area that Home Depot could look at improving is there employee turnover. While the 30% turnover rate is extremely good in the retail business it is costing Home Depot a lot of money. The reason that there is such a high cost involved is that employees go through an extensive training process. Home Depot needs to find a way to cut the cost involved when they lose an employee.

Unlike the first new strategy suggestion, the second more major strategy involves generating more revenue rather then cutting costs. Our suggestion is for Home Depot to enter the large Professional builder market. Currently Home Depot has the largest market share of the DIY market and is making tons of money. If they are able to do the same with the professional market then their profit potential would skyrocket. Also, the DYI market tends to do better during times of recession while the professional market tends to do better during times of economic growth. By capturing both markets not only would Home Depot make more money, but also their cash flows would be more even throughout the years (not as affected by economic trends).

Implementation Plan

Since Home Depot has done so well in the past they should be able to use some of their past experiences to better help them with our new suggestions. For our first suggestion of cutting cost involved with employees leaving the company Home Depot needs to develop some controls that would allow them, when hiring, to determine which individuals are high risks for turnover. When someone is determined to be high risk Home Depot could decide to not give the employee all of the four to six weeks of training at once. For example; only train an employee on the cash register to begin with, once they have stayed employed for a few months give them training in another section. Hopefully this will be able to save Home Depot some costs that are involved with training then loosing help.

The second suggestion has the ability to make Home Depot a lot of money. The suggestion is that Home Depot try to expand into the professional builder market. What is important about this strategy is that they not let it affect their current efforts with the DYI market. In order for Home Deport to tap into the professional market they will need to expand their current stores; making a section of the store that caters to the professional. As well as expanding their stores Home Depot will also need to come up with a very good delivery system so that building materials can be delivered directly to the job site of the professional. The third step in the process would be that Home Depot would need to do a lot of marketing and advertising to people in the professional market. Basically Home Depot would need to change their image in the eyes of the professional while at the same time maintain their image to the DIY market.
Home Depot is in the fortunate position that they have enough resources to pay for such an expansion. Even though Home Depot has a lot of cash and cash flows it is a good idea to try to leverage some of there equity. Basically try to let the banks pay for as much of their expansion as possible.

External Task Environment (Porters five forces plus two)

Supplier bargaining power:
Home depot has approximately 5700 vendors. The large number of vendors enables it to have high bargaining power where as each supplier has very little to no bargaining power. It is able to demand lower prices due to its large volumes of purchases which in effect give it an advantage over its competitors.

Customer bargaining power:
Customer bargaining power is very low because Home Depot is like a one stop shop with almost everything a person would need; in addition it also provides many workshops and demonstrations which add value to any purchase. By having such a wide array of products and services Home Depot is able to minimize customer bargaining power.

Professionals such as tradesman builders and general contractors serve as Potential substitutes to Home Depot’s current DIY target market. A benefit of capturing the professional market is that it will allow Home Depot to eliminate threat of these substitutes. Once they sell products to these professionals; whether they provide the service on their own, or are given opportunities through Home Depot’s contracting; either way supplies will be primarily purchased from their store.

Home Depot’s owns TLC Inc, a very popular channel with remodeling and home maintenance repair shows. These shows serve as a complimentor to Home Depot’s products. These shows increase the viewer’s desire to do their own home improvements, which draws them into the store. Professionals, such as interior designers and other home improvement specialist, compliment Home Depot by giving people new ideas and the means to carryout those same ideas.

Home Depot’s main competition includes Loews, PayLess, and Builder’s Square. Rivalry has been mainly fuelled by low prices, location and product offerings. Home Depot has managed to excel in these areas due to their bargaining power against suppliers,and the up to date technology that allows it to have lower prices, and enough inventory on hand to satisfy demand, which makes Rivalry considerably low for Home Depot.

Barriers to entry:
Home depot continues to cannibalize sales of existing stores by opening two other stores in a single area. While this may lower same store sales it is also able to drive existing stores out of business and keep competition from entering. Home Depot has managed to raise entry barriers themselves. Also, there is a large amount of capital cost involved in starting up a new store which reduces the threat of new entry.

Stake Holders:
Home Depot managed to build strong relationships with all its stakeholders. Its internal “network” structure coupled with higher wages and employee stock ownership plans helped motivate and gain employee loyalty. Home Depot’s customers are satisfied because they have been given support with installation of purchases through work shops, and by their licensed contractors. Environmental awareness and strong social activeness gives back to the community, through programs such as “Habitat for Humanity” which has built thousands of homes and increased brand exposure. Such activities have helped free the company from any stakeholder threats

Product life cycle/Economies of scale:
Even though Home Depot sells DIY products to fix up houses and these are mature products, in effect they are commodities because individuals will always update and fix their houses. These products can also be commodities because homes are always being built regardless if there is a recession or not. So Home Depot ultimately benefits from selling most items that will always be in demand no matter how bad the economic conditions may be. Even in the last recession Home Depot performed well as the DIY customers would upgrade and maintain their households. However, access to the professional building market is also beneficial because in good economic conditions Home Depot will prosper with the abundance of new homes being built. If rough times are expected Home Depot can always rely on its bread and butter; the do it yourselfers to drive the business.

As the number one home improvement retailer in the market Home Depot sets the standard for its competitors. This allows them to have an economy of scale on how they obtain their supplies. Like Wal-Mart, Home Depot provides a huge outlet for all its vendors. With the vast size of their stores, Home Depot can get bulk discounts that come with ordering large amounts of inventory. They have the DIY and BIY market cornered. However, they may have a large learning curve to overcome to their low percentage in the professional builders market.

Technology is highly integrated into Home Depots operational structure. Using EDI (Electronic Data Interchange) with its thousands of vendors Home Depot is able to keep a good window of communication open so they know when a store is low on inventory. Usage of UPC codes and tracking each item sold allows Home Depot to keep an accurate inventory of items and see which items are selling better than others. The integration of technology gives Home Depot a distinct advantage in inventory management. Thus they are able to increase their inventory turnover through the use of these inventory management systems. By turning over inventory quicker, their capital isn’t tied up in a warehouse but able to be used for other projects.