Inventory: Everything in Moderation

Much of the midwest and western United States has suffered severe drought conditions over the past few years.

Yet in 2015, the rains have fallen.  In one month the great state of Texas received enough rain to cover the entire state with 8 inches of water.  Unfortunately, it didn’t fall quite that evenly.  Floods have killed people and washed away valuable top soil in some parts, while others continue to look to the skies, hoping for clouds.

Increasing inventories in response to an outage has that same unproductive result.  In fact, is there a problem?  Did you target 100% on-time/complete?  No, you didn’t.  Even a 99% target service level means a few shortages will occur, and few companies aim that high.

Raising inventories costs money, takes space, and increases chances for errors and obsolescence.  It rarely does anything to improve service levels.  Yes, a strategic review of demand and supply patterns and resultant adjustments to inventory can be valuable.  Just like seeing a dry patch of dirt and pouring water on it doesn’t make lasting improvements, increasing inventory in response to a shortage is knee-jerk.

Like this year’s rains, it seems like a good idea at the time, but it destroys as much as it saves.

Everything in moderation.  And with analysis and strategy.

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