It was tough to ignore the swirl of contradictions in the various media reports that came pouring in last month. For instance, how do you reconcile the insistent warnings about global warming with the wintry blast that swept across large swaths of the country several weeks into spring? Or the public calls for the firing of a shock jock for bigoted remarks by leaders who have been heard making equally disgusting comments? Or criticisms leveled at a restaurant chain that began reducing portion sizes (in deference to its customers' waistlines) for not giving those customers much value for their dollar?
I was reminded of all this as I began preparing for a panel I moderated during the Logistics and Supply Chain Forum earlier this month. The more I thought about the panel topic—best practices in inventory management— the more I struggled to resolve the classic inventory conundrum: When it comes to the "optimal" level of inventory, what one part of the company considers optimal will invariably be seen as anything but optimal by another.
Take the sales force, for example. From the sales group's point of view, there's no such thing as too much inventory. If a customer wants it, you have to be able to deliver it—in whatever color, size, or configuration the customer wants. If you can't, you're likely to lose the sale.
The folks who manage the finance and logistics side of the operation, however, would counter that there's no such thing as too little inventory. From their perspective, inventory ties up working capital and presents a perennial risk of aging or obsolescence. As my fellow panelist Tim Miller, vice president of operations at Security Contractors Inc., notes: "The sales team wants everything on the shelf all the time, and we know that isn't necessarily optimal."
Another panelist, Mark J. Lynch, group director of supply chain development for the Coca-Cola Co., says he approaches the "optimal inventory" question by dividing inventory into three categories. "You have to be able to sort out the good, the bad, and the ugly," he says. The good inventory is merchandise that can be whisked straight through the supply chain from point of manufacture to the end consumer, spending virtually no time on a shelf. The bad is the merchandise that's brought in on a just-in-case basis—as opposed to, say, a just-in-time basis—as a hedge against delivery problems or flawed demand forecasts.
The ugly is the inventory that piles up in a warehouse somewhere because nobody wants it. It's usually a reflection of poor internal coordination and communication—think of a company where manufacturing keeps pumping out vast quantities of goods in order to leverage economies of scale even though the warehouse is already bursting with the stuff. "The goal is to set things up so you have as much of your inventory as possible in the good category," says Lynch. "You want to minimize the bad, and stay as far away as you can from the ugly."
Rashid Shaikh, senior director of global supply chain at Nypro Inc. and another panelist, agrees. The key to smart inventory management, he says, is to take an enterprise-wide view of the matter and "make sure you leverage your entire network." Shaikh himself follows this four-step approach to balancing inventory and demand: Analyze the current state of affairs; establish clear goals; measure progress against those goals; and remain open to change.
Among other virtues, that approach has the advantage of being both simple and straightforward. Maybe we could use it to resolve some of the messy contradictions that abound in the greater world beyond logistics and supply chain management.
Loxo/Planzer