• Low Inventory Levels - Just Do It. In a moment of frustration, it is tempting to look at other companies with great inventory performance (or perhaps even your competitors) and say “If they can operate with 2 weeks of inventory so can we – and let’s start right now”. More than one company has taken this approach with the idea that setting aggressive targets will force rapid improvement.

  Of course, high level inventory performance doesn’t happen by mandate. It takes up-front supply chain development, understanding of demand, logical methodology and well-communicated strategy/policy before setting new inventory targets. Does the “Just Do It” approach seem too far-fetched to ever happen? Those of us who lived through the early days of the Just-in-Time fads remember companies that tried exactly this approach – and generally experienced material shortages, lost production and angry customers.

• Dump The Burden On Suppliers. Another mistake is to arbitrarily shift all inventory responsibility to suppliers. Often this takes the form of vendor managed inventory (VMI) or consignment arrangements. Let us be clear – these techniques can be very useful in the right situation and when logically developed in a cooperative arrangement between willing suppliers and customers.

  However, when a strong customer demands a VMI arrangement from a supplier who cannot say “No” the results can be disastrous. If implemented hastily and without analysis it may actually add cost and complexity. The worst case is that if demand is not understood VMI or consignment may actually lead to stock-outs and lost production. The best inventory management companies work constructively with suppliers to make these methods advantageous to both parties.

• Slash Lead Times by Decree. One way this is done is to unilaterally demand that suppliers dramatically cut lead times and simply absorb the cost of whatever inefficiency or safety stock is required. For commodity type items this approach may actually work – in the short run. However, by adding non-value added activity somewhere in the supply chain, total cost will increase and eventually be passed to the buyer.

  While we are strong believers in the value of short lead times (see “Cycle Time - The Rodney Dangerfield Metric“), the proper approach is to do the necessary restructuring to cut lead times first, then reduce inventory levels to realize the benefits – not the other way around.

Interested in more details about the right ways to improve inventory management? We invite you to download our white paper “Inventory Reduction - Getting Traction for Fast Track Results" or watch a short video on our proven “90 Days (or Less) to Positive Cash Flow through Inventory Reduction”. Both are free and without obligation.

You are welcome to browse the list of free white papers and other articles at Free Resources.

If you have a topic that you would like addressed, or an Insight you would like to pass along, e-mail us at: Jack.Rink@rmdonovan.c om

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