Please Stop Building Inventory!

Podcast Series: Finish Strong® – Fulcrum ConsultingWorks Inc.

It was not that long ago that most manufacturers and distributors carried entirely too much inventory. The drag on cash flow was never offset by lower costs or higher performance. When we figured that out, we began to lower inventories.

By adding some technology, whether RFID or barcodes or enhanced ERP software, we made it easier to reduce inventories and increase performance. By beginning to pay attention to some of the concepts of the Toyota Production System we put in visual pull systems that enabled us to continue to reduce costs and increase performance.

But by never truly understanding what we were doing, when significant supply chain disruptions hit world-wide, we blamed our tool (allegedly JIT). We overreacted by issuing mass orders at whatever price the market would charge. There we were. Back more than a decade ago with the same miserable results.

Please stop building inventory!

All of the problems and downsides of large inventories remain. Missing a single part still prevents outstanding performance with your customers. Canceling all the blanket orders you placed for “as many as you can get us” in no way represents operational excellence.

A significant number of industries have replicated the wild pendulum swings of electronics, and now the electronics industry has joined that insanity again. Coupled with tax incentives and a tilt toward nationalism, chip plants are under construction everywhere. It’s not hard to foresee trouble approaching.

Those who truly understand “lean thinking” didn’t react to the supply chain disruptions by jacking up orders for everything and issuing customer delivery promises of “god only knows.”

True supply chain partnerships would have had multi-party conversations about who needed what first to actually ship products, not to just have more inventory of something sitting waiting for something else.

Coopetition based on reasonably accurate inventory data and shared supplier production capacities can get everyone up and running much more quickly than threats will. It is a very rare sub-industry that was willing to execute that.

Trust and transparency facilitate playing nice; without those, it’s every man for himself, which means we all fail.

Please stop building inventory. Invest those resources in actually learning what true operational excellence requires, and making the necessary changes.

It is easy to recognize those who had firmly embedded Delusional Excellence®️ instead of the real thing.

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