Tuesday, February 21, 2012

Is more better?

I spent a morning this past weekend with a fellow Supply Chain Manager who recently arrived at his organization here in Chicago.  He and I commiserated about the vast amounts of capital tied up in inventory (and although my organization's inventory is largely non-perishable, his inventory was not and the clock was ticking on some of it).

It reminds me of a visit this past Fall to a vendor that has a significant business line building ASRS's (automated storage and retrieval systems - essentially very large, very costly warehouses) and the software that supports them.  Some of these warehouses are certainly necessary (a recent install of theirs was for storing library books at a major research library - if you don't believe that is a 'good' type of inventory you may want to read Nicholson Baker's Double Fold, a compelling book about the deacquisitioning effort that our libraries have undertaken).

As I wandered through this vendor's offices, conference rooms and rest rooms and was awed but the beauty of their architectural and engineering drawings of their installations (yes, the artwork in the restrooms consists of very nicely framed engineering drawings) I was also thinking about the dollars invested in the storage of inventory.  Many of these installations were built for storing tens of thousands of pallets and represent a significant investment to store inventory, which itself likely represented a significant investment on the balance sheet.  In other words, those drawings represented certainly tens and likely hundreds of millions of dollars of inventory investment.

The APICS Body of Knowledge tells us that the only reason to hold inventory is when doing so is less costly than not holding the inventory.  I question whether the business cases used to justify the construction of those many ASRS's hold water today.  Can the toolset of the Supply Chain Manager - Lean, JIT, Agile Manufacturing, substituting information for inventory - eliminate some of the inventory in these warehouses or even eliminate the need for the warehouse entirely?  Very likely.

My friend's inventory challenge was interesting in that as the product aged it could no longer be used for it's original, intended use and had to be downgraded for less value-added uses.  Although my organization's inventory is not perishable (at least not on the type of timeline that my friend faces) we still have opportunities to reduce the accumulation of inventory and always will - the Supply Chain Manager is on an never ending quest to balance minimal inventory investment and customer service.

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