Randy Littleson penned an interesting post over on The 21st Century Supply blog titled Inventory control plays a critical role in economic recovery efforts. Randy extracts recent storylines in financial, business, and other media all with a common denominator of the implications of inventory management in turning the corner for any economic recovery. Randy offers the opinion that despite all the pressures on supply chain professionals to simply reduce costs, with inventory reductions being the major aspect of that effort, that proper balancing of inventory while still sustaining required customer service may be the real challenge.
I tend to agree.
What really caught my attention was the Seeking Alpha posting cited by Randy, authored by a Dr. Bill Conerly, which points to the current dramatic erosion of the inventory-to-sales ratio of total inventories in the U.S.. Dr. Conerly states that there needs to be a $200+ billion inventory correction to bring the ratio back to normal levels and further offers an opinion that this could take many months to complete. I encourage readers to check the inventory-to-sales ratio themselves to get the true sense of this erosion level. Here’s the link to the Bureau of Labor Statistics.
An additional data point that may indicate a prolonged effort to respond to bloated inventories involves an IBM and Oracle sponsored a webcast last week (replay available with registration) featuring research on current Sales and Operations Planning (S&OP) processes. The study, which was conducted in January, correlated the fact that one in three professionals felt that the current recession has caused inventory levels to increase in excess of 25%. Responses to a question of what impact the current recession has had on demand for products had 49% indicating a uniform slow-down across all products. These same professionals view the S&OP process as a key process to adjust inventories, but only 28% meet weekly, while 58% meet monthy or quarterly. But, when asked which stages or steps of the S&OP process are done in the 30 day cycle, 55% assess inventory levels or perform inventory management.
Thirty days seems to me too long a cycle to be able to actively manage inventory challenges. With rapidly changing or turbulent changes in product demand, your organization must be more responsive to sense changes sooner and respond quickly to these changes. Technology and tools that accelerate visibility and response to inventory changes are an option worth your investigation.